With the exception of the Sultanates of Brunai and Quatar and the principality of Monaco all governements in the world have one and the same primary drive: stealing as much money as possible from the pockets of their citizens.
However as they like to be seen as "honest people" (think of Mrs Albuquerque) they use a very euphemistic expression for that: they call it "tax collecting".
Each country has his own army of tax collectors and an arsenal of inquisition tools in order to reach their goals but that is only useful for the poor tax residents living inside their country. For ages in each country there are so called "experts" after the people who try to escape or evade tax paying. In some countries this is a real nightmare - for the taxmen as well as for the people concerned. Think of the British HMRC practices and the American IRS inquisition - not to mention the Portugese IRS.
Some years ago America installed a drastic system called FATCA: as from now on all countries in the world should communicate automatically and on a yearly base to the American IRS authority all financial information about Americans living abroad. Apparentely the system works quite well.
This is a Pandora's Box as it was obvious that other countries will copy the system as it only really works if many or most of the countries in the world participate. It was the mighty G20 which finaly decided to make the system available worldwide. As such the Paris based OECD has been order to develop an "automatic yearly financial reporting system" for the rest of the world.
However already in 2011 inside Europe a "test" had been set up, called the 'European Savings Directive - yearly information communication.'
Under this legislation, all involved financial institutions in Europe have to communicate all interest earned plus all investments to the tax authority in the country where the person is tax resident. As such it is obvious that your tax declaration - including interest payments - has to be made in your tax residency country. This year the system was tested for the 5th time.
And as this seems to work, the OECD decided to use this procedure as the basis for the new and worldwide CRS - Common Reporting Standard.
Things have moved unbelievable quickly: already about 70 countries now are preparing the first edition of CRS that will be effective as from 2017 and every month additional countries join the club. In ten years from now, all 200 countries worldwide will adhere to the system because they all notice how much extra money it brings to their state coffers.
Who ever said 'good examples' need to be copied?
What will be the fundamental differences compared to the current system?
1. For tax purposes the nationality of an individual is no longer the question: his TAX RESIDENCY is the key issue. Of course there are rules for determining the correct tax residency.
2. It is no longer a financial institute (bank, life insurance company, investment company, etc.) that informs the tax authorities of the tax payer's country of tax residency. These institutions now have to inform their own national tax authority which then will transmit the information to the tax residency country of the tax payer. Meaning "from now on every tax jurisdiction will know everything about each tax resident".
As this is a complex matter it is a good idea if fiscal experts explain to us the A to Z of the topic.
In the meantime and in order to make CRS understandable we can give an example of a tax payer living and working in France but as a (wealthy) businessman he also has financial agreements in other countries. See what will happen as from the 1st of January 2017.
The consequence of all these fiscal manipulations is that unfortunately as well bank secrecy, our privacy is under attack.
For further information read:
http://www.oecd.org/tax/eoi/toolkit
http://www.oecd.org/ctp/exchange-of-tax-information
