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Posts Tagged ‘GATCA’

OECD Releases 3 New Reports to Combat Offshore Tax Evasion

Posted by William Byrnes on August 8, 2015


The OECD today releases three new reports to help jurisdictions and financial institutionsOECDimplement the global Standard for automatic exchange of financial account information.

  • Common Reporting Standard Implementation Handbook (the CRS Handbook): this first edition provides practical guidance to assist government officials and financial institutions in the implementation of the Standard. It sets out the necessary steps for implementation and will help financial institutions and governments implement the Standard more efficiently by promoting the consistent use of optional provisions, identifying areas for alignment with FATCA and addressing the operational and transitional challenges resulting from the staggered implementation of the Standard. It also contains answers to frequently asked questions (FAQs) received from business and governments, with a view to furthering the effective implementation of the Standard. The Handbook is intended to be a “living” document and will be updated on a regular basis.

  • Offshore Voluntary Disclosure Programmes: this second edition contains a wealth of practical experience from 47 countries in relation to their voluntary disclosure programmes. The guidance on the design and implementation of such programmes has been updated, particularly taking into account the views of private client advisers. The limited time left until the automatic exchange of information under the Standard becomes a reality will in many instances be the last window of opportunity for non-compliant taxpayers to voluntarily disclose. This is therefore a crucial moment to update the publication and reflects OECD policy of encouraging countries to examine voluntary compliance strategies that enable non-compliant taxpayers to come forward.

The Standard calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Over 90 jurisdictions have committed to implement the Standard, with the first exchanges starting in 2017/2018, subject to the completion of necessary legislative procedures.

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OECD releases Standard for Automatic Exchange of Financial Account Information in Tax Matters

Posted by William Byrnes on July 21, 2014



OCDE_10cm_4c

 

The OECD today released the full version of a new global standard for the exchange of information between jurisdictions.

I have posted Notes on the Common Reporting Standard for Automatic Information Exchange on my new International Financial Professor Law Blog at

http://lawprofessors.typepad.com/intfinlaw/2014/07/the-oecd-today-released-the-full-version-of-a-new-global-standard-for-the-exchange-of-information-between-jurisdictions.html

CRS Due Diligence Standards similar but not identical to FATCA

The CRS contains a reporting and a due diligence standard that underpins the automatic exchange of information, very similar to FATCA.

Due diligence distinguishes between pre-existing accounts and new accounts, individual accounts and entity accounts.

Individual Accounts

Pre-existing accounts do not have a de minimis amount but are divided between low value and high value accounts.

Low Value

Low value accounts have a permanent residency based test based on documentation or, failing that, based upon indicia.  If indicia are found, then either the account holder must provide self-certification or the account must be reported to all jurisdictions to which the indicia attach.

High Value

High value accounts are defined as having an aggregate balance or value of $1 million US dollars by December 31 of a calendar year. High value accounts require a paper based search as well as the test of actual knowledge of the relationship manager.

New Accounts

All new individual accounts (no de minimis) require self-certification, with confirmation of its reasonableness, which can be performed at the time of account onboarding.

Entity Accounts

Preexisting entity accounts

Preexisting entity accounts firstly need to determine if the entity is a reportable person, generally using available AML/KYC information, and if such information is not available, then a self certification will be required from the entity.

However, a preexisting entity account de minimis size of US$250,000 is available at the option of the jurisdiction adopting the CRS.

Passive entity

If the entity is a passive entity then the residency of the controlling members of the entity must be determined.  Passive entity status may be determined by self-certification unless the financial institution has contra-indication information, or information is otherwise publicly available to refute the self-certification.  Controlling members of the entity may be determined based upon the AML/KYC information available.  Control must be interpreted in a manner consistent with the FATF standard.

New entity accounts

For new accounts, the de minimis option is not available because self-certification is easily obtainable at account opening.

See full comments at http://lawprofessors.typepad.com/intfinlaw/2014/07/the-oecd-today-released-the-full-version-of-a-new-global-standard-for-the-exchange-of-information-between-jurisdictions.html

free Lexis FATCA Compliance chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).

Posted in FATCA, OECD | Tagged: , , , , , , | Leave a Comment »

FATCA Chapter 1 complementary download

Posted by William Byrnes on July 9, 2014


free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

The second edition of the “LexisNexis® Guide to FATCA Compliance,” discussing the Foreign Account Tax Compliance Act of 2010 (FATCA), has been vastly improved based on over thirty in-house workshops and interviews with tier 1 banks, company and trust service providers, government revenue departments, and central banks. The enterprises are headquartered in the Caribbean, Latin America, Asia, Europe, and the United States, as are the revenue departments and the central bank staff interviewed.Chapter 1 of the book, “Background and Current Status of FATCA,” is available here for free download on SSRN, and also from LexisNexis. The full book is available for purchase from LexisNexis. See weblinks provided in attached PDF. Chapter 1 is primarily authored by Associate Dean William H. Byrnes, IV, of Thomas Jefferson School of Law’s Walter H. & Dorothy B. Diamond International Tax & Financial Services Program, with contributions by Professor Denis Kleinfeld and Dr. Alberto Gil Soriano. The lead author and editor of the overall book is Dean Byrnes (with Dr. Robert J. Munro).

The second edition of the book has been expanded from 25 to 34 chapters, with 150 new pages of regulatory and compliance analysis based upon industry feedback of internal challenges with systems implementation. The 25 chapters in the previous edition have been substantially updated, including many more practical examples, to assist a compliance officer in contextualizing the relevant regulations, provisions of inter-governmental agreements (IGAs), and national rules enacted pursuant to IGAs.

The nine new chapters in this second edition include, for example, an in-depth analysis of the categorization of trusts pursuant to the regulations and IGAs, operational specificity of the mechanisms of information capture, management, and exchange by firms and between countries, insights as to the application of FATCA, and the IGAs within new BRIC (Brazil, Russia, India, China) and European country chapters.

This second edition will provide the financial enterprise’s FATCA compliance officer with the tools needed for developing and maintaining a best practices compliance strategy, starting with determining what information is needed for planning the meetings with outside FATCA experts.

book coverPractical Compliance Aspects of FATCA and GATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

 

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

Number of Pages in PDF File: 58

Posted in book, FATCA | Tagged: , , , , , , , , , | Leave a Comment »

66th country signs OECD Convention on Tax Information Exchange

Posted by William Byrnes on July 4, 2014


free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

The OECD announced yesterday that Gabon became the 66th country to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Gabon is the seventh African country to sign the Convention since it was opened for signature to all countries in June 2011.  (previous article on tax information exchange)

“Already a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes since October 2012, Gabon’s commitment today plays an important role for regional co-operation in tax matters and demonstrates effective action towards greater exchange of information”, said Pascal Saint-Amans. “We hope it will act as an encouragement to other African and developing countries to also join this important area of international co-operation in the fight for a fairer and more transparent international tax system”.

The Convention provides for all forms of mutual assistance: exchange on request, spontaneous exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection , while protecting taxpayers’ rights. It also provides the option to undertake automatic exchange, requiring an agreement between the Parties interested in adopting this form of assistance.

Automatic Exchange of Information for Tax Purposes

47 countries and major financial centers on May 6, 2014 committed to automatic exchange of information between their jurisdictions, announced the OECD.  All 34 OECD member countries, as well as Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa  endorsed the Declaration on Automatic Exchange of Information in Tax Matters that was released at the May 6-7, 2014 Meeting of the OECD at a Ministerial Level.

The Declaration commits countries to implement a new single global standard on automatic exchange of information (“CRS” or “GATCA”).  The OECD stated that it will deliver a detailed Commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 finance ministers in September 2014.

Common Reporting and Due Diligence Standards (“CRS”)

February 13 the OECD released the Standard for Automatic Exchange of Financial Account Information Common Reporting Standard.  The Draft Commentaries for the CRS, developed by the Working Party No. 10 on Exchange of Information and Tax Compliance, and discussed at its May 26-28, 2014 meeting, are expected to be released very shortly, in July.

The CRS 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. Part I of the report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

What are the main differences between the CRS (“GATCA”) and FATCA?

The CRS is also informally called “GATCA”, referring to the “globalization” of FATCA.

The CRS consists of a fully reciprocal automatic exchange system from which US specificities have been removed. For instance, it is based on residence and unlike FATCA does not refer to citizenship. Terms, concepts and approaches have been standardized allowing countries to use the system without having to negotiate individual Annexes.

Unlike FATCA the CRS does not provide for thresholds for pre-existing individual accounts, but it includes a residence address test building on the EU savings directive. The CRS also provides for a simplified indicia search for such accounts. Finally, it has special rules dealing with certain investment entities where they are based in jurisdictions that do not participate in the automatic exchange under the standard.

Single Global Standard for Automatic Exchange (“GATCA”)

Under GATCA jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Part I of this report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

The Report 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.

To prevent taxpayers from circumventing the CRS it is specifically designed with a broad scope across three dimensions:

  1. The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
  2. The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
  3. Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.

The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.

If CRS and IGAs are Universally Adopted, Then Why is the Multilateral Convention on Mutual Administrative Assistance in Tax Matters Necessary?

Both the CRS model, which is currently being developed by the OECD with G20 countries, and the IGAs are based on the automatic exchange of information from the tax administration of one country to the tax administration of the residence country.  As with other forms of exchange of information, a legal basis is needed to carry out automatic exchange. While bilateral treaties such as those based on Article 26 of the OECD Model Tax Convention would permit such exchanges, it may be more efficient to implement a single global standard through a multilateral instrument.  See OECD Information Brief

Global Forum Peer Reviews and Monitoring Of Automatic Exchange

G20 governments have mandated the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes to monitor and review implementation of the standard.  More than 60 countries and jurisdictions of the 121 Global Forum members have now committed to early adoption of the standard, and additional members are expected to join this group in the coming months. See the link for Country Peer Reviews and the Global Forum list of ratings chart.

book coverPractical Compliance Aspects of FATCA and GATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

34 chapters by 50 experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.

Posted in FATCA, information exchange, OECD | Tagged: , , , , , , , | Leave a Comment »

47 Countries Endorse OECD’s GATCA / CRS

Posted by William Byrnes on May 10, 2014


47 countries and major financial centers on May 6, 2014 committed to automatic exchange of information between their jurisdictions, announced the OECD.  All 34 OECD member countries, as well as Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa  endorsed the Declaration on Automatic Exchange of Information in Tax Matters that was released at the May 6-7, 2014 Meeting of the OECD at a Ministerial Level.

The Declaration commits countries to implement a new single global standard on automatic exchange of information (“CRS” or “GATCA”).  The OECD stated that it will deliver a detailed Commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 finance ministers in September 2014.  The Declaration contains the following statements:

“2. CONFIRM that automatic exchange of financial account information will further these objectives particularly if the new single global standard, including full transparency on ownership interests, is implemented among all financial centres;

3. ACKNOWLEDGE that information exchanged on the basis of the new single global standard is subject to appropriate safeguards including certain confidentiality requirements and the requirement that information may be used only for the purposes foreseen by the legal instrument pursuant to which it is exchanged;

4. ARE DETERMINED to implement the new single global standard swiftly, on a reciprocal basis. We will translate the standard into domestic law, including to ensure that information on beneficial ownership of legal persons and arrangements is effectively collected and exchanged in accordance with the standard;”

Global Forum Peer Reviews and Monitoring

G20 governments have mandated the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes to monitor and review implementation of the standard.  More than 60 countries and jurisdictions of the 121 Global Forum membershave now committed to early adoption of the standard, and additional members are expected to join this group in the coming months. See the link for Country Peer Reviews and the Global Forum list of ratings chart.

Common Reporting and Due Diligence Standards (“CRS”)

February 13 the OECD released the Standard for Automatic Exchange of Financial Account Information Common Reporting Standard.

The CRS 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. Part I of the report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

Presenting the new standard back in February 2014, OECD Secretary-General Angel Gurría said: “This is a real game changer. Globalisation of the world’s financial system has made it increasingly simple for people to make, hold and manage investments outside their country of residence. This new standard on automatic exchange of information will ramp up international tax co-operation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.”

What are the main differences between the CRS (“GATCA”) and FATCA?

The CRS is also informally called “GATCA”, referring to the “globalization” of FATCA.

The CRS consists of a fully reciprocal automatic exchange system from which US specificities have been removed. For instance, it is based on residence and unlike FATCA does not refer to citizenship. Terms, concepts and approaches have been standardized allowing countries to use the system without having to negotiate individual Annexes.

Unlike FATCA the CRS does not provide for thresholds for pre-existing individual accounts, but it includes a residence address test building on the EU savings directive. The CRS also provides for a simplified indicia search for such accounts. Finally, it has special rules dealing with certain investment entities where they are based in jurisdictions that do not participate in the automatic exchange under the standard.

Single Global Standard for Automatic Exchange (“GATCA”)

Under GATCA jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Part I of this report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

The Report 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.

To prevent taxpayers from circumventing the CRS it is specifically designed with a broad scope across three dimensions:

  1. The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
  2. The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
  3. Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.

The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.

book coverLexis Guide to FATCA Compliance – 2015 Edition 

1,200 pages of analysis of the compliance challenges, over 54 chapters by 70 FATCA contributing experts from over 30 countries.  Besides in-depth, practical analysis, the 2015 edition includes examples, charts, time lines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers.   The Lexis Guide to FATCA Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments.  No filler of forms and regs – it’s all beef !  See Lexis’ order site and request a copy of the forthcoming 2015 edition – http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

A free download of the first of the 34 chapters is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

<— Subscribe by email on the left menu to the FATCA Updates on this blog:  https://profwilliambyrnes.com/category/fatca/

If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

  • Chapter 1 Background and Current Status of FATCA
  • Chapter 1A The International Financial System and FATCA
  • Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
  • Chapter 2A FATCA Internal Policy
  • Chapter 3 FATCA Compliance and Integration of Information Technology
  • Chapter 4 Financial Institution Account Remediation
  • Chapter 4A FATCA Customer Outreach
  • Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
  • Chapter 6 Determining U.S. Ownership of Foreign Entities
  • Chapter 7 Foreign Financial Institutions
  • Chapter 7A Account reporting under FATCA
  • Chapter 8 Non-Financial Foreign Entities
  • Chapter 9 FATCA and the Offshore Trust Industry
  • Chapter 10 FATCA and the Insurance Industry
  • Chapter 11 Withholding and Qualified Intermediary
  • Chapter 12 FATCA Withholding Compliance
  • Chapter 13 “Withholdable” Payments
  • Chapter 13A Reporting Payments
  • Chapter 14 Determining and Documenting the Payee
  • Chapter 14A W8 Equivalents
  • Chapter 15 Framework of Intergovernmental Agreements
  • Chapter 16 Analysis of Current Intergovernmental Agreements
  • Chapter 17 European Union Cross Border Information Reporting
  • Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
  • Chapter 19 Germany
  • Chapter 20 Ireland
  • Chapter 21 Japan
  • Chapter 22 Mexico
  • Chapter 23 Switzerland
  • Chapter 24 United Kingdom
  • Chapter 25 Brazil
  • Chapter 26 British Virgin Islands
  • Chapter 27 Canada
  • Chapter 28 Spain
  • Chapter 29 China
  • Chapter 30 Netherlands
  • Chapter 31 Luxembourg
  • Chapter 32 Russia
  • Chapter 33 Turkey
  • Chapter 34 India
  • Chapter 35 Argentina
  • Chapter 36 Aruba
  • Chapter 37 Australia
  • Chapter 38 Bermuda
  • Chapter 39 Colombia
  • Chapter 40 Cyprus
  • Chapter 41 Hong Kong
  • Chapter 42 Macau
  • Chapter 43 Portugal
  • Chapter 44 South Africa
  • Chapter 45 France
  • Chapter 46 Gibraltar
  • Chapter 47 Guernsey
  • Chapter 48 Italy


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in FATCA, OECD, Reporting | Tagged: , , , | 1 Comment »

EU to Adopt New Expanded Savings Directive

Posted by William Byrnes on March 25, 2014


EU Council Announces March 2014 Adoption of Expanded EU Savings Directive

On Saturday, March 22, 2014 the EU Council’s General Secretariat announced that it will adopt major amendments to the EU Directive on taxation of savings income at its next March 2014 meeting.  The amendments will address the current loopholes, such as application to trusts, to foundations, and to investment income that is comparable to interest income.

Brief Background on EU Savings Directive

The liberalization of capital markets and the free movement of capital within the EU borders revealed how important it was to establish cooperation with a view to preventing, in the direct taxation area, fraud and evasion linked to cross-border financial investments. The problem with taxpayers moving their investments to Member States which did not impose taxation at source while the taxpayers simultaneously under-reported to their respective State of residence (or not reporting at all) the income earned. The EU Savings Directive was adopted to address this situation, coming into effect in 2005.

The mechanism of the Directive works by imposing an obligation to any paying agent in an EU Member State which makes a payment to an individual resident in the other Member State which is the beneficial owner of the income, to report that payment of interest to the competent tax authorities of the Member State in which the paying agent is established. The competent tax authorities of that (source) State in turn transfer the information collected to the competent tax authority of the residence of the beneficial owner. Based on the information received it is possible for the State of residence of the beneficial owner to verify if the amount is declared for tax purposes and to tax the corresponding income.

Loopholes Reported in 2008

In his 2004 Report on the Regulatory, Competitive, Economic and Socio-Economic Impact of the European Union Code of Conduct on Business Taxation and Tax Savings Directive to the United Kingdom Foreign and Commonwealth Office and the Overseas Territories of The Virgin Islands (British), Turks & Caicos Islands, Anguilla and Montserrat, Professor William Byrnes undertook an in-depth analysis of the EU Savings Directive identifying several loopholes that would require later amendments for it to achieve its objectives.

The Savings Directive loopholes include:

• Territorial scope: It is limited to intra-community situations in which a paying agent from one Member State pays to an individual resident in another Member State. It does not apply to payments from outside the EU, i.e. when the paying agent is located in a third (non-EU) State or to payments to beneficial owners who reside in third States.

• Personal scope: it does not apply to persons other than individuals, in particular payments made to legal entities. This limitation provides individuals with opportunities to circumvent the Savings Directive by using an interposed legal person or arrangement.

• Material scope: it does not cover other forms of savings like insurance products, pensions, some tailored investment funds, return on derivative contracts, structured products, etc.

These and other loopholes have been formally reported by the European Commission since 2008. The main findings of a report produced by the Commission identified as a major problem lack of “consistent treatment of other comparable situations”.[1] Pursuing this aim of consistency requires that interest payments obtained by an individual through intermediate vehicles are consistently put on an equal footing with interest payments directly received by the individual. This consistency of coverage is required not only to ensure the effectiveness of the Directive, but also compliance with the rules of the internal market and fair competition between comparable financial products and structures.

A proposal was submitted to the Council which aimed at extending the scope of the Directive.[2] 

European Council Announces Amended Savings Directive Adoption in March 2014

On March 22, 2014 the European Council reported in a press release[3] that (emphasis added):

The European Council welcomes the Commission’s report on the state of play of negotiations on savings taxation with European third countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and calls on those countries to commit fully to implementing the new single global standard for automatic exchange of information, developed by the OECD and endorsed by the G20, and to the early adopters initiative.

The European Council calls on the Commission to carry forth the negotiations with those countries swiftly with a view to concluding them by the end of the year, and invites the Commission to report on the state of play at its December meeting. If sufficient progress is not made, the Commission’s report should explore possible options to ensure compliance with the new global standard.

In the light of this, the Council will adopt the Directive on taxation of savings income at its next March 2014 meeting.

The European Council invites the Council to ensure that, with the adoption of the Directive on Administrative Cooperation by the end of 2014, EU law is fully aligned with the new global standard.

What About the Withholding Exception for Austria and Luxembourg?

While most Member States adopted the exchange of information regime provided in the 2005 Savings Directive, three Member States with a tradition of bank secrecy—Belgium, Luxembourg and Austria—preferred to adopt, during a transitional period, a withholding tax regime. They were authorized to adopt a withholding tax (now 35%) on interest income that is paid to individual savers resident in other EU Member States. In the meantime Belgium decided to discontinue applying the transitional withholding tax as of 1 January 2010 and exchange information instead.

Therefore, only Luxembourg and Austria are currently entitled to levy a withholding tax. Luxembourg has notified the EU Commission that from next year, January 1, 2015 it will discontinue applying the transitional withholding tax and thus begin automatically exchanging information for applicable accounts from that date.

Thus, only Austria has expressed that it will maintain the withholding tax option. Austria’s finance minister is quoted in April 2013 stating: “All this data exchange will not put one red cent in my tax coffers, …. I want to have the money, not a data cemetery.”[4]  However, in light of the Council’s press release on Saturday, this position has probably changed.

The Austria’s Chancellor had also indicated that Austria may begin automatic exchange regarding the interest from savings accounts beginning 2014.[5] Although this statement is different from the Luxembourg commitment towards automatic exchange of information, it would not be surprising that Austria will soon also endorse this automatic exchange standard within the scope of applying the Savings Directive, in light of FATCA, GATCA, and the Council’s press release.

book coverPractical Compliance Aspects of Exchange of Information, FATCA and GATCA

For in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

William H. Byrnes, author of six Lexis international tax titles, has achieved authoritative prominence with more than 20 books, 100 book chapters and supplements, and 1,000 media articles.  In 2008 he was appointed Associate Dean at Thomas Jefferson School of Law, previously obtaining Professor of Law with Tenure at St. Thomas University.   William Byrnes was a Senior Manager, then Associate Director of international tax for Coopers and Lybrand, and consulted for clients involved with Africa, Europe, Asia, the Indian sub-continent, and the Caribbean.   He has been commissioned by a number of governments on tax policy.

[1] See Commission Staff Working Document, “Refining the present coverage of Council Directive 2003/48/EC on taxation of income from savings”, SEC (2008), p. 559.

[2] See “Proposal for a Council Directive amending Council Directive 2003/48/EC on taxation of savings income in the form of interest payments”, COM (2008) 727 final, of November 13, 2008.

[3] Conclusions, European Council, Brussels, Euco 7/1/14, 21 March 2014.

[4]“All this data exchange will not put one red cent in my tax coffers,” finance minister Maria Fekter said on 13 April. “I want to have the money, not a data cemetery.”  Stamatoukou, Eleni, “EU Savings Directive to be modified”, New Europe Online, (April 15, 2013) Available at http://www.neurope.eu/article/eu-savings-directive-be-modified.

[5] Austria’s position regarding the extension of the EU Savings Directive requires that such extension be also imposed through international agreements with San Marino, Switzerland, Lichtenstein, Andorra, and Monaco.  However, it is unclear if Austria has since backtracked and made these five agreements a pre-condition for its own automatic information exchange on savings income for depository accounts.  See Bodoni, Stephanie, EU Push For Savings-Tax Deal Fought By Luxembourg, Austria, Bloomberg (Nov 14, 2013).  Available at http://www.bloomberg.com/news/2013-11-14/eu-set-to-fail-to-meet-savings-tax-goal-on-luxembourg-opposition.html.

 

Posted in FATCA, OECD, Taxation, Uncategorized | Tagged: , , , , | 2 Comments »

 
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