Greater international tax transparency has been a major goal for governments seeking to reform the global financial system in recent years. It is now a reality. A global automatic exchange of information regime goes live in January 2016. If you live in one country and have assets in another, tax authorities – including those concerning taxation in France and offshore jurisdictions – will collect and share your financial information under the new Common Reporting Standard.
There has been automatic exchange of information in Europe for some years, under the 2005 Savings Tax Directive, but this is quite different.
What is different now?
The Savings Tax Directive only applied to interest income.
Globally, many countries have signed bilateral tax information exchange agreements, but this only enables them to request financial information about people they suspect of tax evasion.
The new regime covers much more than just interest income. And tax authorities will receive information automatically, on everyone – they do not need evidence of non-compliance to get it. They will compare information received to what you include on your on tax return so they can check you have properly declared your income and assets.
No one is immune to the new regime. If you are a French tax resident and have financial assets outside France, for example, pension funds in the UK, the French tax authorities will receive information about these assets. In fact, France has been a key driver in the initiative, in line with its long history of fighting tax evasion. In 2014 it collected almost £2bn from tax evaders but the new regime looks set to increase this sum substantially.
Common Reporting Standard
As well as the Savings Tax Directive, previous initiatives for global financial information sharing include the US Foreign Account Tax Compliance Act FATCA. This makes it mandatory for foreign financial institutions to report all accounts held by US persons to the US authorities.
However, the technical standard for the new automatic exchange of information is 2014’s Economic Co-operation and Development’s (OECD) Common Reporting Standard, which was modelled on FATCA. Almost a hundred countries have so far signed up to it.
The Standard provides for the annual automatic exchange of financial account information between countries. It lists both the financial information to be exchanged and the financial institutions that need to report. These include banks, custodians, guardians, certain collective investment vehicles and certain insurance companies. It also describes the common due diligence procedures the financial institutions must follow.
There are 58 “early adopters” who have committed to start collecting information in 2016, ready for sharing by the end of September 2017. These include France, the rest of the EU, the Isle of Man, Jersey, Guernsey, the Cayman Islands, Liechtenstein, Luxembourg, San Marino and South Africa.
Australia, Canada, China, Hong Kong, Monaco, Singapore, the United Arab Emirates and Switzerland are among 35 more jurisdictions that have pledged to start sharing data in 2018.
In Europe, the Common Reporting Standard will be launched through the revised Administrative Cooperation Directive that was adopted in December 2014. It will replace the Savings Tax Directive. It allows authorities to share information automatically on interest, dividends and other investment income, account balances, sales proceeds from financial assets, income from employment, directors’ fees, life insurance, pensions and property.
What does this mean for you?
If you hold financial assets outside France, every year the financial institution will give the French tax authorities information on:
▪ your name, address and date of birth
▪ your tax identification number
▪ account numbers
▪ account balances
▪ interest earnings
▪ sales proceeds from financial assets.
Many people who pay UK tax do not realise they need to declare it on their French tax returns. However, as a French tax resident it is obligatory that you declare your worldwide income, gains and wealth in France – including income that is taxed elsewhere, such as UK rental income and pensions.
If you have a UK government service pension, it is taxed in the UK and not in France, but the income must still be declared in France. This is taken into account when the tax authorities are calculating how much tax you need to pay on your French source income.
Also, if you live in France and rent out UK property, even if you have a non-resident land certificate, you need to declare the income in both the UK and France.
Do I have to do anything?
The cross-border tax landscape has completely changed. It is essential that you take specialist advice to make sure your tax planning conforms to French tax law. If you are not up to date with these developments, it could have serious consequences.
French taxation is high, but there are tax-compliant opportunities available that will lower liabilities. You still have the right to structure your wealth and assets in a tax-efficient manner and if you want to make changes, you need to do so before the end of this year. To do so it is best to take specialist, personalised advice.