G-20 Summit – global automatic tax information exchange by 2014?

For the press, the most eye-catching item on the agenda at the recent G-20 Finance Ministers Summit in St Petersburg was the (still rather vague) proposal to clamp down on corporate tax avoidance by tackling base erosion and profit shifting. For many STEP members, however, perhaps the most important item was the (very firm) instruction to the OECD that it should produce a clear timeline for completing work on a single global standard for automatic information exchange in 2014 in time for the next G-20 summit in October.

The proposed OECD global standard is to be largely based on the FATCA Model 1 IGA model. If we therefore put the G-20/OECD initiative alongside the recent statement from the US (that  delayed FATCA reporting for a further six months and also seemed to recognise that FATCA Model 1 IGAs seemed to offer a much easier solution to everyone than raw FATCA) it becomes relatively easy to envisage that in reality rather than the introduction of unilateral FATCA reporting to be followed quickly by a new system of OECD multilateral FATCA-style reporting, we will actually see a single move globally to automatic exchange of information (AEOI), perhaps in 2015 or 2016.

Multilateral AEOI has always been the long-term objective of bodies such as the OECD. But there now seem to be growing numbers putting their weight behind the OECD model, including most recently the EU Commission. With the US also showing (some might say rare) flexibility regarding the introduction of its own (unilateral) AEOI model, it may be that consensus has now been built for a quick move to global AEOI in the next 24 months.

George Hodgson, STEP Deputy Chief Executive

The European FATCA

The EU Commission held a full day meeting with experts to explain its plans for developing full multilateral automatic exchange of tax information across the EU. Of, course the EU already has the Savings Tax Directive, but that only covers interest income, and plans to extend it have long been held up by objections from Belgium, Luxembourg and Austria that they were not prepared to agree to the extension until certain issues, like automatic information exchange with Switzerland and the treatment of ‘Anglo-Saxon’ trusts had been resolved.

The EU has opened discussion with Switzerland, and we were in Brussels a couple of weeks ago making a major presentation on trusts (to all 27 Member States, including Belgium, Luxembourg and Austria), so the Savings Tax Directive project is inching forward. In the meanwhile, however, it is clear that politically the EU is keen to develop its own version of FATCA as quickly as possible. Its chosen way of doing this is to extend the Administrative Co-operation Directive (DAC, another acronym for the lexicon!) to cover all payments and account values by 2015.

The Commission objection to FATCA is that it is US-centric and not really suitable for multi-lateral rather than bi-lateral information exchange. All of which is true and the reason why the G-8 has asked the OECD to work on its own model for multi-lateral automatic information exchange.

As all the experts in Brussels (including STEP) therefore pointed out, the result is that potentially over the next 2 years the industry will have to work on implementing 3 different tax information exchange systems at once – FATCA, DAC and whatever the OECD comes up with – each basically designed to do the same thing but each doing it slightly differently. This is clearly absurd, but it will be interesting to see who blinks first.

George Hodgson, STEP Deputy Chief Executive

G-8 Wash-up

For STEP members I suspect the G-8 meeting has confirmed a couple of things, but left others open to question. The final communique confirms that we are moving from tax information exchange on request to automatic tax information exchange as the international standard. Moreover the OECD paper released for the G8 summit suggests strongly that Model 1 style FATCA Intergovernmental Agreements (IGA) are likely to be the basis of the new global automatic information exchange mechanisms. None of that should come as a major surprise to anyone.

It also looks like the debate about improving transparency of beneficial ownership has been a difficult one for G-8, in spite of this being the area where the UK worked hardest to build expectations ahead of the summit.

At the end of the day the G-8 members have agreed to implement the latest FATF Recommendations, but they would have to in any case.

The US has also agreed to look at the issues that prevent effective access to beneficial ownership information in some US states, but without any clear timetable or indication of how it proposes to tackle the issue.

The UK is pressing ahead with a corporate register of beneficial ownership, but seems unlikely to make this a public register. On most reports it has also secured an agreement with the CDs and Overseas Territories regarding Mutual Assistance.

The direction of travel on all these issues is nevertheless clear. Later this week, for example, I am attending an EU meeting with the Commission on moving to automatic information exchange. As a senior figure at this week’s STEP Guernsey conference put it, the important issue for both the industry and jurisdictions in this environment is to ensure they are seen as part of the solution, not part of the problem.

George Hodgson, STEP Deputy Chief Executive