Ratification of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information to improve international tax compliance based on the Common Reporting Standard for the Automatic Exchange of Financial Information approv

STATES OF JERSEY

RATIFICATION OF THE MULTILATERAL COMPETENT AUTHORITY AGREEMENT ON AUTOMATIC EXCHANGE OF FINANCIAL ACCOUNT INFORMATION TO IMPROVE INTERNATIONAL TAX COMPLIANCE BASED ON THE COMMON REPORTING STANDARD FOR THE AUTOMATIC EXCHANGE OF FINANCIAL INFORMATION APPROVED BY THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Lodged au Greffe on 13th October 2015 by the Minister for External Relations

STATES GREFFE

2015   Price code: C  P.117

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to  ratify  the  Multilateral  Competent  Authority  Agreement  on  Automatic Exchange  of  Financial  Account  Information  to  improve  international  tax compliance  based  on the Common  Reporting  Standard  for  the  Automatic Exchange of Financial Information approved by the Organisation for Economic Co-operation and Development, as set out in the Appendix to the report of the Minister for External Relations dated 1st October 2015.

MINISTER FOR EXTERNAL RELATIONS

REPORT

1. For many years countries have been engaging in the Automatic Exchange of Information (AEOI) in order to tackle offshore tax evasion and other forms of non-compliance, but there was no single international standard expected to have global application. In 2013, in their St. Peter sburg Declaration, G20 leaders laid the foundations for further progress in tax transparency: in addition to calling for the completion of the current schedule of the Global Forum's peer reviews and allocation of ratings, they endorsed the OECD proposal for a new global standard for the automatic exchange of information, and mandated the Global Forum to establish a mechanism to monitor its implementation. G20 Finance Ministers and central bank governors re-affirmed the importance of global tax transparency  in their  Communiqués  of  February  and  September  2014, endorsing  the  new  standard  on  AEOI,  and  reiterating  the  importance  of continued progress in meeting the international standards of AEOI.
2. With the strong support of G20, the OECD together with G20 countries and in close  co-operation  with  the  EU  and  other  stakeholders,  has  produced  the Standard for Automatic Exchange of Financial Account Information which builds on the US FATCA agreement to maximise efficiency and minimise costs. The Standard consists of –

1. The Common Reporting Standard (the CRS) that contains the due diligence rules for financial institutions to follow, to collect and then report  the  information  that  underpins  the  automatic  exchange  of information.
2. The Model Competent Authority Agreement (the CAA) that links the CRS  to the  legal  basis  for  exchange,  specifying  the  financial information to be exchanged.
3. The Commentaries that illustrate and interpret the CAA and the CRS.

3. There are 3 Model CAAs. One is a bilateral and reciprocal model designed to be used in conjunction with a DTA or TIEA, particularly where the Multilateral Convention on Mutual Administrative Assistance in Tax Matters cannot be used as the legal basis. The second is a multilateral CAA that can be used to reduce the  costs  of  signing  multiple  bilateral  agreements  (although  the  actual information exchange would still be on a bilateral basis) and would most often be used in conjunction with the Convention. The third is a non-reciprocal model for use, for example, where a jurisdiction does not have an income tax.
4. On  29th  October  2014,  in  Berlin,  51  jurisdictions,  including  Jersey  and Guernsey, signed a Multilateral Competent Authority Agreement (MCAA) as part of putting the commitment to CRS into action. This Agreement – attached as an Appendixto this report – is based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters which has been signed by some 90 jurisdictions, including many developing countries. At the end of May 2015, the number who had signed the MCAA had increased to 61, of which 50 are committed to exchange information in 2017 and 11 are committed to exchange information in 2018. Those committed to exchange information in 2017, known as the "early adopters", include Jersey and Guernsey.

5. The necessary Regulations to implement the MCAA have been lodged, for approval  if  the  signing  of  the  MCAA  is  ratified.  The  draft  Regulations (see P.118/2015) provide for the exchange of information with jurisdictions that have signed the MCAA or any other agreement (e.g. TIEA or DTA) to which Jersey and another participating jurisdiction is a party providing automatic exchange of information. The Regulations provide for the implementation of the CRS requirements for customer due diligence in respect of all participating jurisdictions listed in the Schedules. Schedule 2 is a list of jurisdictions that are signatories of the MCAA with first information exchange in 2017; Schedule 3 is a list of jurisdictions who are signatories to the MCAA with first information exchange in 2018; and Schedule 4 is a list of jurisdictions who are committed to the CRS but are not yet signatories to the MCAA.
6. The Regulations will be supported by guidance which will draw on the CRS Commentaries produced by the OECD. The guidance will also refer to the position taken on the various optional provisions which are intended to provide greater flexibility for financial institutions and therefore reduce their costs. There are 15 main areas where the Standard provides options for jurisdictions to implement as suited to their domestic circumstances in order to provide for easier implementation and reduced burdens, without impacting on the purpose or effectiveness of the CRS. The options to be adopted include not requiring the filing of nil returns, and allowing third party service providers to fulfil the obligations on behalf of the financial institutions.
7. The CRS also provides for jurisdictions to identify financial institutions and financial accounts that present a low risk of being used for tax evasion as Non- Reporting  Financial  Institutions  or  Excluded  Accounts (i.e.  non-reportable accounts). It is expected that each jurisdiction will have a single list of low-risk financial institutions and a single list of low-risk financial accounts with respect to the Standard and that these lists will be published.
8. Every  effort  will  be  made  to lessen  the  burden  to be  faced  by  financial institutions  in  adopting  the  CRS  alongside  the  existing  US  FATCA requirements  and  in replacement  for  the  present  UK  Intergovernmental Agreement. With this in mind, the draft Regulations provide that a reporting financial institution may use, as an alternative to a CRS definition, a definition in any other international governmental agreement to which Jersey and a participating jurisdiction is a party, which provides for AEOI insofar as such use would not frustrate the purposes of the MCAA.
9. For those jurisdictions to be covered by the MCAA, the following procedures will need to be followed as set out in Section 7 of the MCAA –

"1.  A Competent Authority must provide, at the time of signature of the

Agreement or as soon as possible after the jurisdiction has the necessary laws  in  place  to  implement  the  Common  Reporting  Standard,  a notification to the Co-ordinating Body Secretariat:

1. that  its Jurisdiction  has  the  necessary  laws  in place  to implement the Common Reporting Standard and specifying the relevant effective dates with respect to Pre-existing Accounts,

New  Accounts,  and  the  application  or  completion  of  the reporting and due diligence procedures;

2. confirming whether the Jurisdiction is to be included in the list of non-reciprocal jurisdictions;
3. specifying  one  or  more  methods  for  data  transmission, including encryption;
4. specifying safeguards, if any, for the protection of personal data;
5. that it has in place adequate measures to ensure the required confidentiality  and  data  safeguards  standards  are  met  and attaching  the  completed  confidentiality  and  data  safeguard questionnaire; and
6. a list of the Jurisdictions of the Competent Authorities with respect to which it intends to have this Agreement in effect, following national legislative procedures (if any).

Competent Authorities must notify the Co-ordinating Body Secretariat, promptly,  of  any  subsequent  change  to  be  made  to  the  above- mentioned.

1. The Agreement  will  come  into  effect  between  two  Competent Authorities on the later of the following dates: (i) the date on which the second of the two Competent Authorities has provided notification to the Co-ordinating Body Secretariat under paragraph 1, including listing the  other  Competent  Authority's  Jurisdiction  pursuant  to subparagraph  1(f),  and,  if  applicable,  (ii)  the  date  on  which  the Convention has entered into force and is in effect for both Jurisdictions.
2. The Co-ordinating Body Secretariat will maintain a list that will be published on the OECD website of the Competent Authorities that have signed the Agreement and between which Competent Authorities this is an Agreement in effect.
3. The Co-ordinating Body Secretariat will publish on the OECD website the  information  provided  by  Competent  Authorities  pursuant  to subparagraphs  1(a)  and (b). The information  provided  pursuant  to subparagraphs  1(c)  through  (f)  will  be  made  available  to other signatories  upon  request  in writing  to the  Co-ordinating  Body Secretariat."

10. A particularly important aspect of the above procedure is the requirement that confidentiality and data safeguards standards have to be shown to be met before any information is exchanged. The CRS Regulations provide for financial institutions  to undertake  customer  due  diligence  for  all  participating jurisdictions (i.e. all jurisdictions committed to the CRS). However, with which jurisdictions information will be exchanged in 2017 and thereafter will depend on  there  being  a  legal  basis  for  such  an  exchange  (i.e.  the  MCAA  or  a TIEA/DTA), and the required confidentiality and data standards being in place.

Procedure for signing and ratifying the MCAA

11. The Jersey signing of the MCAA was undertaken by the Assistant Chief Minister in Berlin on 29th October 2015. The signing was in accordance with the  provisions  of  Article  18(2)  of  the  States  of  Jersey  Law  2005  and paragraph 1.8.5 of the Strategic Plan 2006 – 2011 adopted by the States on 28th June 2006. The Council of Ministers has authorised the Chief Minister, or the Assistant Chief Minister as his delegated representative, in concurrence with the Minister for External Relations, to sign on behalf of the Government of Jersey.
12. The MCAA is now being presented to the States for ratification, following which it will be published and entered into the official record. The MCAA will enter into force with the making of the Taxation (Implementation) (International Tax Compliance) (Common Reporting Standard) (Jersey) Regulations 201- which are being separately lodged au Greffe for adoption (see P.118/2015).

Financial and manpower implications

There will be implications for the financial and manpower resources of the States arising from the ratification and implementation of the MCAA. The current best estimate is an annual running cost of £110,000 and one additional full-time member of staff in the Taxes Office.

1st October 2015

APPENDIX