The new international disclosure rules


More than 90 countries have now signed up to the automatic information system, including most tax havens and the other bad boys like Switzerland, Austria, Luxembourg and Cyprus (to name but a few!). There is now no place left to hide except places where you would have to be very brave to leave your money.

A little of the background:

The new system, the Standard for Automatic Exchange of Financial Account Information is being developed by the OECD in conjunction with the G20 and the EU. This is now referred to as the The Common Reporting Standard or CRS.

It derives from the successful US anti-tax fraud system FATCA, introduced in 2010, which requires financial institutions of foreign countries to report to the US IRS the financial information of all US citizens. In 2012 the UK, Spain, France, Italy and Germany agreed to sign the necessary Inter Governmental Agreements with the US.

The UK developed the US initiative to incorporate its Crown Dependencies and Overseas Territories, including numerous well known tax haven jurisdictions, and they will all be reporting to HMRC in early 2016 the identity of account holders for 2014 and 2015.

Council Directive 2011/16/EU sought to improve cooperation on tax matters between EU states and this was amended by Council Directive 2014/107/EU which introduced the concept of automatic exchange of information between member states.

The 2014 Directive provides for mandatory automatic exchange of information, where information is available, in respect of five non-financial categories of income and capital, with effect from 1 January 2015 i.e. for 1) income from employment, 2) director’s fees, 3) life insurance products not covered by other Directives, 4) pensions, and 5) ownership of and income from immovable property. This information transfer will start from 1 January 2017.

The scope of persons covered by the EU Directive depends on the particular subject matter but the Directive as a whole covers natural persons (i.e. individuals), legal persons (i.e. companies), associations of persons and any other legal arrangements. Trusts and similar structures are included.

It goes on and on and on…..!

So what will actually happen, and when:

Many owners of bank accounts will have already received requests from the banks to confirm home addresses and the tax reference numbers in the country of residence. Spain is itself finally tidying up bank records with the banks demanding up to date ID documents.

The computer systems of financial institutions are being adapted to produce data that will automatically be transmitted to the tax systems of other countries. All the intergovernmental protocols are already in place or will very soon be in place to allow this data to be transferred automatically. The CRS has standardised the data structure of the information to ensure that each countries tax computer system can make effective use of the data.

Especially significant for Spain is that an individual’s Spanish tax reference number will be incorporated in the data, enabling very simple cross referencing and selection procedures in Spain’s already very advanced tax computer systems.

Information from 1 January 2015 will be transferred as soon as the early part of 2017 between EU states (earlier in the case of the US and UK initiatives).

Although, initially at least, the data transferred will be details of the existence of bank accounts, bank balances and interest earned, this will be extended very soon to most other forms of income including employment, pensions, insurance and property income and capital gains.

Soon enough, the rest of the world will catch up with the US and EU states and the it will become very small place indeed, at least in terms of the knowledge tax offices will have of their tax residents.

Spence Clarke specialises in the provision of Spanish tax, accounts, law and labour services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.