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What is the Automatic Exchange of Financial Account Information?

Such disclosure of financial information as prescribed by the Organization for Economic Cooperation and Development make some parties wary. Find out why.
By Entrepreneur Staff |

 

automatic exchange of financial info

NOT KEEN. The Philippines is set to implement the Common Reporting Standards (CRS) by 2018. But apparently, the country is not keen on CRS due to Bank Secrecy Law. Photo from Thinkstock

 

MANILA, Philippines – If wealthy Filipino families have security concerns regarding sharing information with the government, particularly financial and tax details, they can choose to move to another country, a residence and citizenship planning firm cited on Wednesday, February 24.

 

Henley & Partners outlined on Wednesday the risk implications of Common Reporting Standards (CRS) to wealthy families, investors, and mobile entrepreneurs.

 

But what is it with CRS that some parties are wary about it?

 

The Standard for Automatic Exchange of Financial Account Information is spearheaded by the Organization for Economic Cooperation and Development (OECD).

 

OECD cited that under the single global standard, jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on a yearly basis. In the handbook prepared by OECD, it cited the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, plus the common due diligence procedures to be followed by these institutions. CRS is one of the two components of this, and the other is the Model Competent Authority Agreement, which contains the detailed rules on the exchange of information.

 

 

Anti-tax evasion

CRS is created as a pro-active measure versus tax evasion. It outlines how financial account information of foreign tax residents can be automatically disclosed by financial institutions and governments to relevant authorities to locate untaxed wealth, Henley & Partners stated.

 

And the Philippines is said to implement CRS by 2018. “More than 50 countries have committed to a specific and ambitious timetable leading to the first automatic information exchanges in 2017,” OECD said.

 

But if CRS is adopted in the country, then it will provide and receive financial information on Filipinos living abroad.

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Security concerns, tax reasons

Thus, some wealthy families have such security concerns regarding a possible exchange of information with their home country—since there is a risk of this information becoming available to the wrong sources.

 

As such, some of these wealthy families consider or eventually opt moving to a country where “the overall situation is more favorable with regard to security, tax, lifestyle, and education,” Henley & Partners stated.

 

Henley & Partners Singapore office Managing Partner Jürg Steffen said the United Kingdom, for instance, offers a special tax system for the wealthy who wants to transfer residence there. Henley & Partners also has several wealthy Filipino clients who now live in Portugal, as the wealthy who moved there pay only 20% income tax.

 

It is also better for those wealthy to move to Hong Kong as an entrepreneur as the requirements are more relaxed, Steffen said. If one chose to move to Australia, they only need to pay taxes on income made there for the first four years.

 

Steffen added that their Filipino clients only look for other countries for tax domicile. A domicile can be made through driver's license, voter registration, address of record for credit cards and other bills, but it is not necessary that a person live in their listed domicile.

 

And based on the firm’s experience, Filipinos chose to change residency mostly these days due to tax reasons. But Zac Lucas, partner at Wragge Lawrence Graham & Co LLP said, generally, the wealthy’s main concern when moving abroad is personal security.

 

Overall, it is in the interest of the Philippines to adopt CRS to know offshore assets of wealthy Filipinos, Steffen noted.

 

But the country is apparently not keen on CRS due to Bank Secrecy Law, said Lucas. Malacañang earlier said it would support proposals from both the Senate and the House to reduce income taxes if Congress agrees to lift the law to aid the Bureau of Internal Revenue in running after hidden deposits.

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But some members of the Congress are not keen about it, saying it would discourage investors and could be used as a tool to persecute political opponents. – with a report by Lynda C. Corpuz

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