OECD Releases New Information Exchange Standard Intended to Thwart Tax Evasion

The Organization for Economic Cooperation and Development (OECD) released the full version of a new consolidated global Standard for Automatic Exchange of Financial Account Information in Tax Matters. It’s aimed at stopping tax evasion by helping governments around the world share information.

Mutual exchange of account information

The standard calls on governments to obtain detailed account information from their financial institutions and annually exchange that information with other jurisdictions. The new consolidated version includes:

• Commentary and guidance for implementation by governments and financial institutions,

  Detailed model agreements, and

• Standards for harmonized technical and information technology solutions, notably a standard format and requirements for the secure transmission of data.

Noting that the G-20 asked the OECD and G-20 member nations and stakeholders to develop a data-exchange model to help fight tax fraud and evasion, OECD Secretary-General Angel Gurria said the new standard “moves us closer to a world in which tax cheats have nowhere left to hide.”

The new information exchange standard will be presented formally to G-20 Finance Ministers at their next meeting in Cairns, Australia, Sept. 20-21, 2014.

Final versions of earlier discussion drafts

Meanwhile, the OECD approved the 2014 Update to the OECD Model Tax Convention. The update will be incorporated in a revised version of the convention that will be published in the next few months. It reflects work between 2010 and the end of 2013. As a result, it doesn’t include material from the continuing work on the action plan on Base Erosion and Profit Shifting (BEPS).

The update includes the final version of a number of changes that were previously released for discussion:

• The application of Article 17 (Artistes and Sportsmen) of the OECD Model Tax Convention,

  Revised proposals concerning the meaning of “beneficial owner,”

• A revised discussion draft on tax treaty issues related to emissions permits and credits,

• Tax treaty treatment of termination payments, and

• Technical changes to be included in the next update to the Model Tax Convention.

The update doesn’t, however, include changes from the discussion draft of Nov. 15, 2013, on provisions dealing with the operation of ships and aircraft in international traffic. It also doesn’t include any changes related to the interpretation and application of Article 5 (Permanent Establishment).

Still to come

More than 65 countries and jurisdictions have publicly committed to implementing the information exchange standard, and more than 40 have committed to an ambitious timetable leading to the first automatic information exchanges in 2017.

The OECD expects more jurisdictions to commit to implementation before the late-October 2014 meeting in Berlin of the Global Forum Transparency and Exchange of Information for Tax Purposes. More than 120 countries and jurisdictions are expected at that meeting, which will be hosted by the German Ministry of Finance.

More action is also expected on the Model Tax Convention. Work on Action 7 (Prevent the Artificial Avoidance of PE Status) of the BEPS Action Plan likely will result in changes to Article 5 of the convention. The OECD said the proposed Commentary changes included in that discussion draft won’t be completed until the work on Action 7 is finished.