The fight against tax evasion was front-and-center at the 2016 G20 Hangzhou Summit, which brought together twenty global leaders of the nations with the largest economies.
In the wake of the “Panama Papers” leak earlier this year, tax transparency was slated to take on a much more significant role than it had during previous G20 meetings.
The changing landscape of the European Union following the United Kingdom’s vote to withdraw was another factor that brought information reporting collaboration to the forefront of the discussions.
In addition, NATO members use tax information exchange as a crucial intelligence tool in the global War on Terror. With evolving intergovernmental relationships and increasing sophistication in the methods of moving money across borders, each country’s effort to close its tax gap is becoming distinctly international.
Tax Transparency: A Background
The Organisation for Economic Co-operation and Development (OECD) has been developing a framework for the Automatic Exchange of Information (AEOI)—which consists of multilateral exchanges of financial account information among the competent authorities of each nation.
The United States and United Kingdom led the way with their respective AEOI regimes (FATCA and CDOT/UK FATCA). The OECD has now launched the standard for Automatic Exchange of Financial Account Information—otherwise known as the Common Reporting Standard (CRS)—which has established a multilateral AEOI based upon the model provided by FATCA.
Commencement of the Common Reporting Standard
The countries that have committed to early adoption of CRS are scheduled to begin exchanging Tax Year 2016 account information in 2017. As such, the G20 took advantage of this opportunity to prepare for the commencement of CRS and to encourage the governments of other nations to sign on to the Multilateral Competent Authority Agreement (MCAA).
Remarkably, every G20 country has agreed to implement the standard except for the U.S., which has opted to maintain FATCA as its framework for AEOI. In contrast, the U.K. has plans to abandon its UK FATCA and transition its Intergovernmental Agreements (IGAs) to the CRS framework.
It is unlikely that FATCA will transition to CRS at any time in the near future. However, the OECD and G20 are working to sign G20 guest nations onto CRS and to partner with less developed countries that may be intentional or inadvertent tax havens and where tax gaps and incapacity are causing severe economic maladies. The G20 leaders announced their desire to have all countries implement CRS by 2018, when late adopters are scheduled to commence exchanges.
The G20 specifically requested that the OECD provide a “blacklist” of tax havens in order to allow CRS participants and reportable countries to target these jurisdictions for AEOI implementation. Aside from enabling a more directed pursuit of misreported and non-reported income, another benefit of such a “blacklist” would be the ability to identify any other potential “Panamas” and to avoid a public fallout of that nature in the future.
Remarkably, every G20 country has agreed to implement the standard except for the U.S., which has opted to maintain FATCA as its framework for AEOI. In contrast, the U.K. has plans to abandon its UK FATCA and transition its Intergovernmental Agreements (IGAs) to the CRS framework.
Current Progress in AEOI Implementation
Although each participating country stands to gain revenue from the commencement of CRS, the G20 also emphasized CRS’ potential to remedy economic stagnation in underdeveloped countries, to bring developing countries into the core of the global economy, and to achieve inclusive growth for all parties involved. Early adopters are already identifying at least $62 billion in additional revenues arising from the voluntary disclosures alone; the G20 looks to these early successes as encouragement for other countries to implement CRS.
As of August 2016, over 100 jurisdictions had signed on to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Although not all of these countries will commence AEOI in 2017, this milestone is indicative of the sentiment among world governments that tax transparency is critical for the sustained growth of individual and global economies.
Looking Forward
As a next step, the Financial Action Task Force and the Global Forum are planning to make proposals in October at the G-20 Finance Ministers and Central Bank Governors Meeting relative to specific measures for the improvement of CRS implementation.
Such ideas under consideration include the exchange of beneficial ownership information for entities and trusts—which has posed a challenge in the realm of FATCA reporting.
Although FATCA and CRS are likely to remain separate for the foreseeable future, the two regimes will be working in unison toward the same objective of greater tax transparency among the world’s nations.
Take Action
- Learn more about how Sovos can help your organization with AEoI compliance.
