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Are You Ready For The New Automatic Exchange Of Information?
Tuesday, 13 October 2015

We are about to enter a new era for international tax planning and cross border wealth management.

January 2016 sees the start of a new global automatic exchange of information regime that affects everyone who has financial assets outside their country of residence.  Financial privacy is dead and buried, to the point where your local tax authority will passively receive information about your investment assets without having to ask for it. 

Everyone should be aware of what information will be shared about their income and assets, and consider what tax and estate planning arrangements are best suited for them and their family. 

The current situation

There has been some automatic exchange of information in Europe since 2005, under the EU Savings Tax Directive, but it only applies to interest income. Third countries like Switzerland implement the directive by applying a withholding tax, thereby maintaining banking secrecy.

Many jurisdictions around the world have signed bi-lateral tax information exchange agreements.   These however are of limited benefit to tax authorities.  They can only receive information on a taxpayer’s offshore assets if they ask for it and need to have suspicions of tax evasion.  If they are not aware of an account, they will not receive information on it. 

The situation from January

In July 2014 the council of the Economic Co-operation and Development (OECD) approved a new standard for the Automatic Exchange of Financial Information in Tax Matters.  It comprises the Competent Authority Agreement and the Common Reporting Standard (CRS), and goes live on 1st January 2016.

This new regime involves the systematic and periodic transmission of taxpayer information by the source country to the residence country concerning various categories of income – it goes much further than just interest income.

This means the Spanish tax authorities will automatically receive information on all the financial assets their taxpayers own overseas – without having to ask for it, and on offshore accounts and investments they may not have been aware of before. 

They will compare data received against tax returns, and where they find discrepancies have good reason to launch a tax audit.  This could result in the taxpayer having to pay previously unpaid tax, plus interest, plus penalties.  In some cases they could face criminal prosecution. 

The Spanish authorities will also compare data received with Form 720, where residents have to declare their overseas assets.  The penalties for undeclared assets can be costly.

Information to be reported

Under the Common Reporting Standard, the information to be reported includes the name, address and tax identification number of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets. 

The institutions that need to report include banks, custodians, investment entities such as investment funds, certain insurance companies, trusts and foundations. 


Almost 100 jurisdictions around the world have signed up to the Common Reporting Standard so far. 

It comes into effect in stages.  The ‘early adopters’ (including the EU and UK offshore centres) start to collect data from January 2016, and will make the first information exchange (for fiscal year 2016) by September 2017.

The other countries, including Switzerland, will introduce the standard a year later.

In Europe, the Common Reporting Standard will be implemented through the Administrative Cooperation Directive. It provides for automatic information sharing 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 have many different offshore bank accounts, investment products, trusts etc, then each one of these will be sharing information on you to your local tax authority.

For peace of mind you could group as many assets as possible into one arrangement, so that there is much less information being passed around, and it will be easier to follow what is being exchanged about you.

Cross border tax planning is complex.  You need to be clear on what income and assets you should be declaring in which country.   If you live here and you earn income in the UK (eg, pension or rental income), do you pay tax in UK or Spain?  If you have got this wrong you should regularise your affairs before the new regime starts.

This is also a good time to review your tax planning arrangements.  Are they approved here in Spain?   If, for example, you use non-compliant bonds, such as non-EU bonds including those from the Isle of Man, Jersey and Guernsey, provided you have been fully declaring them in Spain they are not illegal – but they are taxed more aggressively than Spanish compliant bonds. So why are you paying more tax than necessary?  And do these bonds provide estate planning benefits?

We are entering a completely new era.  Are you ready? 

David Bowern, Partner, Blevins Franks
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Tel: 952 809 212

Learn more about Blevins Franks.


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