Automatic Exchange of Information (AIE) is the systematic, periodic transmission of bulk confidential taxpayer information by authorities of one country to the country where the taxpayer, whose information is being transmitted, is resident. The other state being the source (of the income) state. These transmissions cover various types of income, including dividends, royalties, salaries and pensions. It also covers other ‘useful’ information such as changes in the taxpayer’s residence, the sale and purchase of land and VAT refunds. This allows the tax authourity to calculate a taxpayer’s net worth and if he had the income to support any foreign purchases, evidence of which would be included in the bulk transmissions. http://www.oecd.org/ctp/exchange-of-tax-information/automaticexchangeofinformationreport.htm
AIE does not rely on a ‘request’ for information by a tax authourity . It does not rely on a treaty, although Article 26 of the OECD Model Tax Convention, now reflected in just about all tax treaties negotiated since 2009, can provide a treaty basis for AIE, if necessary. Furthermore, there is no need for the information requested to be ‘foreseeably relevant’, and so there is no litmus test to guard against ‘fishing expeditions’ by revenue authourites. Of course, I suppose that any automated ‘bulk’ transmission of information is, by its nature, a routine and periodic exercise in ‘fishing’.
Last year, the G20 gave AIE the political backing it needed when its members declared that they were now committed to leading by example in the practice of automatic exchange. The existing, globally agreed standard accepted by all 120 members of the reconstituted OECD Global Forum (GF) http://www.oecd.org/tax/transparency/, that is, information exchange ‘on request’, was afforded only a passing reference. Full text of G20 Leaders Declaration here , para. 48 in particular :http://www.telegraph.co.uk/finance/g20-summit/9343250/G20-Summit-communique-full-text.html
Denmark, part of the Nordic Council, whose programme of tax information exchange agreement(TIEA) negotiation has been the most robust over the past 5 years; and it has the highest number of AIEs. It routinely transmits ‘bulk’ confidential taxpayer information to 70 countries. It has been reported that, in a 12-month period, Australia, Belgium, Canada, France, Spain, Sweden, the UK and the US have together exchanged 100,000,000 taxpayer records.http://www.internationaltaxreview.com/Article/3068978/OECD-gives-guidance-on-automatic-information-exchange-and-confidentiality.html
The OECD is scheduled to provide a follow up report on AIE expansion through subscription to its Multilateral Convention on Mutual Administrative Assistance in Tax Matters to the G20 next month. It asserts however, that it does not expect the political endorsement of AIE will signal a new standard on the exchange. See full text of Convention here:http://www.oecd-ilibrary.org/taxation/the-multilateral-convention-on-mutual-administrative-assistance-in-tax-matters_9789264115606-en
The OECD also however, recognises that AIE is currently the practice of many OECD and non-OECD countries and has also expressed the hope that more countries would move in this direction.
For his part, G8 Chairman UK PM David Cameron has however made it plain that the central plank of his G8TTT agenda is the global application of AIE. Except to say that it is inadequate, and insufficient to tackle tax evasion, 800 TIEAs later, reference to the current ‘on request’ standard set out in these and appropriated worded tax treaties, has, in the lead up to the G8 summit, be given only passing reference by way of criticism.
The gargantuan effort and immense political currency expended by OFCs on becoming ‘substantially compliant’ with the ‘on request’ standard with which its creators are no longer enamoured begs the question, why should these members of the GF continue to sign TIEAs, knowing that FATCA and AIE require the same type of legal and regulatory frameworks for either to be workable. As such, because FATCA is now in force, though its effective date for implementation looks to be 2015 by which time AIE will likely be the new global standard, why not get cracking on this early. Surely 800 TIEAs plus over 2,000 tax treaties in force with modern information exchange provisions is a sufficiently dense network. See more here:https://franhendy.com/2013/06/02/are-tieas-past-their-sell-by-date/
FATCA implementation is going to be expensive, very expensive, so much so that the US is even thinking of ways to provide financial support to the countries that will need it to implement FATCA through intergovernmental agreements. Moreover, the OECD has already announced plans to work with the US to provide an electronic portal to enable FATCA implementation. This makes perfect sense as this platform could also serve as the prototype for a global AIE. For more on FATCA click here:https://franhendy.com//?s=10+fast+facts+about+FATCA&search=Go
Except the fear of being labelled a ‘non-compliant tax haven’ by the G20 for failure to pass assessments on the policy and practice of tax formation exchange, principally through the conclusion of TIEAs, why should countries care to progress the OECD’s TIEA work programme at all when the OECD is just waiting on a definitive signal from the G8 this month and perhaps another from the G20 next month, that automaticity is the new and, presumably improved, global standard information exchange. This is especially pertinent since compliance with former standards provide no immunity from mis- characterisation, public derision and penalty.
This ‘flip-flop ‘methodology and its insistence that ‘substantial compliance’ must be achieved within unrealistic timelines, is at the heart of the criticisms of the OECD by non-members, particularly in the area of transparency and exchange of information. Non-OECD members of the GF who in good faith, albeit energised by the spectre of the G20 ‘sword of Damocles’, have been working assiduously since 2009 to’ score points’ with the anti-tax haven lobby, have perhaps now realised that all that they have really done is to score a ‘collective’ own goal.
OECD/Anti-Tax Haven Lobby 2: Legitimate OFCs: 0
The question that OFCs need to consider now is whether they are in the first 45 minute half or has the game gone into overtime.https://franhendy.com/2012/08/03/is-automatic-exchange-of-information-the-end-game/