Tax authorities around the world are calling time on individuals and companies who try to shelter their money and assets offshore.
Around 40 countries are about to enter into a United States Foreign Account Tax Compliance Act (FATCA) style tax information swapping agreement.
The new global tax standard will be unveiled at a meeting of the leading G20 developed nation finance ministers in Sydney, Australia, on February 22.
The proposed tax network was masterminded by the Organisation of Economic Co-Operation and Development (OECD) after leaders of countries around the world voiced their concerns that wealthy individuals and multinational corporations were sheltering their money in low-tax jurisdictions to avoid paying higher taxes in the countries where the money was earned.
The new agreement will let tax authorities automatically exchange information with each other to identify suspected tax cheats.
Tax loopholes closing
Each country will also change tax laws to close loopholes exploited by taking money and assets offshore.
The agreement will run along the lines of the US FATCA tax law that requires financial organisations to identify the tax residence of their customers and to report the balances of the bank accounts, earnings on investments and any gains on the disposal of assets to the customer’s home nation.
The information will then be cross-referenced against tax returns to ensure companies and individuals are paying the right amount of tax.
Companies will also have to split their accounts to report country-by-country profits and assets.
OECD Secretary-General Angel Gurría said: “This new proposal will change the international tax landscape for everyone. Technology and globalisation of the world financial system has made shifting and managing money outside of a taxpayer’s country of residence too easy.
Offshore accounts targeted
“Now governments have a new tool to make sure taxpayers report their true net worth and earnings and this will reduce the opportunities to avoid tax.”
The OECD is working to make the new tax exchange agreement a global policy by bringing together 121 financial jurisdictions into the Global Forum on Transparency and Exchange of Information for Tax Purposes.
More than 40 countries have already adopted the standard, says the OECD, hinting that many more are ready to sign up.
FATCA starts from July 1, 2014, and expects US taxpayers and financial institutions that hold bank accounts or investments worth more than $50,000 to automatically report on earnings and gains every tax year.
Financial organisations that fail to comply face penalties and possible exclusion from the US financial system. Around 700,000 financial organisations worldwide are expected to join FATCA by April.