While the Foreign Account Tax Compliance Act (FATCA) has focused worldwide attention on U.S. efforts to create a mandatory cross-border exchange of tax information, the enactment of FATCA was not an isolated occurrence.

For more than a decade, the Organisation for Economic Co-operation and Development (OECD) has been trying to obtain a multi-country agreement under which countries would exchange tax information about their residents.

In late October of this year, the OECD obtained the agreement of 51 countries, dependencies and territories throughout Europe, Asia, Africa and North and South America (now 52 – collectively, Information-Sharing Jurisdictions) to share tax information among themselves about their residents, starting in 2016 and 2017.

The OECD initiative represents a global implementation of cross-border tax sharing that was pioneered by FATCA. More details need to be released on this OECD plan and further work is required to integrate it with FATCA, but in the interim, financial institutions should begin to take a broader view of their tax compliance efforts.

Since 2001, the OECD has maintained a Global Forum on Transparency and Exchange of Information for Tax Purposes (Forum), but in September 2009, the Forum was “restructured as a consensus-based organisation where all members are on an equal footing.” The Forum’s mandates are “to promote the rapid implementation of [international standards of transparency and exchange of information],” and “to ensure that developing countries benefit from the new environment of transparency.”

In 2010, the United States enacted FATCA, to require that foreign financial institutions (FFIs) share information with the United States government about their account holders who are U.S. persons (or U.S. controlled foreign entities), so as to assure that those investors are paying U.S. tax on the income from their offshore accounts. The United States encouraged FATCA compliance by imposing a new 30% withholding tax on certain payments to non-compliant FFIs.

The Common Reporting Standard will impose new reporting obligations on financial institutions, similar to those imposed by U.S. FATCA for U.S. account holders, and by UK FATCA for UK account holders. The Common Reporting Standard and accompanying publications by the OECD provide a broad outline of what these requirements should look like, but each country will publish its own specific guidance in the coming years. However, entities that expect to be classified as Reporting Financial Institutions may start reviewing account information and account opening procedures now, in order to be prepared for the Common Reporting Standard. Stay tuned for more information as the global exchange of tax information once considered an impossible dream is fast becoming a new reality.

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