February 13, 2014 3:54 pm

Global tax standard attracts 42 countries

The Cayman Islands, Luxembourg and Jersey are among 42 countries that have agreed to pioneer a tax transparency regime in another milestone in the global crackdown on evasion.

The Paris-based OECD described the plan for automatic exchange of information on bank accounts holding more than $250,000 as a “real game changer” that would deter evasion and help tax authorities identify citizens hiding money offshore.

The new tax standard is set to be endorsed at a Group of 20 finance ministers’ meeting in Sydney later this month. The Tax Justice Network, a campaign group, hailed it as “the first big step in putting together the nuts and bolts of real change” but raised fears that developing countries would not be able to participate because of the cost of implementing the regime.

The move to automatic information exchange between tax authorities would mark a step change in the information available to authorities, expanding the scope and cutting the costs of investigations.

Nearly all EU countries and some other big countries already exchange information about the interest earned on bank accounts but the new standard is much wider in scope, including all types of investment income and capital gains. It will cover trusts and foundations as well as accounts above a $250,000 threshold.

Many once-secretive offshore centres have agreed to adopt the standard, paving the way for pressure to be exerted on tax havens that resist signing up. The 42 countries that will be early adopters are expected to move swiftly after details are finalised later this year.

The huge deficits that opened up following the global financial crisis and a series of evasion scandals have prompted governments to mount a concerted attack on evasion. Since 2009, tax authorities have increasingly been able to request information about offshore accounts but only in cases where they already have grounds for suspicion.

The catalyst for the latest move to prise open secretive tax havens was US legislation known as the Foreign Account Tax Compliance Act (Fatca), passed in 2010 in the wake of a scandal involving UBS, the Swiss bank. The US used a threat of heavy withholding taxes to force overseas banks to hand over tax information on their clients, opening the door to similar exchanges with other countries. Last year European governments agreed to adopt their own version of Fatca, and the UK secured similar agreements with its crown dependencies and overseas territories.

PwC, the professional services firm, said the new regime would impose “significant” costs on financial institutions. The OECD said it was minimising the compliance burden on banks by making sure the global standard was aligned with Fatca requirements and the latest anti-money laundering rules. It was also working closely with the EU, which is updating its anti-evasion directive.

The Tax Justice Network raised concerns over certain loopholes, the exclusion of safe deposit boxes from the plan and the willingness of some countries to sell residency rights to wealthy individuals wanting to circumvent the crackdown.

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