OECD unveils ‘global FATCA’

The Organisation for Economic Co-operation and Development (OECD), a rich-country think-tank, unveiled plans to create a global tax information exchange that would allow tax authorities to share information on overseas account holders, including private equity investors.

Taking its cue from the US Foreign Account Tax Compliance Act (FATCA), the OECD wants financial institutions, including private equity firms, to report certain tax details on foreign investors to their local tax authority, who will then share that information with its counterparts around the world.

“This is a real game changer,” OECD secretary-general, Angel Gurría, said in a statement. “This new standard on automatic exchange of information will ramp up international tax co-operation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.”

So far the OECD has laid out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

Further details on the proposals are expected when G20 finance ministers meet in Australia this September.

The OECD expects the tax exchange to be up and running by 2015. But legal sources speaking to PE Manager said this is highly unlikely.

“This is going to happen, and this is the way forward, but the timetable of 2015 is wildly optimistic, I think that is extraordinarily unlikely,” said one UK-based tax lawyer.

“What we have learnt from FATCA is everyone started to plan very early and things changed so much, there is a lot to be said for just sitting tight at the moment.”

Legal sources also don’t expect the global tax exchange to feature some of FATCA’s harsh punitive measures for non-compliance. GPs subject to FATCA that fail to report any necessary tax information on US investors face a hefty 30 percent withholding tax on certain US-connected payments.

“I think the idea is to engender this as the norm so that countries that don’t sign up are OECD blacklisted or something similar. It will be a reputational issue,” said the UK-based lawyer.