FATCA: Developments & perspectives

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1 FATCA: Developments & perspectives Automatic Exchange of Information 22 May 2014

2 FATCA evolves into CRS a multilateral automatic exchange of information 2010 The Foreign Account Tax Compliance Act (FATCA) was enacted in the U.S. constituting a comprehensive automatic exchange of tax information regime impacting the financial industry with a global reach The European G5 countries Germany, France, Italy, Spain and the UK announced to launch a pilot for the exchange of tax information on the basis of the FATCA. Model I IGA, which shall be transposed in a revised EUSD or Directive on Administrative Cooperation (DAC) 2017 Anticipated: Reporting expected to begin on CRS with customer data being shared between participating jurisdictions in the Early Adopters group Implementation of the EU Savings Directive (EUSD) to disclose interest income among EU Member States and certain other countries. Various countries still deduct a withholding tax instead of exchanging the relevant data 2012 Ongoing negotiations concerning the implementation of FATCA lead to Model Intergovernmental Agreements (IGAs) including the opportunity of a reciprocal exchange of tax information Mandated by the G8/G20 countries, the OECD develops a global reporting standard (namely the CRS) that is based on the FATCA Model I IGA. 2

3 The CRS provides for a common standard on definitions, client due diligence and reporting Highlights A unified big-bang of 40+ countries is expected to be followed by a fragmented addition of 20+ countries Participating jurisdictions should expect to meet requirements on an accelerated timeframe in order to be able to qualify for certain exceptions CRS impacts the information gathered from every investor and account holder Customer information will be reported locally and then shared with relevant tax authorities around the world Account holder information will be exposed to increased data security risks Financial institutions are likely to face increased pressure to demonstrate compliance Implementation requires a strategic and flexible approach 3

4 What do governments think? This [tax] is the basis of our economy and the quality of life we enjoy. Most pay their fair share and want to be in compliance. Those who deliberately are not, we intend to go after aggressively. - Canadian Revenue Minister, Kerry-Lynne Findlay " through international cooperation this work will provide an efficient tool to control tax evasion and tax avoidance " - Mexican Ministry of Finance and Public Credit For those evading their responsibilities and hiding their money offshore the message is clear; time is running out. If you have something to disclose, come to us before we come to you. - UK Chancellor of the Exchequer, George Osborne The commitment by so many countries to implement the OECD s Global Standard on the basis of a specific and ambitious timetable is good news for everyone who wants to see a fair and transparent international tax system. The rapidity with which the new norms are being developed and agreed shows that the political momentum for reform is now overwhelming - OECD Secretary General, Angel Gurria The concept of the tax haven is actually dying It's just a matter of time before you'll be caught." - Australia Tax Commissioner Chris Jordan The purpose of [AEoI] agreements is to fight tax evasion on an international basis so that countries can exchange information on an automatic basis - Chief Officer South African Revenue Service, Kosie Louw 4

5 CRS Joint Statement on Automatic Information Exchange Big Bang approach by the Early Adopters (Joint statement - 19 March 2014) # Country Affiliation # Country Affiliation # Country 1 Belgium EU Member 28 Isle of Man UK Crown Dependency 38 Argentina 2 Bulgaria EU Member 29 Guernsey UK Crown Dependency 39 Colombia 3 Croatia EU Member 30 Jersey UK Crown Dependency 40 India 4 Cyprus EU Member 31 Anguilla UK Overseas Territory 41 Liechtenstein 5 Czech Republic EU Member 32 Bermuda UK Overseas Territory 42 Mexico 6 Denmark EU Member 33 British Virgin Islands UK Overseas Territory 43 Norway 7 Estonia EU Member 34 Cayman Islands UK Overseas Territory 44 South Africa 8 Finland EU Member 35 Gibraltar UK Overseas Territory 9 France EU Member 36 Montserrat UK Overseas Territory 10 Germany EU Member 37 Turks and Caicos Islands UK Overseas Territory 11 Greece EU Member 12 Hungary EU Member 13 Iceland EU Candidate 14 Ireland EU Member 15 Italy EU Member 16 Latvia EU Member 17 Lithuania EU Member 18 Malta EU Member 19 Netherlands EU Member 20 Poland EU Member 21 Portugal EU Member 22 Romania EU Member 23 Slovak Republic EU Member 24 Slovenia EU Member 25 Spain EU Member 26 Sweden EU Member 27 United Kingdom EU Member Additional countries committed to adopting CRS (OECD Declaration on AEoI on Tax Matters 6 May 2014) 45 Australia 49 China 53 Israel 57 New Zealand 61 Switzerland 46 Austria 50 Chile 54 Japan 58 South Korea 62 Turkey 47 Brazil 51 Costa Rica 55 Luxembourg 59 Saudia Arabia 63 United States 48 Canada 52 Indonesia 56 Malaysia 60 Singapore Phasing-in approach by other countries (e.g. countries applying the OECD Convention on Tax Matters) 64 Albania 68 Belize 72 Ghana 76 Moldova 80 San Marino 65 Andorra 69 Curacao 73 Greenland 77 Morocco 81 Sint Maarten 66 Aruba 70 Faroe Island 74 Guatemala 78 Nigeria 82 Tunisia 67 Azerbaijan 71 Georgia 75 Kazakhstan 79 Russia 83 Ukraine FATCA Model 1 IGA FATCA Model 2 IGA 5

6 The CRS requirements framework is based on the FATCA Model 1 IGA Scope & Governance The definition of a Financial Institution is broadly unchanged, however, subject to local implementation / variations Expected to include certain FIs exempted under FATCA (e.g. local FIs) Passive NFE definition widened to include certain Investment Entities No Responsible Officer concept foreseen Tax authority approach to compliance yet to be determined Withholding There is no withholding under CRS; references to withholding have been removed Concept of non-participating institutions does not exist CRS Customer Due Diligence Number of clients to be reviewed substantially increases CRS is based on identifying account holders tax residency Due diligence for pre-existing accounts can be based on residence address and existing AML procedures Thresholds for individuals other than $1m high value account, have been removed Reporting FIs should report to local authorities, who will exchange the data with partner jurisdictions Reporting is expected to be based on FATCA data elements While CRS sets out data elements to be reported, jurisdictions may take the opportunity to request further information 6

7 Anticipated CRS timeline set by the Joint Statement Political Milestones Apr 19, 2013 G20 countries mandate the OECD to develop the Common Reporting Standard (CRS) Feb 22, 2014 CRS released Jul, 2014 Release of final XML data schema and CRS Commentary Dec, 2014 EU legislation expected to encompass the CRS Jan 01, 2016 Anticipated Big Bang start date for Early Adopter countries Phasing-in of other countries Sep 20, 2014 Expected endorsement by G20 Account Due Diligence Dec 31, 2015 Cut-off date for preexisting accounts; eventually already collecting account balances or other data Jan 01, 2016 Begin new account opening procedures Dec 31, 2016 Due diligence procedures must be completed for preexisting high value accounts Dec 31, 2017 Due diligence procedures must be completed for all other pre-existing accounts Reporting Sep 30, 2017 Initial automated exchange of new accounts and pre-existing high value accounts excl. gross proceeds Sep 30, 2018 Reporting to include all (low and high value) reportable accounts and gross proceeds 7

8 Thank you! Dr. Karl Küpper Partner, PwC Germany Friedrich-Ebert-Anlage Frankfurt am Main Germany Tel.: Mobile: Circular 230: This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.