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OECD: Information exchange having an effect

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21st Aug 2012
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The automatic exchange of financial information between governments and tax authorities is helping to counter tax evasion, but there is room for improvement, according to the Organisation for Economic Co-Operation and Development (OECD).

Setting up an RTM

1. Payer or paying agent collects information from the taxpayer and generates it  itself.

2. Payer or paying agent reports information to the tax authorities.

3. Authorities consolidate information by country of residence.

4. Information is encrypted and sent to tax authorities in country of residence.

5. Information received and decrypted.

Source: OECD

This was the gist of a report by the Paris-based economic think tank on the automatic exchange of information concerning payments to taxpayers by banks and property purchases.

Governments are sharing financial information in an effort to make it harder for people to evade tax by shuffling money between countries and hiding it offshore.

The authorities in a taxpayer’s country of residence can use the information exchanged to check its tax records that taxpayers have reported their foreign income accurately. Information concerning the acquisition of significant assets may be used to evaluate the net worth of an individual.

Interest, dividends, royalties, income from dependent services and pensions are among the most frequently exchanged income types are the OECD’s report said.

Five countries, including Italy, reported receiving financial records relating to more than €15 billion each in one year.

Information exchange could be improved by developing common standards on capturing information and reducing errors in financial information, the OECD said.

“The true measure of success is not the quantity of information exchanged but the compliance that is achieved. 

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