EU FATCA

The EU Council has adopted a directive to extend the scope of mandatory automatic exchange of information between EU tax authorities and which is intended to implement within the EU the new global standard on automatic exchange of information developed by the OECD and endorsed by the G20.

In December 2014, the EU Council formally adopted a directive extending the scope for the mandatory automatic exchange of information between EU tax authorities.  A Council Press Release released on 09 December 2014 explained that the directive amends the Administrative Cooperation Directive (2011/16/EU) (the DAC) to bring interest, dividends and other income, as well as account balances and sales proceeds from financial assets, within the scope of automatic exchange of information.

The amendments are intended to implement within the EU the new global standard on automatic exchange of information developed by the OECD and endorsed by the G20. The new rules will come into force in 2017, although, Austria will be allowed a further year to implement the changes.

Background

On 12 June 2013, the EU Commission put forward a proposal to extend the scope of automatic information exchange under the existing DAC to cover dividends, capital gains, any other financial income and account balances which are “paid, secured or held by a financial institution for the direct or indirect benefit of a beneficial owner who is a natural person” resident in another EU Member State. The DAC already provides for the automatic exchange of “available” information on five categories of income within the same timeframe: income from employment, directors’ fees, life insurance, pensions and immovable property. However, this “availability” criterion would not apply to the new categories listed in the Commission’s proposal: automatic information exchange would be mandatory for these items.

After the OECD global standard was released in February 2014, it became clear that the proposal to amend the DAC did not go far enough to meet that standard. Since then, work on the text has proceeded in parallel to the development within the OECD of the single global standard for the automatic exchange of information. The OECD Council published the new global standard, the "common reporting standard" (CRS), in July 2014 and it was endorsed by the G20 in Cairns on 20 and 21 September.

The DAC requires EU Member States to implement the CRS with effect from 01 January 2016, however, Austria will be given an additional year to apply the new rules, to allow it sufficient time to make the necessary changes.

It should be noted, however, that although enhanced information exchange starts in 2017 (or 2018 for Austria), the information that is exchanged in 2017 relates to payments in the 2016 calendar year (and similarly for Austria, that information exchanged in 2018 relates to the 2017 calendar year).

Savings Directive

The CRS covers a wide scope of income and capital, including most of what is covered by the revised Savings Directive. Therefore, in order to have just one standard of automatic exchange and to avoid legislative overlaps, the Savings Directive has been repealed with effect from 01 January 2016, subject to transitional provisions covering Austria which allow it to implement CRS one year later than other Member States.

Tax rulings

The Commission considers it a priority to further enhance administrative cooperation and tax transparency and, in March 2015, put forward further proposals as part of a tax transparency package.

As a result of these proposals, the DAC has been further extended by Directive 2015/2376 of 08 December 2015 to require automatic exchange of cross border tax rulings between Member States.

Country-by-Country Reports

The Commission has also proposed, as part of its anti-tax avoidance package, that the DAC should be extended to include automatic exchange of country-by-country reports by a Member State to any other Member States in which, on the basis of the information in the report, companies of the relevent group are either resident for tax purposes or carry on a business through a permanent establishment.

Comment

Progress on the original 2013 proposal was largely overtaken by the developments at the OECD level and the final form of the Directive is designed to consistently implement the CRS within the EU. Nevertheless, the implementation of CRS with its differing requirements from existing regimes will place a high administrative burden on financial institutions needing to comply with the rules.

For more information on the OECD common reporting standard, see “OECD model for automatic information exchange”.