TAX TRANSPARENCY - IMPLICATIONS FOR INVESTORS

The OECD’s new global standard to promote tax transparency between its member countries will come into effect in 2017. Many non-OECD countries have also subscribed to the programme. To date, 96 jurisdictions have adopted the standard including South Africa, Luxembourg, Guernsey and Singapore – jurisdictions where Foord funds are domiciled. BRENDAN AFRICA takes a look at the implications for investors.

The Standard for Automatic Exchange of Financial Account Information, or more informally the Common Reporting Standard, mirrors recent anti-tax avoidance legislation implemented by the US. Similar to the US’s 2013 FATCA law, the standard will facilitate the automatic exchange of tax-relevant financial account information between participating tax jurisdictions.

Reportable information will include personal and tax identification information and, most notably, investment account information (including investment income, account balances and asset disposals). All financial institutions must report this information annually to local tax authorities in respect of non-resident investors.

Investors remain responsible for determining their tax residency. However, financial institutions are now obligated to conduct reasonable due diligence procedures to identify non-resident reportable accounts. Where conflicting residency information cannot be dispelled, reporting would need to be performed for all applicable jurisdictions. Additional due diligence procedures will be required to confirm high value accounts in excess of $1 million.

The reporting requirements will apply to individuals and entities (including trusts and foundations) and will include a requirement to look through passive investment entities to report on the underlying controlling persons and beneficiaries. Reportable financial accounts include bank and investment custody accounts but exclude tax free savings accounts, retirement funds and living annuities.

The financial institutions that will be required to report include banks, life insurers and investment entities such as investment managers, collective investment scheme managers and brokers.

Investors with foreign indicia can expect to be contacted by Foord or its administrators during the course of the year to provide additional information and certifications now required by law. Foord will be compelled to report investors who do not provide the required information to the tax authorities as “undocumented” investors, resulting in account information being shared with all participating jurisdictions.

It stands to reason that tax authorities hungry for additional revenue will use this information to monitor the foreign assets and earnings of their residents in an effort to enforce full tax disclosure and compliance. Investors should consult their tax advisors if they are concerned about the tax implications arising from the OECD’s automatic exchange of information programme.