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Global Tax Transparency Rises as FATCA, OECD Initiatives Gain Momentum

As the growth of global tax transparency rises, individual taxpayers and financial institutions must exercise new levels of caution.

tax fraud and tax evasion from foreign offshore accounts

With more than 100 intergovernmental agreements (IGA) under the Foreign Account Tax Compliance Act (FATCA) and many countries participating in the Organization for Economic Cooperation and Development’s (OECD), a new level of transparency is emerging.

“I think the world’s changing,” said Alan Granwell, of counsel with Sharp Partners PA. “The significant issue is global transparency. Look at where we were a few years ago. We were nowhere. I think the difference is really incredible.”

Many practitioners have noted that banks and financial institutions have made a concerted effort to prepare for the next stage of reporting expected in 2015.

“I think many institutions are in pretty good shape,” said Jonathan Jacket, a partner at Burt, Staples, & Maner. “They had a plan and they worked through their plan. Many are on schedule and they’ve done what they need to do.” The question remains, however, “Is it the best version? Is it as good as it could be?” he told Bloomberg BNA. “We won’t find that out for sure until we’ve gone through a few cycles of reporting.”

March 15 kicked off the staggered implementation of several new phases of reporting, a major point in global tax transparency. “It’s the real start,” said Susan Grbic, a tax partner at WeiserMazars LLP. “It’s exciting that it’s happening. This is the beginning of real FATCA, of fully implementing and working out wrinkles and discrepancies between the different types of reporting that will be required.”

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OECD Releases First Pillar of Model Framework

The Organization for Economic Cooperation and Development (“OECD”)

The Organization for Economic Cooperation and Development (“OECD”)

The Organization for Economic Cooperation and Development (“OECD”)

The Organization for Economic Cooperation and Development (“OECD”) has released the first pillar of its model framework for automatic exchange of tax information.

Standardized Form and Automatic Exchange

The “Standard for Automatic Exchange of Financial Account Information: Common Reporting Standard” establishes a standardized form that banks and other financial institutions would be required to use to gather a range of client account and transaction data to submit yearly to their domestic tax authorities. The different tax authorities would then exchange this information automatically, either bilaterally or multilaterally, depending on the specific agreement.

As summarized by the OECD: “The standard . . .  calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.”

Swiss Banking Skepticism
The Swiss Bankers Association (“SBA”) noted that the recommendations from the OECD “are in general a step in the right direction,” yet continued to have problems with the overall framework:

“Firstly, the basis to be used for client identification are domestic money laundering regulations,” the SBA said. “There are still different standards in this area.” Secondly, “it is becoming apparent that the U.S. will not be prepared to offer full reciprocity,” the SBA said.

Finally, the Swiss Bankers Association noted the high costs that are likely to result with implementation of the new OECD standard. The new standard, claims the SBA, will be significantly higher than the costs of implementing FATCA.

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