STEP recognises that a fair tax system must include effective measures to combat evasion and criminal or terrorist financing.
STEP unequivocally condemns tax evasion and supports international efforts to improve tax transparency, where accompanied by the appropriate safeguards to protect legitimate client confidentiality. STEP has therefore worked positively with a broad range of OECD, EU and national initiatives to improve the transparency and effectiveness of tax reporting systems.
Taxpayers and tax administrations have a legal right to expect that information exchanged remains confidential. Taxpayers need to know that sensitive financial information will not be disclosed inappropriately, whether intentionally or by accident, in order to have confidence in their tax systems and comply with their obligations under the law. It is therefore essential that both the legal framework and robust systems and procedures are in place to ensure that that there is no unauthorised disclosure.
It is vital to ensure that all jurisdictions have collectively implemented the AEOI standard effectively in order to mitigate any systems that could be vulnerable to abuse. STEP recommends that only countries meeting agreed minimum standards of national governance should have access to personal data on individuals from other jurisdictions and that clear mechanisms are in place to ensure that only relevant and necessary data is reported and exchanged.
STEP sits on the HMRC consultative group on the OECD Common Reporting Standard (CRS) and has provided guidance to STEP members on their obligations under the Foreign Account Tax Compliance Act (FATCA) and CRS.
OECD Common Reporting Standard (CRS)
On 15 July 2014, the Organisation for Economic Co-operation and Development (OECD) published the full version of the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The document includes: Model Competent Authority Agreement; Common Reporting Standard; Commentaries. The Common Reporting Standard (CRS) 'calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis'. At present, more than 100 jurisdictions have publicly committed to implementation. STEP sits on both the HMRC consultative group and the Business and Industry Advisory Committee to the OECD (BIAC) on CRS.
In March 2018 the OECD released Model Mandatory Disclosure Rules (MDRs) to tackle CRS avoidance, more information on STEP’s views on the MDRs and how members can engage in national debates about the rules can be found here
Foreign Account Tax Compliance Act (FATCA)
FATCA is part of the US Hiring Incentives to Restore Employment Act (2010) and aims to combat tax evasion by US tax residents using foreign accounts.
Model 1 intergovernmental agreements (IGAs) have been adopted widely. Around 70 jurisdictions have formally signed Model 1 IGAs with the US.
It is important to recognise that FATCA potentially puts obligations on all trusts, whether or not they have any US connections, US assets or US income. In signing the Model 1 IGA, jurisdictions are agreeing to incorporate FATCA reporting requirements into their own tax code and take responsibility for enforcement.
The same basic framework to categorise trusts is used in all Model 1A-type IGA FATCA agreements including UK agreements with the Crown Dependencies and the Overseas Territories (CDOT), and the OECD Common Reporting Standard (CRS).