The Multilateral Competent Authority Agreement commits its 51 members to the exchange of non-resident financial account information with tax authorities in an account holders’ country of residence.
Participating countries must automatically send and receive pre-agreed information each year, with the hope of “enabling the discovery of formerly undetected tax evasion”.
Unlike other sharing agreements, a receiving tax authority will not have to ask for information under powers which are currently contained in many bilateral tax agreements between sovereign nations.
The list of countries who have signed up to the agreement include the United Kingdom, British Virgin Islands, Cayman Islands, Germany, Gibraltar, Guernsey, Ireland, the Isle of Man, Jersey, Liechtenstein, Luxembourg, Malta, and South Africa.
The signing took place at the Seventh Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin, Germany.
“Work is not finished”
Speaking at the forum, chancellor George Osborne said: “Tax evasion is a scourge across the world that can only be tackled with a global solution, and today’s agreement is a step towards achieving this.
“The work is certainly not finished, and I would call on the remaining countries to put in the same efforts to stop evasion.
“I am particularly pleased that Britain has been able to be part of this and I much welcome the future benefits it will bring.”
To aid the implementation of the agreement, the Global Forum has invited developing countries to join the move towards automatic exchange of information, and a series of pilot projects will offer technical assistance to facilitate the move.
Ministers and other representatives of African countries also agreed to launch a new “African Initiative” to increase awareness of the merits of transparency in Africa.
George Bull, senior tax partner at Baker Tilly, said the automatic agreement marks a “significant acceleration” in the international cooperation against tax evasion.
He added that HM Revenue & Customs will be well-placed to convert data received through its Connect system into increased tax revenues, while other nations have yet to indicate how they will achieve this.
“It will be interesting to see how tax authorities rise to this challenge and announce plans for data handling,” he said. “This is crucial because none of the 50 or so nations will wish to look like a soft touch, unable to process the information it receives and so incapable of using this as a challenge to tax evaders.”
Jayne Newton, tax investigation director at global law firm DLA Piper said it was “clear the net is closing rapidly on those seeking to evade tax”.
“Financial institutions will welcome efforts to achieve consistency in the obligation, both legal and regulatory, across the participating territories in which they operate,” she said. “However, differences do still exist, particularly when compared to FATCA and the European Union Savings Tax Directive.”
She added that the reputational and financial risks of failing to comply with the various regimes are high, particularly from the perspective of financial institutions’ customers:
“It is essential that customer data is only collected and reported where a legal or regulatory obligation exists.”
Newton said that introducing this agreement will be an effective mechanism for tackling tax evasion, as it is creating a “global level playing field”, and is not just limited to one or two countries.
With legislation and regulations changing so rapidly, she also said financial institutions would need to ensure that their procedures were “future proofed”. They would need to have processes for managing the reputational risks that would arise from incorrect reports.
When asked whether they thought tax avoiders may move their funds to other territories that are outside the exchange agreement, Rob Smith, senior tax manager at DLA Piper, said: “Given the global shift towards automatic information exchange between the major financial centres, there are likely to be very few places where people would want to invest.”
He added: “The initiative actually enables the tax authority to pierce the corporate veil, in a similar way to FATCA.”
