The New Era of Tax Transparency in Financial Services

The New Era of Tax Transparency in Financial Services

June 2015
Mariano Giralt   |   Head of Tax Services, EMEA
Lorraine White   |   Managing Director, Head of EMEA Securities Tax and U.S. Tax Services

This article was first published in G7 Germany: The Schloss Elmau Summit, June 2015.

We are in the midst of a fundamental change to tax systems, worldwide. As governments respond to fiscal pressures with the pursuit of individual and corporate taxation, never has the demand for increased transparency been greater. With governments taking collective and coordinated action to eradicate tax evasion, the legislative steps to close loopholes and raise revenue appear to be heading in one direction – increased tax reporting burdens.

This is a new era for both financial services and governments, who will need to join forces to harmonise and streamline the information flows to ensure that systems that are eventually introduced are effective.

The tax transparency topic is not entirely new. The Organisation for Economic Co-operation and Development (OECD), established more than 50 years ago, has and continues to provide a forum for governments to work together and find solutions to common problems. As far back as 2002, the OECD started to develop a Model Agreement on Exchange of Tax Information on Tax Matters. This opened a new avenue for countries to exchange tax information and, since then, we have faced a never ending spike of demands on tax transparency. In this regard, the European Union has implemented the following two directives:

  1. The European Union Savings Directive (EUSD), introduced in 2005, requires financial institutions in EU member states to report information about individuals receiving savings income outside their country of residence for onward information exchange between EU member state governments.
  2. In 2011, the EU passed its Directive on Administrative Cooperation in the Field of Taxation. As direct taxation is not harmonised across the EU, the directive allows tax authorities within the EU member states to cooperate more closely on administrative enquiries. We have also seen the increasing use of the “limitation on benefits (LOBs)” articles in double tax treaties. These vary widely from treaty to treaty, but they effectively deny the benefits of the tax treaty to residents that do not meet certain additional tests.

These measures, however, were not addressing a perceived global problem and it was clear further collaboration to unify solutions and avoid, at all costs, governments taking unilateral action was necessary.

The EU Commission and G7/G8 and G20 governments have mandated the OECD to come up with an action plan to address these problems and propose solutions. The newly empowered OECD has subsequently proposed a number of multi-year developments and actions to create greater tax transparency. The result is that we are now seeing structural changes in tax models that will inevitably reshape the way the world operates in the field of taxation. As described by OECD Secretary General Angel Gurría at the G20 summit in Australia in 2014, these changes bring a once-in-a-lifetime opportunity: “This is certainly the most prominent step towards modernisation of the international tax system in 100 years.”

The next couple of years will see two major new tax regulations become more of a reality, which will have a direct impact on the modus operandi of the financial services industry.

Developing the Common Reporting Standards

Both the EUSD and the EU Directive on Administrative Cooperation in the Field of Taxation provided bilateral information upon request, but more was needed. Back in September 2013, the OECD proposed a global model for automatic exchange of information (AEOI) to the G20 Leaders, in order to fight tax evasion and ensure tax compliance. The G20 endorsed the initiative and, with the OECD’s leadership, a new single standard for automatic exchange of information was established – the Common Reporting Standard.

The standard requires countries to obtain financial account information from their local financial institutions and automatically exchange that information with other countries on an annual basis.

Unlike previous stand-alone developments, the Common Reporting Standard is unique, in that it incorporates the work of the OECD in the area of automatic exchange of information as well as the EU initiatives and the intergovernmental implementation of the Foreign Account Tax Compliance Act (FATCA).

This new standard for AEOI involves the systematic and periodic transmission of bulk taxpayer information by the source country of income to the taxpayer’s country of residence. In theory, this enables the resident country to check its tax records and verify that its taxpayers have accurately reported their foreign-sourced income. This essentially aids governments to focus their enquiries on specific taxpayers that may present issues and address any concerns about potential untaxed capital.

As of 1 March 2015, more than 50 countries, including all EU member states, have committed to adopt the Common Reporting Standard by 1 January 2016.

The Base Erosion and Profit Shifting (BEPS) Project

The BEPS Project outlines 15 actions to ensure corporations are allocating their profits in locations where economic activity takes place, thereby ensuring appropriate corporate tax is being paid. The OECD’s BEPS Action Plan has an ambitious timeline, expecting the 15 actions, with proposals culminating in a model multilateral agreement, to be finalised in three phases and completed by September 2014, October 2015 and December 2015. These actions will cover complex areas, such as preventing treaty abuse, hybrid-mismatches, transfer pricing and country by country reporting.

The Action Plan should give countries the tools they need to ensure that profits are taxed where economic activities generating the profits are performed, while at the same time giving businesses greater certainty and transparency in the application of international tax rules.

Of the reports delivered to date, the need for coordinated action cannot be emphasised more. Without this cooperation, countries may take unilateral approaches that may simply relocate the problems and increase uncertainties for business.

Are We Ready? 

These new legal instruments and requirements will exponentially increase the amount of data financial institutions, financial intermediaries and tax authorities will need to capture, store, assess, validate, report and utilise for tax purposes.

The looming question is: are we prepared for this? Are the financial service institutions ready to assume all the additional data requirements? Have future tax processes been considered and implemented efficiently? Are financial institutions thinking strategically? Are financial institutions and financial intermediaries prepared to collect data on behalf of tax authorities, and do they have a choice? Most importantly, are tax authorities equipped with resources and systems able to cope with the new avalanche of tax data and use it appropriately?

There is no doubt that greater transparency provides greater value to our businesses and societies. It does, however, require increased accountability, better information on asset ownership and fair allocation of profits. In the 21st century, cross-border investment flows are a staple practice and more important than ever in a shrinking economy – a fact that needs to be recognised and considered for the future.

This will of course come at a price; the compliance costs will be borne by all. Worldwide, it would seem that millions of dollars will need to be invested in new technology and systems, new processes and resources to do the job.

Now more than ever, it is critical that all the impacted parties (governments, tax authorities, supranational bodies, advisors, financial institutions, financial intermediaries, etc) are truly connected. From BNY Mellon’s perspective, as a key financial institution, we embrace with responsibility the new era of tax transparency. We continue to invest in people and technology to ensure our organisation is compliant with the new legislation as well as, where possible, assist our clients to be compliant. We also work with various governments, working groups and committees to bring our expertise and experience in financial services and assist in the practical implementation of the new tax rules. We all want to make it work, let’s make it happen.


About the Authors

Mariano Giralt

Mariano Giralt
Head of Tax Services, EMEA

Mariano is the Head of Tax Services, EMEA, Managing Director and member of the BNY Mellon EMEA Operating Committee.

In this role, Mariano is responsible for providing tax services strategy and development, market intelligence, sales and client facing support.

Before joining BNY Mellon, Mariano worked as Executive Director at JP Morgan Chase Treasury & Securities Services. Prior to this, Mariano was a Senior Lawyer at Cuatrecasas Law Firm in Barcelona.

Mariano holds a Masters in Finance at the London School of Economics, a Masters in Laws at Georgetown University, Washington DC, a Degree in Research in International Taxation from the University of Barcelona, a Degree in Tax Consultancy and Management at ESADE Law School Barcelona, and a Law Degree from the University of Zaragoza.

Mariano is member of a number of relevant industry associations, is a frequent speaker at leading industry conferences and events, and has compiled a number of thought leadership papers and publications.


Lorraine White

Lorraine White
Managing Director, Head of EMEA Securities Tax and U.S. Tax Services

Lorraine works for BNY Mellon as Managing Director, Head of EMEA Securities Tax and US Tax Services where she provides custody tax technical support to BNY Mellon’s Asset Servicing groups and clients in the EMEA region.

She is heavily involved with a number of trade associations and their work on FATCA, AEOI, EUSD and tax treaty relief initiatives.

Lorraine currently chairs the European Banking Federation’s Tax Reporting and Information Exchange working group. She is an active participant in global initiatives focusing on simplification and harmonisation of tax relief and tax compliance procedures for cross border portfolio investors, as a member of the Business advisory group to the OECD’s TRACE and CRS work and the European Commission’s Tax Barriers Advisory Group T-BAG, both looking at procedures to improve access to tax relief for cross border portfolio investors.


BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. Products and services may be provided under various brand names and in various countries by subsidiaries, affiliates, and joint ventures of The Bank of New York Mellon Corporation where authorised and regulated as required within each jurisdiction, and may include The Bank of New York Mellon, One Wall Street, New York, New York 10286, a banking corporation organised and existing pursuant to the laws of the State of New York (member FDIC) supervised and regulated by the New York State Department of Financial Services and the Federal Reserve, and operating notably also in England through its branch at One Canada Square, London E14 5AL, England, registered in England and Wales with FC005522 and BR000818. The Bank of New York Mellon is authorised by the Prudential Regulation Authority. The Bank of New York Mellon London branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon operates in Europe through its subsidiary, The Bank of New York Mellon SA/NV, a Belgian limited liability company authorised and regulated by the European Central Bank and the National Bank of Belgium as a significant credit institution under the Single Supervisory Mechanism and by the Belgian Financial Services and Markets Authority, and registered in the RPM Brussels (Company n° 806.743.159) with registered address at 46 Rue Montoyerstraat, 1000 Brussels, Belgium.

The material contained in this document, which may be considered advertising, is for general information and reference purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such. The contents may not be comprehensive or up-to-date, and BNY Mellon will not be responsible for updating any information contained within this document. If distributed in the UK or EMEA, this document is a financial promotion. This document and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country in which such distribution or use would be contrary to local law or regulation. Similarly, this document may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorised, or where there would be, by virtue of such distribution, new or additional registration requirements. Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction. The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients. Trademarks, service marks and logos belong to their respective owners.

© 2015 The Bank of New York Mellon Corporation. All rights reserved.