09 October 2013

Responses to OECD Consultation Document on Standard for Automatic Exchange of Financial Account Information: GFIA, Insurance Europe

In general, the GFIA and Insurance Europe support measures aimed at combating tax evasion, which is corrosive to the fairness of a tax system, provided the rules that are introduced to prevent it are targeted and proportionate.

GFIA

GFIA is supportive of the OECD and Governments working collaboratively to combat tax evasion. However, GFIA strongly believes that there should be a single global standardised solution that is risk-based.

It is important that the OECD model take a risk-based approach. This will minimise compliance costs and ensure that any compliance costs, which will ultimately be borne by consumers and shareholders, can be justified and represent a worthwhile expenditure of limited economic resources. The OECD’s approach should recognise that insurance products present a very low risk of tax evasion for many reasons (the long term nature of these products, surrender and mortality charges, and the fact that they are subject to local tax regimes which require tax reporting and/or withholding). In addition, the long term nature of insurance products and limited customer contact make any requirements to renew documentation more challenging, costly and unlikely to be successful.

It is critical that the global model is consistent with the outcome of FATCA in each jurisdiction. Otherwise, companies will need to build and operate multiple systems which will substantially increase compliance costs.

For this reason the CRS needs to provide:

• A workable exemption for pre-existing cash value insurance and annuity contracts
• Optional deminimis thresholds as with FATCA
• Exemptions for low risk entities and products identified by each country, as with FATCA
• Ability to use the duediligence procedures set forth in the US Treasury Regulations.

The OECD's consultation document (in CRS Annex Section III A) recognises the low risk of tax evasion posed by pre-existing insurance in its provision of an exemption for pre-existing cash value insurance and annuity contracts. The OECD model follows the FATCA approach and requires that the FI is "effectively prevented by law from selling such Contract to residents of a Reportable Jurisdiction". While this approach is effective in a number of jurisdictions, it will not work for EU-based insurers under a global model.

Full response

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Insurance Europe

Insurance Europe supports the work on automatic exchange of information undertaken by the OECD, and the development of a uniform global standard. Since tax evasion is a global issue, any system of automatic information exchange should also have a global reach.

With this response, Insurance Europe outlines its key concerns on the general principles governing the draft OECD Standard for Automatic Exchange of Financial Account Information (OECD Standard), and comments specifically on the technical aspects of the draft OECD Standard.

Insurance Europe believes that any move towards global automatic exchange of information needs to be assessed against existing reporting obligations.

Following the issuance of the final FATCA Regulations in January 2013, European insurance companies are obligated to implement FATCA reporting requirements. Complying with FATCA was an expensive operation for European insurance companies which were, until then, and unlike banks (i.e. through the European Union Savings Directive), not subject to any cross-border reporting requirement.

In order to keep compliance costs to a minimum, it is critical that the OECD standard be consistent with the outcome of FATCA in each jurisdiction. This does however not mean that the OECD Standard should adopt the exact FATCA wording or procedures; Rather, of vital importance is that the OECD Standard is such that companies do not need to build and operate multiple systems. For this reason the OECD Standard needs to include, in particular:

• A workable exemption for pre-existing cash value insurance and annuity contracts;
• Optional de minimis thresholds as with FATCA;  
• Exemptions for low risk entities and products identified by each country, as with FATCA.

Full response