Since the financial crisis there has been a marked acceleration in the number and scale of initiatives designed to enable states to get information about income its taxpayers earn abroad. The aim is to prevent tax evasion through automatic exchange of information between states and, unlike proposals aimed at aggressive tax planning (e.g. BEPS), they are being implemented with some speed. They create significant administrative burdens for legitimate financial institutions and investment vehicles and, due to significant overlap between initiatives, may create duplicate or conflicting obligations.
The Foreign Account Tax Compliance Act ("FATCA") is US legislation that requires non-US financial institutions ("FFIs") to report information on accounts held by US persons or else face a 30% withholding on payments they may receive from US sources. The definition of an FFI is broad and includes "investment entities" which would encompass investment funds and structured finance vehicles.
The US has signed inter-governmental agreements ("IGAs") with several countries, including Ireland and the Cayman Islands, both Model 1 IGA jurisdictions, which permit information to be provided to local tax authorities rather than the US Internal Revenue Service ("IRS"). The Irish Revenue published draft regulations and guidance on FATCA in May 2013 and is expected to publish revised drafts before the end of 2013. Maples and Calder published a number of updates on 29 November 2013 with regard to the Cayman Islands IGA with the US.
The FATCA portal is now open on the IRS website. This allows FFIs to register for a Global Intermediary Identification Number ("GIIN"). If an FFI has a GIIN or is able to certify that it is deemed compliant, payments may be made to it by US payers without withholding. GIINs will be issued from 1 January 2014 and a list of registered FFIs will be published on 2 June 2014 and monthly thereafter. If an FFI located in a Model 1 IGA jurisdiction is not registered or deemed compliant by 31 December 2014 it may be subject to a 30% withholding on US source income received from that date.
The OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters is a multilateral agreement that provides for administrative co-operation between states in the assessment and collection of taxes. The original 1988 Convention was amended in 2010 following the April 2009 summit in London to provide, in Article 6, for automatic exchange of information instead of, as previously, information on request. As at 21 November 2013, there were 63 signatories to the Convention, including Ireland.
However, to implement Article 6, an administrative agreement between two or more parties to the Convention is required. The OECD is therefore working with G20 countries to develop a standardised multilateral model (otherwise known as the "Common Reporting Standard") for such agreements as a more efficient alternative to signing bilateral treaties based on Article 26 of the OECD Model Tax Convention.
At the EU level, two proposals have been tabled to extend the scope of the existing EU Savings Directive ("EUSD") and EU Administrative Cooperation Directive. Their aim is to establish automatic exchange of information for a multitude of income types by 2015. These include not only interest income but also dividends, capital gains and all other types of income with respect to the assets held in a financial account. The directives were to be adopted by the end of 2013 with exchanges of information starting from 2015. However, the Economic and Financial Affairs Council ("ECOFIN") meeting on 10 December 2013 was unable to approve amendments to the EUSD due to objections from Austria and Luxembourg. Given the other EU and OECD initiatives to introduce a global multilateral system of automatic tax information exchange based on FATCA, the relevance of the EUSD as a separate system beyond the short term appears in doubt.
In April 2013, the UK, France, Germany, Spain, and Italy (the "G5") entered into a pilot multilateral exchange facility for automatic exchange of tax information. The agreement is based on the five countries' model agreement to implement FATCA with the US. Under the G5 programme, states agree to automatically share information about bank accounts held by taxpayers in their jurisdiction, but resident in another participating state. 37 countries have now agreed to participate including, most recently Ireland, Luxembourg and Malta.
Financial institutions in Jersey, Guernsey and the Isle of Man (the "Crown Dependencies") have signed agreements to automatically provide information to the UK tax authorities relating to the financial affairs of UK resident clients in respect of 2014 onwards. This is sometimes referred to as "UK FATCA", as it is based on the US FATCA regime. The British Overseas Territories of Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands have also committed to exchange information with the UK. Both the Cayman Islands and the British Virgin Islands have formalised their agreements with the UK.
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