The global network to stamp out tax avoidance is spreading as the G20 group of countries agreed to exchange tax information.
Backed by the Organisation of Economic Cooperation and Development (OECD), the new tax measures will allow G20 countries to swap financial information about businesses and individuals with bank accounts and investments with other member nations.
The new tax information network is expected to be running by the end of 2018.
The network will operate on similar lines as the USA’s Foreign Account Tax Compliance Act (FATCA).
Financial institutions in each G20 country will have to report the balances of bank accounts and earnings from investments controlled by taxpayers in other G20 countries – and will receive the same information back about their own taxpayers.
End of banking secrecy
FATCA has a minimum reporting threshold of $50,000 for a US tax resident and $200,000 for an expat, but to date, the G20 has not indicated whether similar limits will apply to the new network.
The agreement will have a huge effect on taxpayers sheltering undeclared money and assets offshore.
Around two-thirds of the world population live in G20 nations.
The members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the other 24 member states of the European Union, excluding those with solo membership.
G20 finance ministers issued a communique supporting the implementation of the tax exchange agreement at a recent meeting in Cairns, Australia.
The statement urges all financial centres to commit to the agreement before the G20’s next meeting in Berlin at the end of October 2014.
Each country was also encouraged to support global implementation of the new tax reporting standard.
“Each government in the g20 is supporting more coordination and collaboration by tax authorities on compliance activities on entities and individuals involved in cross-border tax arrangements,” said the communique.
The tax sharing agreement will lead to massive compliance costs for the world’s financial institutions, which have already spent billions on implementing the US FATCA law, which came into force on July 1.
To meet the requirements of the G20 rules, financial institutions will have to identify the tax residence of every customer controlling an account to check if they live in one of the 44 countries involved with the network.