The automatic exchange of financial account information in tax matters is a significant step towards the elimination of bank secrecy in several jurisdictions. The project is gradually being implemented: on October 8 of this year, the Swiss Federal Council reported to international institutions its intention to introduce the global standard provided for by OECD taking effect from 2017 for about 40 countries that have already formalized their position -- these are the so-called "early adopters" -- and from 2018 for the remaining countries. Recently, a global forum meeting in Berlin underlined the progress of the programme and its supposed effectiveness in fighting the "scourge" of tax evasion by natural and legal persons, in a coordinated manner at an international level.
The procedure is similar to that laid down by Washington in the FATCA agreements-US Foreign Account Tax Compliance Act and, albeit in a different way, by the European Union Savings Directive. One of the differences between the Standard and FATCA is that, while for the latter the applicability criterion is U.S. nationality or, more specifically, the status of US persons for tax purposes, the key factor in the automatic exchange of information is the account holder's country of residence, regardless of nationality.
The programme is based on the OECD common reporting standard, i.e. the basic protocol which all participating countries should follow. In essence, tax authorities from the different countries are required to collect information from their financial institutions and report it to corresponding tax authorities. Financial intermediaries are therefore required to carry out extensive work concerning their customers and their financial transactions, and are also burdened with significant responsibility being sanctioned in the event of errors or omitted fulfilments. The information they need to collect includes, account holders' full data, their identity and residence, place of birth, tax identification number (TIN), accounts balances, interest on all financial instruments and dividends received, payments derived from insurance products, annuities, and the proceeds of sale from broadly defined financial products. The same reporting criteria applies to legal persons and other entities such as trusts and foundations, inclusive of all relevant data on beneficial owners as well as on those who exercise control, in accordance with the "look through" principle.
We would like to address some of these points. The Standard implies strict reciprocity; however, the banks and intermediaries operating in a given country may collect data on their account holders to a different extent from that available in other financial centers (suffice to think of the "very advanced" and pretentious United States on compliance), this begs the question on whether such reciprocity can be ensured (and whether the Unites States does intend to implement this). It should be recalled, inter alia, that the FATF recommendations against money laundering are applied by these countries in rather different ways. Even the legal principle of "specialty", which requires any information reported to be used solely for tax purposes and to be kept confidential, may be difficult to apply in some countries (for example in Italy, where not only data protection is very deficient).
The common standard might then be "construed" by the different countries in such a way as to place a financial centre at a disadvantage when compared to other centers. Going back to operational issues, the common reporting standard indicates the operators that are involved. These are banks, custodial institutions, depositaries, brokers, investment funds, trusts and insurance companies. Another significant difference with respect to the US FATCA is the absence of a minimum threshold (50,000 dollars for FATCA), below which the procedure does not apply. The automatic exchange encompasses any account of any nature and/or amount. The transmission of tax data and the reporting of information in line with the rules of the different countries in which the account holders reside, will also require the financial institutions to substantially upgrade their IT systems and will imply continuous updates; in fact, the tax systems of the different countries are not only very different but also quite complex, if not confusing, and continuously evolving.
A poignant question arises: will the Standard work as effectively and ideally as suggested by the OECD? Will the flow of data and information really be homogeneous and managed correctly? This seems doubtful. While the Swiss Government endorsed the plan with a timeliness that was seen as excessive by many, these concerns have been voiced by the Government of The Bahamas, which has long favored a bilateral approach, i.e. via an agreement between two States on well-established grounds, to the multilateral and vague approach suggested by the OECD. A multilateral approach was described as "flawed" by Minister Ryan Pinder, Minister of Financial Services, at the STEP Caribbean Conference in July. Additionally, The Bahamas has a long track record of tax information agreements, beginning with the agreement with the United States which was entered into as early as 2002, followed by those with many other countries; The Bahamas was removed from the OECD "black list".
What the OECD is now projecting, surpasses this. In fact, to identify tax evasion abroad may be challenging in the presence of hundreds of varying tax systems.
Minister Pinder also mentioned the issue of data confidentiality and the use of data in an unauthorized form, recalling the experience of several European countries. Also, the European Union and the OECD have opposed the extension of the so-called "Rubik model", i.e. the withholding on an anonymous basis of a tax equivalent to that which the account holder would pay in their State of residence. A solution adopted pragmatically by the United Kingdom with regard to Switzerland, which would have brought more funds into European States' coffers in swift and certain times, without the tax assessment and collection costs which they will now have to face, with more uncertain outcomes. In addition, the arbitrary creation of "black lists" by the OECD for smaller countries is questionable and does not benefit these countries. They are often not heard when the leading countries make such decisions on transparency, but rather are presented with a fait accompli; a position that has been upheld by many minor financial centers and one that has been clearly expressed by the Government of The Bahamas.

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