EU member states have agreed to apply the widest possible scope of mandatory automatic exchange.
Automatic exchange of information will enable tax authorities to compare data received on taxpayers’ financial assets with tax returns and identify those who have not declared all their income and capital as per local tax law.
This will be a key tool in helping combat tax evasion and improve tax collection. The EU estimates that tax evasion and fraud costs member states around €1 trillion a year.
The agreement, reached at an EU Council meeting last month, amends the existing Administrative Cooperation Directive, which provides a framework for mutual assistance between EU states, enabling them to better assess tax due and prevent requests being refused on the grounds of banking secrecy.
“The new law promises full and lasting tax transparency in Europe,” said EU Tax Commissioner Algirdas Semeta.
“Bank secrecy is dead. It will be adopted at a forthcoming Council meeting without further discussion, once finalised in all official EU languages,” he added.
From 2017, member states will collect data on income earned by non-residents, to transmit to the authorities of the individual’s country of residence.
The EU was the first region to introduce automatic exchange of information as a key tool to fight tax evasion, with its Savings Tax Directive in 2005.
Compared to the type of data exchange being sought today, the directive has limited scope since it only applies to savings income.
The latest EU legislation will ensure it has a solid framework to apply the Organisation for Economic Co-operation and Development (OECD) standard. The EU Commission will now consider repealing the Savings Tax Directive, so there is just one standard of information exchange.
The EU estimates that tax evasion and fraud costs member states around €1 trillion a year
The Commission has also been negotiating with Switzerland, San Marino, Monaco, Andorra and Liechtenstein to create stronger tax agreements.
The original aim was to ensure they applied a level of transparency equivalent to that applied by member states under the Savings Tax Directive. However, the international developments mean the EU is now expecting a more ambitious outcome.
The OECD published its Standard for Automatic Exchange of Financial Account Information in Tax Matters last July. This was endorsed by G20 finance ministers who met in Cairns on September 21 and who said it would provide a step change in their ability to tackle and deter cross-border tax evasion.
Almost 70 countries had signed up, but with 120 jurisdictions participating in the Foreign Account Tax Compliance Act (FATCA), the global standard numbers are expected to grow.
The Early Adopters group have indicated their first exchange will take place in 2017. This includes the UK, Spain, France, Portugal, Cyprus and Malta, as well as the Isle of Man, Guernsey and the UK’s offshore territories. Other committed parties include Switzerland and Singapore.
The information to be shared includes interest, dividends, account balances or value, income from certain insurance products and sales proceeds from financial assets. Reportable accounts include those held by individuals and entities such as trusts.
According to the OECD, more than 500,000 taxpayers have come forward with previously undeclared income and assets since the global standard and FATCA were announced, helping governments raise €27 billion in extra tax revenue.
On October 8, the Swiss government said it would soon begin negotiations with the EU and some other countries on automatically sharing data on bank accounts.
It will aim to start collecting data in 2017, so the first exchange could take place in 2018, once the international standard is in place and pending parliamentary and voter approval.
This new global exchange of information will help the Maltese government in its efforts to collect unpaid taxes. This is an important element in improving tax revenue and a number of steps have been taken to fight tax evasion.
The cross-border tax landscape has changed considerably. It is important to be informed on developments and receive specialist advice to ensure your tax planning conforms to local tax law and does not result in unexpected consequences.
With expert advice, it is possible to take advantage of tax compliant opportunities to protect your assets from taxation wherever possible.
To keep in touch with the latest developments in the offshore world, check out the latest news on www.blevinsfranks.com.
Kevin Cassar is a private client manager at Blevins Franks.