The 34 member countries of the OECD, including Mexico, as well as Argentina, Brazil, China, Colombia , Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore, and South Africa adopted the "Declaration on the Automatic Exchange of Information on Tax Matter" (hereinafter the "Declaration" ) on May 6, 2014.
By means of this Declaration, the signatory countries have undertaken to implement a new single global standard on the automatic exchange of information ("Standard for the Automatic Exchange of Financial Accounting Information”) (“SAEFAI Standard”), which was developed by the OECD and accepted by the finance ministers of the G-20, on February 13, 2014.
The SAEFAI Standard incorporates the progress of the European Union and the global standards to prevent money laundering with the implementation of the FATCA Act issued by the United States of America. In fact, on April 9, 2013, France, Germany, Italy, Spain, and the United Kingdom expressed their intention to exchange information, under the FATCA Agreement entered into with the United States of America. Belgium, Czech Republic, Netherlands, Poland, and Romania joined that effort on April 13th, 2013, Mexico was not an exception and joined in June 2013. More than 40 countries have joined the pilot project for the automatic exchange of information by January 2014.
In this context, the legal, administrative, and costs issues derived from the pilot project for the implementation of the FATCA Agreement were of use to design the SAEFAI Standard.
On the one hand, the SAEFAI Standard requires countries to obtain financial institutions information and, on the other hand, to automatically exchange it with other jurisdictions on an annual basis.
It is important to stand out that the SAEFAI Standard is designed wide in its scope due to the fact that the financial information to be reported includes all types of income, including interests, dividends, income derived from certain insurance agreements and other similar types of income, as well as "account balances" and "sales proceeds" of financial assets, whereas financial institutions that will be bound to report include banks and custodians, brokers or agents, certain collective investment vehicles, and certain insurance companies; and reportable accounts include the ones kept by individuals and legal entities, including trusts and foundations. The above-mentioned standard also provides a "look through" analysis on passive entities to report individuals who effectively hold the control thereon.
The SAEFAI Standard can be implemented through bilateral or multilateral agreements that competent tax authorities may enter into, under the bilateral treaties entered into by the countries that have been based on Article 26 of the OECD Convention Model, which already provides this automatic modality for the exchange of information, as well as the Convention on Mutual Administrative Assistance on Tax Matters. This effort of the OECD to achieve an effective automatic exchange of information is founded on the cooperation between tax administrations, as well as on the promotion of international tax compliance, which has been fostered and promoted by this organization for years.
According to the information published by the OECD, this organization will deliver a detailed commentary on the new rule, as well as technical solutions to implement the exchange of information, during a meeting held by finance ministers of the G -20 in September 2014.
As noted in the press release issued by the OECD on May 6, 2014, on the website thereof, the supervision and examination of the application of the SAEFAI Standard will be entrusted to the Global Forum on Transparency and Exchange of Information for Tax Purposes organized by the OECD. More than 60 countries and jurisdictions have undertaken for the early adoption of the SAEFAI Standard. In fact, additional members of the Global Forum are waiting to join this group in the coming months.
The Declaration described above states that this project arises from a widespread concern in the countries at a global level with respect to fraud and international or cross-border tax evasion. Globalization and technological development offers taxpayers easiness to make, hold, and control investments through financial institutions outside their country of residence, allowing income shifting with no taxes payment. This situation is detrimental to the ones who do pay their taxes and it also undermines confidence in the fairness and integrity of the tax system of the countries at national and international levels.
In addition, it is pointed out that this work of the OECD is intended to constitute a tool that, besides fighting international fraud and tax evasion, allows increasing public revenues to encourage and improve public investment, restoring public finances health, and providing essential public services required by citizens. In this regard, and as an example, the issue of the FATCA Act by the United States of America responds to an estimate of tax evasion amounting to $100 billion US dollars in that country1.
It is worth to remember that together with this effort of the OECD to foster and promote the effective exchange of information between countries, Mexico and all the countries that are members of the OECD, as well as other countries that also joined this project, adopted the Declaration on the Base Erosion and Profit Shifting (hereinafter "BEPS") in May 2013, after the issue of the BEPS Report in February 2013.
Thus, the Declaration and the SAEFAI Standard may constitute one of the most effective tools to materialize efforts on BEPS by all the countries involved, all the more since both projects have been inclusive projects by incorporating countries that are not members of the OECD.
Taking into consideration the foregoing, these new rules will result in an increase in the administrative burden of the financial sector and the users thereof. Moreover, these rules will allow the Mexican tax authorities to have greater and timely information in order for them to perform tax audits.