Direct taxation is one area not harmonised across the European Union (EU). This arguably leaves room for some taxpayers to evade tax in the jurisdictions in which they are liable.
There has been a global response to improve tax compliance and counter tax evasion in which the UK has been a leader. The Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account Information was signed in October 2015, implementing the Organisation of Economic Cooperation and Development’s (OECD) Common Reporting Standard system (CRS). The CRS was developed to provide a new global standard on automatic exchange of financial account information. To date, over 90 countries have committed to exchange information under the CRS with first reporting in 2017 and 2018.
This is aligned with the United States of America (US) Foreign Account Tax Compliance Act – automatic exchange of financial account information on US citizens and residents (FATCA). FATCA is the exchange of information agreement with the US which is currently in place (you may have been asked to provide information under this Act already).
The EU regulated the exchange of financial information, firstly through the Council Directive 2011/16/EU for Administrative Cooperation. This was then revised by Council Directive on Administrative Cooperation 2014/107/EU (the DAC), which extended the application of the directive to the automatic exchange of financial account information and cross border tax rulings and advance pricing arrangements, in accordance with the CRS.
The UK Treasury, in compliance with its obligations under the EU and MCAA CRS, introduced regulations to implement the DAC. The regulations identify accounts held by specific persons and “collect and report information in a specified manner on specified persons”. Specified persons are “accounts holders who are tax resident in jurisdictions with which the UK has entered into an agreement to exchange information about a wide range of financial accounts and investments to help tackle tax evasion”.
Once the UK leaves the EU the DAC will no longer apply, however, as the UK worked closely with the OECD to develop the CRS, and has obligations under the MCAA CRS of which it is a signatory to, it is expected the UK would still commit to the CRS, just not through the DAC.
Although UK tax residents (individuals and entities) may not feel any change in this area as a direct consequence of Brexit, they can expect an increase in more detailed requests for financial information by financial institutions.