AUTOMATIC EXCHANGE OF INFORMATION (AEOI)
As the world becomes increasingly globalised, money can be transferred from one jurisdiction to another with ease. While this may help to facilitate trade and boost connectivity, cross-border activities has become a challenge for governments and tax authorities around the world to combat criminal tax evasion as well as ensuring that their own taxpayers are paying the right amount of tax in the jurisdiction of which they operated in.
In Singapore’s context, exchange of information was largely based on request. However, it has evolved rapidly which now entails AEOI. The aim is to ensure that information could be gathered, exchanged and processed readily and efficiently in a cost-effective manner between tax authorities. There will be improved transparency and co-operation between tax authorities so as not to be confined within their respective jurisdiction but in line with globalisation of national economies.
Recently, with the implementation of the AEOI through Common Reporting Standards (CRS) by the Organisation for Economic Co-operation and Development (OECD), it provides, inter alia, for the exchange of financial account information, the financial institutions required to report and the different types of accounts and taxpayers covered. The list of committed countries and their commencing reporting dates are enclosed herein for reference purposes.
The CRS, which is largely mirrored on the US Foreign Account Tax Compliance Act, has a broad scope that encompasses the following:
- Financial information to be reported with respect to all types of investment income (including interests, dividends, income from certain insurance contracts and other similar types of income) and also account balances and sales proceeds from financial assets.
- The financial institutions that are required to report under the CRS do not only include banks and custodians but also other defined financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
- Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals who ultimately control these entities. The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.
In view of these developments, it is timely for the taxpayers together with their tax advisors to demonstrate responsible planning which is aligned with prudent business strategies. Businesses with regional or global footprint may need to re-examine their cross border strategies, strengthen their internal control processes and improve their corporate governance procedures in order to strike a balance between competitiveness while coping with increasingly complex tax regulations.
It is evident that tax has become increasingly interesting now especially in the international tax front where many countries have played their part, including Singapore, in raising the bars towards implementation of international tax policies. In particular, Singapore adopts a balanced approach in considering her tax policy development and administration. It remains to be seen how other countries will adopt and implement the proposed changes as there will be inherent issues to be addressed in terms of achieving consistency.
At Acutus, we understand that our role as tax advisors has not been confined to performing routine compliance functions for businesses with regional or global footprints but our role requires us to keep abreast of international tax developments and to highlight the potential pitfalls or challenges that businesses might face or encounter. In light of recent tax developments, it may be prudent for businesses to be aware of their position before deciding or engaging into any proposed transaction or arrangement. As trusted tax advisors, we will be available to provide support to businesses.
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© September 2016. This article is contributed by Acutus Tax Services Pte Ltd. All rights reserved.