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News : Global Economy Last Updated: May 8, 2014 - 10:01 AM

Switzerland, Singapore join OECD agreement to end bank secrecy for tax evasion
By Michael Hennigan, Finfacts founder and editor
May 7, 2014 - 7:40 AM

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Shinzō Abe, Japan's prime minister (fifth from right), and Angel Gurría, OECD secretary-general, with a group of Japanese at OECD headquarters, Paris, May 06, 2014.

In a huge blow against the use of bank secrecy in offshore tax havens to engage in personal tax evasion with impunity, Switzerland and Singapore, two of the world's biggest offshore financial centres, agreed on Tuesday to join an Organisation for Economic Co-operation and Development's (OECD) system for the automatic exchange of banking information between jurisdictions.

The Declaration on Automatic Exchange of Information in Tax Matters was endorsed during the OECD’s annual Ministerial Council Meeting in Paris by all 34 member countries (which includes all the developed world economies), along with Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa.

The Declaration commits countries to implement a new single global standard on automatic exchange of information. The standard, which was developed at the OECD and endorsed by G-20 (group of twenty leading developed and emerging economies) finance ministers last February, obliges countries and jurisdictions to obtain all financial information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.

“Tax fraud and tax evasion are not victimless crimes: they deprive governments of revenues needed to restore growth and jeopardise citizens’ trust in the fairness and integrity of the tax system,”  Angel Gurría, OECD secretary-general,  said. “Today’s commitment by so many countries  to implement the new global standard, and to do so quickly, is another major step towards ensuring that tax cheats have nowhere left to hide.”

The OECD will deliver a detailed commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G-20 finance ministers in September 2014. 

G20 governments have mandated the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes to monitor and review implementation of the standard.

More than 60 countries and jurisdictions have now committed to early adoption of the standard, and additional Global Forum members are expected to join this group in the coming months.

The Swiss Bankers Association said: “The banks in Switzerland are willing to adopt the automatic exchange of information along with other financial centres, provided that the exchanged information is only applied for tax purposes.”

It added that it would require “fair solutions” to handle past non-compliance, as well as reciprocal information exchange. It said: “Reciprocity should apply and structures like trusts be part of information exchange. Furthermore the banks expect fair solutions for untaxed assets of the past in order to implement the standard with each country.”

"It's clearly the end of bank secrecy abused for tax purposes," Pascal Saint-Amans, tax director at the OECD, told journalists in Paris Tuesday. "It means that governments can really assess the tax owed by people who thought they could hide in other jurisdictions."

The FT reports that the Swiss government has highlighted the lack of transparency concerning the ownership of US companies, which are subject to limited disclosure rules. “Switzerland also expects the special provisions that apply in the United States regarding the transparency of beneficial owners to be of a temporary nature,” it said.

The new system is expected to become operational in 2017 and tax havens that refuse to join the system will likely be blacklisted.

According to the Boston Consulting Group, there was $1.2tn in offshore wealth assets held in Singapore and Hong Kong in 2012.

UK position on beneficial ownership

Finfacts 2009: The "honest Swiss"; tax secrecy and the cost of servicing wealthy foreigners

In a related development, Singapore has agreed to share information with the US under a new law aimed at preventing offshore tax evasion by American citizens.

The city-state is one of Asia's biggest financial centres and is forecast to overtake Switzerland as the world's largest wealth management centre.

It will participate in the Foreign Account Tax Compliance Act (FATCA), which takes effect on 1 July.

The move provides a boost to US efforts to clamp down on tax-dodgers.

The US intergovernmental agreement with Singapore was agreed "in substance" and is set to be finalised by the end of the year.

It requires financial firms to report information on US account-holders to the relevant tax authorities.

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