Transparent World: International Exchange of Information.
September 27, 2016
Probably every businessman involved in international business, is interested in the issues of confidentiality and has heard about the new rules related to the international exchange of tax information.
Noticing the importance of this topic for the customers, specialists Offshore Express Company specialists decided to share their experience in this field.
So, what does the exchange of information mean? How does it go? What is the legal basis? How did the idea of its implementation appear? This publication considers these issues in more detail.
International Tax Planning
Tax planning has always played an important role in international tax law. For example, the fundamental principles of taxation of multinational companies were laid in the 1920s. Companies, such as Apple, Google, Starbucks, etc., or rather their tax consultants, only resorted to the use of legal opportunities to create businesses around the world. This helped to significantly reduce payment of taxes and increase profits. It should be noted that as long as multinationals operate within the legal framework, tax planning is not against the law.
In turn, for many years, different states have taken legislative measures to reduce the opportunities for international tax planning by multinational corporations. And this is due primarily to the fact that tax planning significantly reduces the tax revenues in these states!
But not only individual states objected to such practices, many of them joined their efforts at the international level. This is how the Organization for Economic Cooperation and Development (OECD) appeared.
In 1921, experts in the field of public finance from Germany, Italy, the USA and Great Britain presented a report on double taxation. Further discussion led to the creation in 1928 the first model agreement for the avoidance of double taxation and Mexico (1943) and London (1946) model agreements. With the cessation of the existence of the League of Nations, the work in this direction was continued by the OECD.
In 1963 OECD created a Model Tax Treaty with the Commentary and the OECD Council recommended member countries to further use these documents as a basis for negotiations. Further, in 1977 the OECD published the Model Convention on tax affairs and Commentary on it.
Subsequently, the effect of the Model Convention expanded far beyond the OECD area and it has become a reference document. On its basis the United Nations has developed a number of conventions between developed and developing countries.
International Exchange of Information
In recent years, the international tax planning strategies of multinationals have become a source of international debate. As a result, the OECD in 2013-2014 developed, approved, confirmed and implemented a new Standard for automatic exchange of information in tax matters.As of July 2016 one hundred and one jurisdiction have adopted the Standard, many of these countries have signed a multilateral agreement. Numberofsuchcountriesisconstantlygrowing.
In general, the Standard describes the information that is exchanged, namely, detailed information on the beneficial owners (name, resident address, tax identification number, date and place of birth, account number and the name of the reporting financial institution – bank, insurance company, as well as the balance at the end of the calendar year – December, 31).
Individuals and legal entities are accountable according to the standard. In contrast to the US Law on tax returns on foreign accounts (FATCA), OECD Standard has nothreshold amount for the account of a natural person. At the same time, for the existing legal entities, the threshold amount is $ 250 000. Thus if the account of the legal entity is kept less funds, this entity is not considered accountable for the purpose of the Standard and the information would not be exchanged.
How Does the Exchange Go?
During the reporting period banks and other financial institutions gather the information about the beneficial owners of other countries. This information is systematized, encrypted and transmitted to the tax bodies with the help of special IT platforms. Then tax bodies exchange this information with countries whose residents are beneficial owners of the accounts.
It should be noted that the Standard allocates tax residency, but not country of nationality, as the determinant of the jurisdiction where the information will be sent.