As of January 1st 2016 approximately 100 countries will start collecting financial information in readiness for the commencement of what is to be the most comprehensive tool for tax authorities, on a global basis, to fight tax evasion.
This initiative introduced as part of the OECD’s updated CRS (Common Reporting Standards) will introduce ‘Automatic Exchange of Financial Information’ (AEI).
The AEI, which will commence in 2017, will be based on details gathered this year and is facilitated by having financial institutions in each participating country reporting relevant information regarding clients, who are resident in another participating country, to their local tax authorities. Local tax authorities will then automatically exchange this information with their counterparts in other participating countries on an annual basis.
That ‘report’ will involve individuals who own or control accounts either directly or via financial institutions, be it banks, brokers, investment vehicles, insurance companies or other financial organisations.
The account information generally includes account number, balance and gross earnings in respect of any payments through the account including any investment income, income earned from assets etc. The information on each person generally includes name, address, country of residence, nationality, national insurance and tax identification numbers, place and date of birth.
This transparency is meant to be a deterrent to taxpayers using offshore accounts and assets as a means of avoiding domestic tax. The participating countries are committed to applying this procedure in order to tackle tax evasion.
By comparing the data received with what taxpayers include on their tax returns, the authorities will be able to detect where income or assets have not been declared. This will include many cases where there were no previous indications the taxpayer was not compliant.
This is expected to provide tax authorities around the world with details of assets worth billions held abroad.
If you live in Spain and have overseas assets and/or investments that you previously thought were non-declarable to the Spanish authorities, then this is something to seriously consider – the penalties for undeclared assets can be very costly, so it is vital that you report everything correctly.
It may be possible to restructure your assets in a tax efficient and compliant manner so as to better protect your wealth!