Canada: Towards A Global FATCA?: OECD, G20 Unanimously Endorse Global Automatic Information Exchange

On October 29, 2014, through the OECD “Global Forum on Transparency and Exchange of Information for Tax Purposes,” both the OECD and G20 countries endorsed a new Standard for Automatic Exchange of Financial Account Information in Tax Matter. 59 countries are so-called “early adopters” and are committed to undertaking their first exchanges by 2017. 35 other countries (including Canada) have committed to undertaking their first information exchanges by 2018. The U.S. has agreed to participate in automatic information exchanges through its Foreign Account Tax Compliance Act (FATCA), pursuant to its bi-lateral Intergovernmental Agreements.

This global automatic information exchange initiative is based on each jurisdiction’s participation in the OECD’s Multi-lateral Convention on Mutual Administrative Assistance in Tax Matters. The information exchange itself will follow the OECD’s Standard for Automatic Exchange of Financial Account Information in Tax Matters (first released in July 2014). This automatic information exchange “draws extensively on the intergovernmental approach to implementing FATCA” and is designed to be implemented via a combination of multi-lateral conventions and bi-lateral competent authority agreements.

The approach taken by OECD in this model appears to involve the multi-lateral convention and the OECD standard forming the overarching framework for the information exchange and bi-lateral competent authority agreements between participating jurisdictions to implement this broader framework in a way that accounts for local law particularities.

One of the key features touted by OECD of such a multi-lateral information sharing standard is efficiency, particular for residence jurisdictions. “[The automatic exchange] needs to be standardised so as to benefit the maximum number of residence jurisdictions and financial institutions while recognising that certain issues remain to be decided by local implementation…. A proliferation of different and inconsistent models would potentially impose significant costs on both government and business to collect the necessary information and operate the different models.”

Efficiency is also expected to be achieved by creating a standard technical reporting format that allows information to be captured, exchanged and processed quickly and efficiently in a cost-effective and secure manner. Additionally “compatible methods of transmission and encryption of data must be in place.” A global – and standardized – T5 or 1099 reporting system, if you will.

According to the OECD, the Common Reporting Standard additionally has the potential to relieve certain burdens imposed by the U.S. FATCA:

“Given…the anticipated progress towards widespread participation in the [Common Reporting Standard], it is compatible and consistent with the [Common Reporting Standard] for the United States to not require the look through treatment for investment entities in Non-Participating Jurisdictions.”

This is a significant development in the global trend towards information sharing.