Expats, offshore investors and multinational companies are the target of a new global tax network that is set to revolutionise how governments impose tax laws.
Even before the US-led Foreign Account Tax Compliance Act (FATCA) takes effect from July 1, 2014, the Organisation of Economic Co-Operation and Development (OECD) is charging ahead with a supercharged tax nformation swapping group.
FATCA has more than 50 countries agreeing to automatically tell the Internal Revenue Service (IRS) about the offshore finances of Americans – and in return the IRS is sending information about the US finances of each country’s citizens back to their tax authorities.
But the OECD network is much larger and expected to take in many more financial jurisdictions.
Behind-the-scenes work to put the network together is already underway as OECD officials scrutinise the tax authorities in each nation signing up for the scheme.
54 countries sign up for tax exchange
Many countries are progressing through the peer-to-peer review process – out of the latest batch of 12, Panama and The Federated States of Micronesia was deemed not to have the right laws in place to join at this stage.
Barbados was rated partially compliant mainly due to a lack of tax treaties with other nations, Malaysia, Mauritius and the Slovak Republic were rated largely compliant and Slovenia compliant.
Botswana, the United Arab Emirates Colombia, Latvia, and Saudi Arabia move on to the next stage.
Overall, 132 reviews have been completed – 54 countries are ready to join the OECD network, four jurisdictions are non-compliant, three are partially compliant and 13 need to pass new local tax laws to move up the ladder.
More nations are expected to join the OECD network in the coming months.
International standards on the way
The OECD network will differ from FATCA by allowing each nation to report details of bank accounts and investments to each other nation automatically each year.
FATCA is a closed network that only allows the US to reciprocate financial information on a one-to-one basis with other nations, but the OECD will allow a nation to report financial information with all other nations.
For instance, each nation will send tax data to HM Revenue & Customs (HMRC) in Britain, while HMRC will automatically report financial information back to each other nation.
“The next step is to set up an international standard for the automatic exchange of tax information,” said the OECD report. “One of the main points we are working on is how to help developing nations implement the reporting procedures.”
