OECD Releases Global Reporting Standard
posted Jun 23, 2014 by Paul Oliveira, CPA
The Organization for Economic Co-operation and Development (OECD) recently issued a common standard for the automatic exchange of financial information. The standard applies to financial accounts and establishes due diligence procedures that financial institutions must follow to be in compliance.
It’s meant to be used by jurisdictions wishing to automatically exchange financial account information and to avoid the proliferation of multiple standards that could increase compliance burdens on financial institutions and governments.
Call for automatic exchanges
On April 19, 2013, the Group of Twenty Finance Ministers and Central Bank Governors (G-20) called on jurisdictions to move toward exchanging information automatically with their treaty partners and strongly encouraged all countries to become signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The G-20 comments came after the OECD released its report updating the G-20 finance ministers on the organization's work to improve transparency and the exchange of tax information, as well as tackling offshore tax evasion and avoidance.
On Sept. 5, 2013, the OECD presented the G-20 with a proposed blueprint for the automatic exchange of information on a multilateral basis that would use the Foreign Account Tax Compliance Act (FATCA) as its foundation. The G-20 subsequently called on the OECD to present a single global standard by February 2014 and to complete technicalities by mid-2014.
The new standard comprises a Model Competent Authority Agreement (CAA) and a Common Reporting and Due Diligence Standard (CRS).
The CRS pertains to reporting and due diligence rules and is designed with a broad scope across three dimensions:
- Financial information on reportable accounts will encompass all categories of investment income (for example, interest, dividends, income from certain insurance contracts and similar income), account balances, and sales proceeds from financial assets.
- The rules will apply not only to banks but also to other types of financial institutions, such as brokers, collective investment vehicles and certain insurance companies.
- Accounts held by both individuals and entities will be reportable, and the standard includes a requirement to look through passive entities to report on individuals that control such entities.
The OECD also said that a common standard on a robust set of due diligence procedures would be required by financial institutions to identify reportable accounts and obtain accountholder identifying information.
The CAA will be required to be translated into domestic law that will provide for the exchange of information under existing legal instruments such as an income tax treaty. The OECD said that, because implementation would rely on domestic law, it’s important that consistency be applied across jurisdictions to avoid unnecessary costs and complexity for financial institutions.
While the agreement is drafted in a reciprocal format, the OECD acknowledged that there may be instances where a jurisdiction may want to enter into a nonreciprocal agreement. In such instances, the OECD said that the model CAA could be adapted into a nonreciprocal format.
More Details to Come
The OECD stated that it hadn’t yet provided a detailed commentary to ensure the consistent application of the automatic exchange of information standard, nor was information and guidance available for technical solutions associated with compatible transmission systems and a standard format for reporting and exchange. The report said that such work was ongoing, and that the commentary and the technical solutions should be completed by mid-2014 — so financial institutions and other entities that could be affected will need to keep an eye out for continued developments.