AEOI : Automatic Exchange of Information
AML : Anti Money Laundering
BEPS : Base Erosion Profit Shifting
CFT : Combating the Financing of Terrorism
CRS : Common Reporting Standard
DTAAs : Double taxation avoidance agreements
FATF : Financial Action Task Force’
FATCA : Foreign Account Tax Compliance Act
MAC : Multilateral Convention on mutual admiration assistance in tax matters
MNEs : Multinational Entities
MLI : Multilateral Instruments
OECD : Organization for Economic Co-operation and Development
TIEAs : Tax information exchange agreements
Revenue authorities around the World have now very vigilant in negotiating DTAA’s to include automatic exchange of information to tackle offshore tax evasion and avoidance attempt through treaty shopping/treaty abuse. They are under tremendous pressure from public at large who raised the issue of tax avoidance by MNEs & offshore tax evasion and avoidance by ‘Tax Nomad’ and make this issue a social evil.
Non-sharing of information by tax heaven and banking secrecy was the main reason of the evil of money laundering and financing of global terrorism. Financial crises of 2008 was the result of this evil and proved to be eye opener for the World Community. G-20 countries during their London summit of 2009 agreed to take strong actions against non-cooperative tax jurisdictions. This led to the formation of ‘Global Forum’ on Transparency and Exchange of Information for tax Purposes with a true global membership where G20 countries, OECD countries, developing countries and offshore financial centers comprises of 154 jurisdictions as on May, 2019.
From 2009 till now, all tax jurisdictions either through bilateral DTAAs, TIEAs, MAC or other instruments have built a genius network of Exchange of information.
Following information is built in these instruments:
To overcome the limitations of request based exchange of information, globally a consensus was reached amongst all the tax jurisdictions that they will share financial information on an automated basis. The uniform standards developed for this purpose known as CRS on AEOI built up on FATCA of USA.
These standards are currently enabling every tax jurisdiction to receive information about its residents/citizens having offshore bank accounts, including name, address, account number, interest and balance on an automated basis. The information received would also enable the tax authorities to look through structures such as trusts and shell companies to identify the beneficial owner and thereby enhance their ability to detect offshore tax evasion and avoidance.
Even after robust network of AEOI operating, the MNEs and Tax Nomad find innovative ways to avoid tax both in the resident countries and source countries through treaty abuse/treaty shopping. After successful implementation of G20/OECD project on BEPS, these problem has been resolved to a great extent through increased transparency and disclosures like mandatory disclosure rules and Country by Country Reports.
To conclude, we can say to the tax payers that “you are under Surveillance, be aware of your affairs” to avoid any unpleasant surprises.
(Disclaimer: This content is meant for our clients or professional friends only for stimulating discussion on the subject matter not to frame any commercial opinion. All efforts are made to compile correctly with no guarantee of extreme accuracy)
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