It will follow a Common Reporting Standard (CRS), developed by the OECD, which provides for annual automatic exchange between tax authorities of financial account information. It sets out the financial account information to be exchanged, the institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
The information to be exchanged includes -
§ account balances
§ interest
§ dividends
§ sales proceeds from financial assets
§ Name and address of asset owners
This covers accounts held by individuals, as well as by entities like trusts and foundations.
The financial institutions that need to report include banks, custodians, guardians, certain collective investment vehicles and certain insurance companies.
This is quite different, and much further reaching, to the information exchange on request which was introduced through many bilateral agreements following the 2008 crisis.
Under these agreements, tax authorities ask for information on people’s financial assets when they suspect them of tax evasion. Now they will receive information on everyone, every year, regardless of how compliant or not the taxpayer is.
By comparing the data received with tax returns, the authorities will be able to detect where income or the underlying assets have not been declared.
Almost a hundred countries have committed to the new regimes so far. The ‘early adopters’, including Portugal, the rest of the EU and UK offshore centres, start collecting financial information from January 2016 for transmissions in 2017. Other countries including Switzerland start a year later.
In Europe the CRS will be implemented through the Administrative Cooperation Directive. It provides for automatic information sharing on interest, dividends, other investment income, account balances, sales proceeds from financial assets, income from employment, directors’ fees, life insurance, pensions and property.
Over recent years, the Portuguese government has stepped up its efforts to detect tax evasion and collect unpaid taxes. The CRS will be an invaluable tool for the tax authorities.
This loss of financial privacy is a significant change and affects everyone who lives in one country and has assets in another.
We still have the right, however, to structure assets in a tax efficient manner. It is important to only use arrangements which are compliant in Portugal. It is possible to take advantage of legitimate opportunities to protect your assets from various Portuguese taxes. You need specialist advice.
Gavin Scott, Senior Partner, Blevins Franks
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