The OECD’s Committee on Fiscal Affairs published a Common Reporting Standard for Automatic Exchange of Financial Account Information (“Standard”) on 17 January 2014. It sets out a minimum standard under which participating jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Currently, 42 countries have agreed to be early adopters of the Standard. These include the United Kingdom, France, Germany, Mexico, Argentina, and India. Singapore, while a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes (“Forum”), is not an early adopter. However, it has endorsed the earlier OECD iteration for the exchange of information upon request: the internationally-agreed exchange of information standard known as Article 26 of the OECD Model Tax Convention on Income and Capital. The Monetary Authority of Singapore (“MAS“) has also previously signalled its willingness to be a part of global efforts to combat money laundering. As a member of the Forum, the body which has been mandated by the G20 to monitor and review implementation of the Standard internationally, it is possible that Singapore will agree at some time in the future to implement the Standard.

The Standard deals with the following matters:

• The financial account information to be exchanged;
• The financial institutions that need to report;
• The different types of accounts and taxpayers covered; and
• The common due diligence procedures to be followed by financial institutions.

The OECD will be releasing a detailed commentary on the Standard as well astechnical solutions to implement the actual information exchanges. This is scheduled tobe released in September 2014. Participating countries will also need to pass locallegislation for the implementation and enforcement of the Standard.

This Update takes a look at the Standard.

Overview

The Standard is based on the Model Intergovernmental Agreement to Improve International Tax Compliance and to Implement the US Foreign Account Tax Compliance Act (“Model 1 IGA” and “FATCA”, respectively). This will ease implementation of the Standard as financial institutions (“FIs”) can leverage a significant amount of the work already performed for compliance with the Model 1 IGA and FATCA. In this regard, we note that the US Treasury and the MAS recently announced that Singapore has reached a tax-information sharing agreement with the US.

Unlike FATCA, the Standard is based on residence instead of citizenship or nationality. It also does not provide for thresholds for pre-existing individual accounts, but it includes a residence address test building on the EU savings directive. It 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.

Scope Of The Standard

The Standard provides for a broad scope across three dimensions:

• Reportable financial information: 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) as well as account balances and sales proceeds from financial assets.
• Reporting FIs: The FIs that are required to report under the Standard include banks and custodians, and also other FIs such as brokers, certain collective investment vehicles, and certain insurance companies.
• Reportable accounts: Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and there is a look-through requirement to report on the individuals that ultimately control these entities.

The broad scope of the Standard is intended to limit the opportunities for taxpayers to circumvent the model by shifting assets to institutions or investing in products that are not covered by the model.

Due Diligence

The Standard also describes the due diligence procedures that must be followed by FIs to identify reportable accounts. These distinguish between individual accounts and entity accounts, and between pre-existing and new accounts.

Pre-Existing Individual Accounts

For pre-existing individual accounts, FIs are required to review accounts without application of any de minimis threshold. A distinction is made between accounts with a balance or value of less than USD 1m (“Lower Value Accounts”) and accounts with a balance or value of at least USD 1m (“Higher Value Accounts”):

• For Lower Value Accounts, the Standard provides for a permanent residence address test based on documentary evidence or the FI would need to determine the residence on the basis of an indicia search. A self-certification (and/or documentary evidence) would be needed in cases of conflicting indicia, in the absence of which reporting would be done to all reportable jurisdictions for which indicia have been found.
• For Higher Value Accounts, enhanced due diligence procedures apply including a paper record search and an actual knowledge test by the relationship manager.

New Individual Accounts

For new individual accounts, the Standard contemplates selfcertification (and the confirmation of its reasonableness) without a de minimis threshold.

Pre-Existing Entity Accounts

For pre-existing entity accounts, FIs are required to determine whether the entity itself is a “Reportable Person” as defined in the Standard. This can generally be done on the basis of available information (AML/KYC procedures) and if not, self-certification would be needed.

FIs will also need to ascertain the residency of an entity’s controlling persons if it falls into a category of persons referred to in the Standard as “Passive NFEs”. This would include FIs that are not in a participating jurisdiction. The OECD notes that for a number of account-holders, the active/passive assessment is rather straight forward and can be made on the basis of available information; for others this may require self-certification.

Pre-existing entity accounts below USD 250k (or local currency equivalent) are not subject to review.

New Entity Accounts

For new entity accounts, the same assessments need to be made as for pre-existing accounts. However, the USD 250k (or local currency equivalent) threshold does not apply.

Other Incidental Information

WongPartnership has previously proposed that regulators consider coupling the separate streams of tax reporting, whether for FATCA or EOI purposes, and suspicious transaction reporting for tax crimes as a predicate offence via a safe harbour provision in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“CDSA”). If a FI provides information on reportable accounts in accordance with the required standard, the CDSA could provide that the duties to file any Suspicious Transaction Report for any tax crime in relation to such account would be mitigated, either in part or in whole.

The benefits of such an approach would be to encourage voluntary reporting by FIs, while alleviating the complications arising from understanding complex tax regimes in foreign countries for anti money-laundering purposes, which may have fundamentally different fiscal structures as compared to the host country where the FI is situated.

For further information, please contact:

Elaine Chan, Partner, WongPartnership
[email protected]

Joy Tan, Partner, WongPartnership
[email protected]

Andrew Chow, Partner, WongPartnership
[email protected]

WongPartnership Banking & Finance Practice Profile in Singapore