In this industry it is not a secret anymore. Complete bank secrecy is a thing of the past. And now automatic exchange of information is being discussed.
The Automatic Exchange of Information (AEOI) portal provides a comprehensive overview of the work the OECD and the Global Forum on Transparency and Exchange of Information for Tax Purposes in the area of the automatic exchange of information, in particular with respect to the Common Reporting Standard.
Why your account provider (bank, building society, insurance or investment firm) may ask you to provide certain information about yourself and your tax residence status. This is happening as a result of agreements made between Cyprus and other countries to help tackle tax evasion. The agreements allow sharing of information between the tax authorities of different countries about a wide range of financial accounts and investments and your account provider may ask you for information to help with this.
Who is affected?
Mostly people who open or already holding a bank account. You may also be affected if you acquire or already hold investments through an insurance or investment firm, or are a trustee of or have an interest in some types of trusts.
The aim is for treaty countries to collect data on foreign residents, and send it in bulk to their respective tax authorities.
Where previously a tax authority had to file an official request for exchange of information and needed a reasonable case in order to do so, the next goal is to have all this information provided automatically. Or as the OECD puts it:
“The automatic exchange of information is understood to involve the systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income (e.g. dividends, interest, royalties, salaries, pensions, etc.)”
Will Collected Date Be Kept Confidential?
The OECD relies on the confidentiality provisions in tax treaties, Tax Information Exchange Agreements (TIEA) and multilateral instruments on mutual administrative assistance to determine how the data exactly can be used.
The questions arising are: how data is going to be stored, who has access to it and what exactly it will be used for. Yes, the data is going to be encrypted when it is send. But what happens with it before and after that?
Since the OECD only provides a framework, their report “Keeping It Safe” only provides vague terms like: information exchanged “may only be used for certain specified purposes” and “may only be disclosed to certain specified persons”.
In short: financial data will be stored in a database of which it is yet unsure who can access it.
So what is exactly the legal framework based on which the automatic exchange of information will be based?
First of all bi-lateral treaties will have to be concluded and as in tax treaties the terms can differ.
In order for two jurisdictions to implement automatic exchange of information they will need to sign a Competent Authority Agreement (CAA). This agreement can easily be executed within one of these three already existing legal frameworks:
1. The exchange of information provision of a double taxation convention based on Article 26 of the OECD or UN Model Convention.
2. Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters.
3. for EU member countries, domestic laws implementing EU directives which provide for automatic exchange (like the European Savings Directive).
What is left is for the countries to have the common Reporting and Due Diligence Standard (CRS) translated into domestic law.
CYPRUS: PROPOSED AMENDMENT IN REGARDS TO AUTOMATIC EXCHANGE OF INFORMATION
An important amendment to the Assessment and Collection of Taxes Law (N.4/1978) is currently under consideration by the Council of Ministers regarding automatic exchange of information.
More specifically, the proposed amendment aims at regulating the conditions under which the Tax Commissioner may disclose information on any person with a view to complying with agreements for automatic exchange of information between Cyprus and other countries (both EU and non-EU countries). While the notion of automatic exchange of information already exists in the said law (implementing existing double tax treaties between Cyprus and other states), the novelty of the proposed amendment is that the prior approval of the attorney general in order for the Commissioner to disclose information will no longer be required.
The proposed amendment is viewed by some legal professionals as a bold step eroding confidentiality, albeit not entirely unexpected. The EU and the US are gradually but firmly steering towards tax transparency with existing EU directives (such as the EU Savings Tax Directive) and the world known US Foreign Account Tax Compliance Act (FACTA) which has been adopted in Cyprus last December.
This is a multilateral agreement to exchange information and provide other assistance in relation to tax matters that is gathering momentum. By 17 July 2014 over 67 countries had already signed the Convention, with more countries expected to sign in the future. For a list of signatories which is periodically updated please visit the OECD website via this link http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf.
A list of the 51 other countries who have already agreed to share information