Automatic exchange of tax information: what are the consequences?

To combat tax fraud and protect tax systems, tax authorities have decided to join forces. The exchange of information is at the heart of this cooperation.

What is the automatic exchange of information?

The automatic exchange of information is an agreement between countries to automatically share financial information. This means that each country agrees to provide other countries with information about the bank accounts of its residents. The purpose of the automatic exchange of information is to help governments track down people who evade taxes. It was only since 2012 that states' interest in the automatic exchange of information grew. These exchanges involve the systematic communication, at defined intervals, of information on certain categories of income (dividends, salaries, interest, etc.) by the country where the income originates and where the taxpayer is resident.

How does the automatic exchange of banking information work?

The automatic exchange of banking information is a process through which banks share information about their customers' accounts with tax authorities. This enables tax authorities to identify taxpayers who may be evading taxes by holding undeclared bank accounts. As part of the automatic exchange of banking information, banks must provide the competent tax authority with information about the account holder, such as their name, address, date of birth, and account balance. The tax authority then uses this information to identify taxpayers who have not declared their bank accounts. The automatic exchange of banking information is an important tool in the fight against tax evasion. It helps ensure that all taxpayers pay their fair share of taxes.

Automatic exchange of information between tax authorities

The automatic exchange of information between tax authorities is a process through which one tax authority shares information with another tax authority about taxpayers who may be subject to tax in both jurisdictions. The aim is tax transparency. Information is generally exchanged on a bilateral basis, but multilateral agreements also exist. The most common agreement is the automatic exchange of information, which requires financial institutions to provide information to the tax authority of the account holder's country of residence. This information includes the account holder's name, address, date of birth, and account balance. More than 100 countries have signed this agreement, and more than 60 have already implemented it.

Automatic exchange of financial account information: FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a U.S. federal law that requires U.S. persons with financial interests in foreign accounts to report those accounts to the Internal Revenue Service (IRS). The purpose of this law is to combat tax evasion by U.S. persons who hold money in offshore bank accounts. Under FATCA, foreign financial institutions (FFIs) are required to report information about U.S. account holders to the IRS. This information includes the account holder's name, address, and taxpayer identification number (TIN). In addition, FFIs must report the account balance or value at the end of each year. The IRS has entered into agreements with a number of countries to automatically exchange this information. These agreements require FFIs in participating countries to provide information about accounts held by U.S. persons to their governments, which then communicate it to the IRS.

A multilateral framework agreement

The automatic exchange of information is governed by several instruments. At the international level, Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters governs the automatic exchange of financial information. The latter was signed on 29/10/2019 in Berlin under the patronage of the OECD and provides for the automatic exchange of information relating to financial accounts for tax purposes. There is also an automatic exchange between France and the USA, arising from the agreement of 14/11/2013 under the "FATCA" law (Foreign Account Tax Compliance Act), signed in 2010, or the "law on compliance with tax obligations concerning foreign accounts," signed in March 2010. Finally, at the European Union level, the exchange of banking information is governed by Article 8 of Council Directive 2011/16/EU of 15/02/2011, repealing Directive 77/799/EEC. NB: The information shared in this article is general. For a more in-depth analysis of your situation, we recommend consulting a tax lawyer in France.