In April 2013 Finance Ministers of G20 approved a new global standard in the fight against tax evasions – the Automatic Exchange of information (AEOI). In June 2014 this document was declared for the common standard and it was published within OECD. In December 2014 the revised Directive 2014/107/EU concerning the automatic exchange of information was adopted. The automatic exchange of information is based on the multilateral convention and multilateral agreement in the sphere of tax issues to which, as a result of the economic pressure of global powerful countries, including USA, also countries are joining gradually which in the past were included under the term „tax paradises“. The base for AEOI is the American model FATCA which was already implemented all around the world in past years.

AEOI concerns following kinds of income and assets which the mandatory institutions will report to tax administrators in the place of registered office of a tax payer:

• Various types of investment income (interest, dividends, investment funds),
• Shares in trade companies,
• Revenues from sales of these shares,
• Annual and final balances of accounts, deposits, bonds, insurances and other assets, account numbers.
• A part of the report are also names and addresses of owners of accounts, namely both corporate bodies, and natural persons, including controlling persons, including beneficiaries and real owners.

The automatic information will be provided by selected institutions such as by banks, funds, savings banks, insurance companies, or other institutions being concerned with investing and asset management. These institutions will be obliged to report both active and passive income. Due to this fact real owners („beneficial owner“), beneficiaries in case of trust agreements or trust founders will be reported.

The first reports will be compiled in 2017, namely retrospectively for the period starting from 1.1.2016. Each time a report will be issued for each year in the period within 9 months following the end of the calendar year. Some countries, such as Switzerland, enforced one-year postponement of this reporting.

The currently valid Mutual Assistance Directive 2011/16/EU solves the automatic exchange between financial administrations of individual countries, for the event they have specific information. This exchange made between financial administrations of individual countries didn´t work too extensively. When considering specific cases based on our experience, we have met this only at a few cases of German tax offices reporting income of Czech entrepreneurs, in the case they met them at the level of costs of German tax payers. This exchange of information was very limited and it was not systematic and automatic. The new Directive assumes the automatic exchange of information to be performed on the part of financial institutions, not by the country, it will be controlled and coordinated by law, it will be performed in the unified standard and based on the European Directive 2014/107/EU it will be implemented into the national law during the year 2015. In the Czech Republic this implementation has been already running and the amendments of related regulations are in the approval process.

So, what will happen on 30th September, 2017? By the end of this period at the latest, the financial institutions of all participating countries (the agreement has been currently signed by 61 countries, among others all EU countries and Switzerland) will send automatically information to financial administrations of countries, where those entities at which the report is being submitted, are tax residents. The General financial administration will thus get information on assets and on income of Czech residents placed abroad. It will compare this information to income shown in the tax return of given institutions, and we can assume that it will require an explanation on any discrepancy.

Except AEOI another change of the Income Tax Act is being prepared having the abbreviation „additional taxation of hidden income“. The personnel of the Ministry of Finance and of the General Financial Administration work on the Act on proving assets, based on which it arises, they are planning to put additionally tax on assets whose value exceeds income achieved in the past and demonstrably taxed income, or tax-free income. In the draft law a three-year time of expiration is proclaimed which a man couldn´t then rely on. Nowadays the three-year time of expiration is not valid anymore in case of tax-related crimes.

Depending on the specific situation, the automatic exchange of information will thus bring not only tax additional payments related to penalty payments and related to interest on late payment, but also possible proofs for opening criminal proceedings due to evasion of taxes and other fees.

With respect to the fact that the first reports will be submitted already for the year 2016, the second half-year of 2015 is just the last period in which it is suitable to check your investment abroad considering the fact, whether they are subject to the automatic exchange of information, which means to check whether all assets and income were properly shown in tax returns and that they were taxed properly, namely both with respect to the past and to the future. We recommend to prepare an eventual justification and explanation to questions of financial administration in cases when income and assets are placed legally in the second country. Further we recommend to think of the future property arrangement and its placement in individual jurisdictions also with respect to the amount of its taxation in individual jurisdictions.

We will be concerned heavily with the issue of automatic exchange of information during the second half-year of 2015, therefore please watch our web site or register to a free taking of our newsletter FP info.

Processed by Ing. Ivan Fučík