It is reported that around 8.5 trillion dollars (more than 6% of the global wealth) is managed through offshore accounts. By ‘offshore’ one means an account in a financial institution that is outside of the taxpayer’s home jurisdiction. The issue of offshore tax evasion has taken on a greater global significance in the recent years following notable corporate scandals and the increased emphasis on stamping out base erosion and profit shifting.
The response has been multi-pronged. The U.S. has enacted FATCA. Bilateral arrangements between large asset management jurisdictions and large financial centres have emerged such as Switzerland’s introduction of the Anonymous Withholding Model. The EU has also issued a Directive on Administrative Cooperation in the Field of Taxation. However, the most recent initiative is the OECD and G20s multilateral effort to improve tax administrative cooperation through the adoption of a Global Standard of Automatic Exchange of Information.
Fifty-two jurisdictions signed up to the Global Standard for Automatic Exchange of Information on 29 October 2014 at the Berlin Global Forum.This represents a strong commitment on the part of the signatories, including Malta, to adopt the standard and be ready for the first automatic exchange of information that will take place in between 2017 and 2018.
The Standard essentially requires financial institutions to take on the role of tax agents. It sets out a minimum standard for the information to be exchanged. Jurisdictions may choose to exchange information beyond the minimum standard. Although it is a minimum standard it has a broad scope in order to limit the opportunities for taxpayer to circumvent the model by shifting assets to institutions or investing in assets not covered by the model.
The global model is drafted with respect to financial account information. It requires financial institutions to report information on accounts held by non-resident individuals and entities (including trusts and foundations) to their tax administration. The tax administration then securely transmits the information to the account holders’ countries of residence on an annual basis. It specifies:
- The financial account information to be exchanged, including the different types of accounts: account balances, interest, dividends, and sale and redemption proceeds from financial assets;
- The financial institutions that need to report: deposit-taking banks to report, but also custodial institutions, certain investment entities, and certain insurance companies;
- The taxpayers covered.
In order to ensure that the information is accurate and complete, the Standard also specifies the information gathering procedures to be followed by financial institutions (drawing on the existing international anti-money laundering standards). Confidentiality, data safeguards and proper use of the information is critical, and the Standard sets out clear requirements that must be met by all jurisdictions participating in AEOI. The Standard also includes a model agreement for government authorities to use to operationalise the automatic exchanges and a technical user guide to ensure the information is reported in a standardised format.
The stance taken by Malta is complementary to the commitment the State has shown in (ii) entering into Tax Information Exchange Agreements over the past two years and also (ii) to combating tax evasion. To date, Malta has entered into such Tax Information Exchange Agreements with the Bahamas, Bermuda, Cayman Islands, Gibraltar and the US FATCA Agreement. The Agreement with Macao has been signed but is not yet in force. Malta also has sixty-nine double tax treaties signed and in force that contain exchange of information clauses. Parliament has also extended the investment registration scheme until November 30, 2014, under which Malta resident individuals and bodies of persons that are subject to tax in Malta can declare their undeclared holdings of eligible assets to the Maltese tax authorities upon payment of a one-time registration fee of 7.5%, or 5% if such assets are repatriated to Malta.