OECD reporting model would govern global exchange of financial account data

What began as a single-nation effort to locate tax evaders secretly harboring funds in overseas accounts has become a global groundswell that may eradicate offshore secrecy havens and nourish government coffers around the world.

The Organization for Economic Cooperation and Development, an international organization that has become an active promoter of multinational financial account information exchange, issued on February 13 a unique document called “Standard for Automatic Exchange of Financial Account Information – Common Reporting Standard.” It promises to revolutionize tax enforcement and financial crime control in all regions of the world.

Four years after FATCA, four months before effective date

The OECD document comes nearly four years after the United States enacted the US Foreign Account Tax Compliance Act, commonly called FATCA. The OECD Standard precedes the July 1, 2014 effective date of FATCA by less than five months. The Standard provides a framework on how financial institutions and other businesses should conduct due diligence on the owners of financial accounts, and how this information will be shared on an automatic, ongoing basis with other nations.

The Standard for Automatic Exchange of Financial Account Information delineates three principal areas of financial information, including investment income, account balances and sales proceeds, which would be reportable between nations under the OECD guidelines. The Standard recommends that a multilateral convention may facilitate communication between countries with differing legal and financial structures.

This new global standard proposed by the OECD is aimed at finding tax evaders across national borders. It represents a major shift from existing global standards, Its broad scope covers individuals, foundations, trusts and shell companies through a registration procedure. This procedure is silent on a requirement to list true beneficial ownership.

OECD silent on enforcement mechanism

The Standard does not include a mechanism on how to enforce a consistent application of the reporting rules or information on technical methods to exchange information among varying systems.  The Tax Justice Network (TJN) , a research and advocacy group that promotes the tax reform around the world to curb tax evasion and secrecy havens, criticized the OECD Standard.

According to the TJN, a fault of the OECD Standard is that it puts developing countries at a disadvantage because tax havens are usually wealthier jurisdictions that take in and conceal funds from poorer nations. The Standard requires reciprocity among participating nations.

Dominick Dell’Imperio, partner at PricewaterhouseCoopers in New York, said the OECD Standard has a “significant overlap” with the Foreign Account Tax Compliance Act (FATCA). FATCA and its implementing regulations issued by the US Internal Revenue Service seek to identify the financial accounts and other assets of US persons held in overseas institutions or investments.

FATCA is breeding ground for global exchange of financial data

FATCA obliges non-US financial institutions to reveal to the IRS the financial accounts and other assets of US persons held by them. FATCA has spawned a broad movement toward a multinational exchange of information on financial accounts and other assets of taxpayers of jurisdictions signing information-exchange agreements.

The OECD Standard mirrors many of the provisions of the approximately 20 Intergovernmental Agreements that have been spawned by FATCA through mid-February 2014.

In the first six days since the OECD announced the Standard for Automatic Exchange of Financial Account Information, 42 nations had committed to adopting the OECD suggested requirements. The Standard requires the implementation of due diligence standards in 2016 and the commencement of multinational reporting in 2017.

Read the OECD Standard for Automatic Exchange of Financial Account Information here