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OECD-AEOI versus FATCA: The USA Exception Назад к блогу


There are today two broad interngovernmental treaties targeting at the reduction of tax evasion: the Automatic Exchage of Information of the OECD, here OECD-AEOI, and the FATCA one. The two main occidental blocs, USA and EU, have initiated and opted for two different protocols, around wich a great number of countries have gathered and became members. That has caused uncertainty and missinterpretations about adoption, start dates, technical data and possible overlap between those.

Here we will try to outline main differences, stating already in the very beginning what has been perhaps the most interesting issue in this regard: the USA does not participate in the OECD-AEOI. Its one-to-one bilateral FATCA agreements may assure that financial institutions worldwide will provide tax-relevant information regarding US-citizens; the opposite is however not provided, namely that the US Department of Treasury will deliver automatic information to the tax authorities of non-US citizens holding bank account in the USA.

Many efforts have been done in order for the USA to both undertake automatic information exchanges pursuant to FATCA from 2015 and enter into intergovernmental agreements (IGAs) with other jurisdictions. The Model 1A IGAs entered into by the USA acknowledges the need for the United States to achieve equivalent levels of reciprocal automatic information exchange with partner jurisdictions. They also include a political commitment to pursue the adoption of regulations and to advocate and support relevant legislation to achieve such equivalent levels of reciprocal automatic exchange. Fact is, today USA will not delivery any information on an automatic basis.

OECD – AOEI (Automatic Exchange of Information)

It provides for the exchange of non-resident financial account information with the tax authorities in the account holders’ country of residence. Participating jurisdictions that implement AEOI send and receive pre-agreed information each year, without having to send a specific request.

AEOI should enable the discovery of formerly undetected tax evasion. It should enable governments to recover tax revenue lost to non-compliant taxpayers, and will further strengthen international efforts to increase transparency, cooperation, and accountability among financial institutions and tax administrations.

A Global Standard on AEOI

In order to most effectively tackle tax evasion while minimizing costs to governments and business, a single global AEOI standard for financial account information has been created: the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The OECD and G20 developed the Standard with the input of other jurisdictions and in consultation with the financial industry. The Standard is very similar to the Model 1 IGA that many jurisdictions will use for implementing the United States Foreign Account Taxpayer Compliance Act (FATCA).

Implementation of the new Standard

The global implementation of AEOI is an essential step for stimulating the development of a global level playing field; in other words, global implementation is essential to effectively tackle evasion as well as to ensure jurisdictions are on an even footing.

A large number of jurisdictions have announced their plan to implement the new Standard. Around 50 jurisdictions will work towards having their first information exchanges by September 2017; and many more will follow in 2018. A majority of Global Forum members have indicated their commitment to exchanging on the 2017 or 2018 timeline. 


 Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands,Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom


 Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Costa Rica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Marshall Islands, Macao (China), Malaysia, Monaco, New Zealand, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay


 Bahrain, Cook Islands, Nauru, Panama, Vanuatu


FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Here you will find links to many documents related to FATCA and its implementation. FATCA has been implemented since July 1, 2014.


Those who have criticized FATCA raised the argument that it will cost the international banking community 1,000 in order for the IRS to receive 1 of tax revenue. Although non-U.S. banks had to review their KYC and their reporting system if they want to be in a position to live up to FATCA requirements, it is fair to state that the U.S. has also invested considerable sums in the FATCA venture. They successfully negotiated and entered into a significant number of IGA Model 1 (“IGA” is the abbreviation for “intergovernmental agreement”) and some IGA Model 2 Agreements (Switzerland, Japan and the Bermuda).

In an attempt to protect Swiss banking secrecy, Switzerland has entered into an IGA Model 2 Agreement. With respect to preexisting accounts, U.S. Persons have to agree to the information being automatically released to the U.S. authorities.

The IGA Model 2 is an asymmetric and therefore not reciprocal legislation. While in Switzerland it had to go through parliament, in the U.S. it was valid and enforceable upon signing.

From a U.S. perspective, an IGA is an intergovernmental agreement, which is valid as such. In the U.S. Senate, FATCA and/or the IGA Model Agreements have never been discussed.

FATCA is essentially a one way street, where information flows from Switzerland to the IRS, but not vice versa. The major drawback of the IGA Model 2 is the direct reporting of Swiss Financial Institutions to the IRS. IGA Model 1 countries have to report to their competent authorities, who in turn will exchange information automatically with their U.S. counter parts. Swiss FIS under Model 2 have to enter into a binding agreement with a foreign revenue authority. A further disadvantage is the open ended definition of “foreign financial institutions”. The term refers to all financial institutions that are organized pursuant to the laws of Switzerland. In order not to be caught in the category of the “Nonparticipating Financial Institutions (“NPFI”) and subject to few exceptions, all Swiss banks, life insurance companies and Swiss investment entities (the “fiduciary companies”) will have to register under FATCA and thus apply for a GIIN (“Global Intermediary Identification Number”) regardless on as to whether they are doing business with U.S. persons or not.

Those who are blissfully unaware of worldwide importance of FATCA may have hoped that once the OECD has installed its AEI system, FATCA would go away by itself. This will most certainly not be the case. The U.S. have opted for FATCA a long time ago and are likely to stick with their choice, no matter what the OECD will be doing.

The two exchange information systems will remain. FATCA, which, as far as U.S. accounts held in Switzerland are concerned, will only be an AEI system if the U.S. persons concerned give their approval as well as the OECD’s Common Reporting System (“CRS”), a first draft of which was rendered public in February 2014. It may well be that once implemented, the OECD’s CRS will be replacing the standard exchange of information provision contained in most double taxation conventions. This will, however, take time as the OECD’s CRS is a model for bilateral conventions, which are likely to pass in the parliament of both countries participating. So for a certain time, there will be some countries with which there will be an AEI while for many other countries there will still be the traditional exchange of information provision in place. However, one needs to be aware that 60 States have signed the OECCD Mutual Agreement on Administrative Assistance which basically already paved the way for the international framework. The Agreement contains exchange of information upon request, automatic and spontaneous exchange of information clauses.

Overlap of procedures? Assuming the two systems are already in place, Switzerland will have entered into CRS conforming tax agreements (treaties?) with most EU Member States and Switzerland will also have adopted a revised Tax Savings Agreement with the EU. Let us further assume a plain vanilla situation in which a U.S. citizen who is a resident of an EU Member State (with which Switzerland will have entered into a CRS conforming EoI Agreement) has a bank account in Switzerland, on which he receives interest on bonds that have been issued by a Swiss resident debtor.

Under the amended EU Savings Tax Directive, i.e. the amended agreement with Switzerland, the Swiss bank in its function as a paying agent will automatically report the interest earned on the Swiss bonds to the EU country of which the U.S. citizen is a resident. Under the OECD’s CRS (bilateral agreements that Switzerland will have entered into with most EU Member States), the same information regarding said U.S. person’s Swiss account will once more be automatically exchanged between Switzerland and the U.S. person’s EU place of residence. On top of that, and as we have assumed, for a U.S. citizen receiving interest on the bonds, which are deposited in a Swiss bank account, FATCA will apply. Subject to said U.S. person giving its consent, information will again be automatically exchanged, but this time between his Swiss bank and the IRS directly. The U.S. person, which we assume is eager to be fully compliant, will have to file all the applicable U.S. tax forms (including but not limited to the electronic replacement of the FBAR) in order not to contradict any of the information that has been automatically exchanged. Even worse: If under CRS it is established that this person shows indicia for residency in other countries (e.g. holiday home in Italy), there will be multiple reporting to the other EU country AND to Italy. Last, but not least, and as Switzerland levies a 35% withholding tax on the interest paid on the bonds issued by a Swiss resident debtors, the U.S. person will have to invoke the applicable double taxation treaty between Switzerland and the EU Member State in which he is a resident of, in order for him to benefit of the lower treaty rate (usually 15%).

Is there an overlap? Different countries receive information on said bank account, i.e. the U.S under FATCA, the EU Member State under OECD’s CSR and, also in accordance with the Swiss Agreement, with the EU amending the Tax Savings Directive. As, however, there is no difference between a “paying agent” (EU) and “financial institution (OECD CRS), Switzerland has indicated that the discussions on the Amendment of the Tax Saving Agreement will be deferred until it is clear, where the OECD is heading for.

There are still for sure many unanswered questions how much overlap of procedures and information will be have to be provided, and if exceptions will prove the system to fail. Furthermore, lots of workarounds will be sought, so that systems will be dynamically adapt.

As a today’s conclusion, the fact that the USA will not delivery any information on an automatic basis to tax authorities worldwide is in our opinion an extraordinary event that can re-shape the attractiveness of financial places in the Private Banking arena worldwide.

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