The G20 Finance Ministers and Central Bank Governors recently met in Sydney. A topic of discussion was the recently released proposal for automatic sharing of financial information between the various taxation authorities around the world. The proposal also included a global taxation plan on Base Erosion and Profit Shifting.
By the end of 2015, it is expected that financial information will be automatically exchanged between the various jurisdictions on an annual basis. The proposed information exchange includes investment income (including interest, dividends, income from insurance contracts), account balances and sales proceeds from financial assets. This information will be required to be reported by banks and custodians, brokers, certain collective investment vehicles and some insurance companies. Over 40 jurisdictions including most of the European Union, India, South Africa, Cayman Islands, British Virgin Islands and Isle of Man have committed to early adoption of the proposed arrangements.
The proposed automatic exchange of financial information is a step towards significantly increasing worldwide tax transparency and international tax co-operation between governments. The proposal is also expected to reduce opportunities for tax evasion and provide governments around the world with increased abilities to conduct specific investigations into taxpayers’ affairs.
The continued focus on Base Erosion and Profit Shifting by governments and taxation authorities around the world highlights the need for businesses transacting with international-related parties to ensure that appropriate transfer pricing documentation is maintained. When combined with the possible automatic sharing of financial information, governments around the world are likely to be able to easily ascertain international financial transactions. This will result in more targeted scrutiny of an entity’s compliance with transfer pricing legislation.