CANADIAN FINANCIAL SERVICES INSTItutions are likely to be dealing with a new global financial information-sharing compliance regime as early as next year, as governments continue to target offshore tax evasion.

Last year, the Organization for Economic Co-operation and Development (OECD), at the request of the G8 group of nations, outlined a plan to implement a model for the global automatic exchange of financial information. The OECD model borrows its key aspects from the U.S. Foreign Account Tax Compliance Act (FATCA), which will compel non-U.S. banks to report on their American clients beginning in July. The OECD’s global regime will exist alongside FATCA.

“The introduction of the U.S. FATCA regime originally caused consternation for financial institutions across the world,” stated a report released in December by Hong Kong-based law firm King & Wood Mallesons. “However, for foreign governments, it planted the seed of an idea – the thought that perhaps they could have similar regimes themselves.” The law firm’s report refers to the proposed OECD global regime as “GATCA,” the “increasingly common” but unofficial acronym.

A working group now is developing a common reporting standard for the OECD’s proposed regime, which is expected to be submitted for approval to the OECD in the coming months. The objective is to have final rules in place by the end of this year. Financial services institutions would establish their compliance structures in 2015, with full reporting beginning in 2016.

“We’re seeing a very interesting situation,” says Andrea Taylor, director with the Toronto-based Investment Industry Association of Canada (IIAC), “[in which] the global regime that is being proposed is on a very aggressive timetable and it’s actually catching up to the FATCA implementation [timetable].”

Next: Getting ready for FATCA
Getting ready for FATCA

In Canada, financial services firms are scrambling to get ready for FATCA by this summer, and they anticipate the announcement of a Canada-U.S. intergovernmental agreement (IGA) that will outline the rules under which the two countries will implement FATCA. Some 18 jurisdictions have signed IGAs with the U.S.

“We’re in a window in which we need to get [a Canada-U.S. IGA] very soon – in the next four to six weeks,” Taylor says, “or we’re going to have to look at some of the timelines again [for FATCA] implementation dates.”

Canadian financial services industry associations, such as the IIAC and the Toronto-based Canadian Bankers Association (CBA), are keeping a close eye on global developments. Their hope is that any global regime would be largely harmonized with FATCA.

“Banks are preparing for the implementation of FATCA, or a Canada-U.S. IGA,” says Maura Drew-Lytle, director of media relations with the CBA, “and hope that the final OECD recommendations will, to the greatest extent possible, leverage the work that has already been done in these areas.” The CBA is generally supportive of any moves to reduce tax evasion, she adds.

The development of a global financial information-sharing regime would have the benefit of removing some of the perceived one-sidedness and extra-territoriality of FATCA, says Walid Hejazi, associate professor of international business at the Rotman School of Management at the University of Toronto: “A global regime makes it more palatable, and a bit more fair, for everyone.”

Both FATCA and the OECD’s proposed global regime have risen out of the general global concern with tax evasion.

“We have a much greater technological capacity to share information, and do it effectively,” says Rick Robertson, associate professor with the Richard Ivey School of Business at the University of Western Ontario in London, Ont. “Countries may have wanted to [target offshore tax evasion] even decades ago, but didn’t have a way of doing it, except by targeting particular individuals. Now, [governments and regulators] can use a broad sharing of information to detect tax evasion.”

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