Over the last decade, because of the globalization of the economy and widespread access for individuals to operate abroad, countries have seen their tax revenue decrease due to these international capital movements. 

In the case of multinationals, the media regularly report that outsourcing their income results in paying very little tax. However, the other side of the coin is that they previously did not report how much they earned, in which countries, or how much tax they paid. These same practices are now being copied by small businesses and individuals. 

In this context, in 2012, countries signed agreements for cooperation to exchange tax information with the United States: FATCA agreements. 

Using the FATCA model and its experience, the OECD developed a model of automatic tax information exchange called CRS (Common Reporting Standard) to standardize and automate the exchange of tax information between countries. Today, more than 100 countries participate, but the United States is not among them; instead, the U.S. has signed bilateral agreements with all these countries in a format like CRS. 

What is the legal framework that legitimizes this information exchange?

The Mutual Administrative Assistance Convention in Tax Matters was jointly developed by the Council of Europe and the OECD, signed by member states on January 25, 1988. It was later amended to align this instrument with the international standard for information exchange and to extend it to all countries, mainly to enable developing countries to benefit from a more transparent environment. The amended version was signed on June 1, 2011. 

The Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information was signed in Berlin on October 29, 2014; it prompted Spain’s declaration of the date when exchanges of information would commence under this agreement, published in the BOE No. 218 of September 9, 2016. 

In Spain, a turning point was the publication of Royal Decree 1021/2015, of November 13, which established the obligation to identify the tax residence of persons holding or controlling certain financial accounts and to report on them under mutual assistance arrangements. 

What due diligence measures do financial institutions apply to verify the information to be provided?

The measures apply to ALL non-resident beneficiaries, even if residents of countries are not participating in CRS. This facilitates immediate information exchange once that country adopts CRS. 

For pre-existing accounts held by individuals: 

– It requires obtaining self-certification from the account holder (and verifying its reliability). 

– It distinguishes between High-Value Accounts and Low-Value Accounts. For Low-Value Accounts, it involves a permanent residence test based on documentary evidence; if not conclusive, the financial institution must determine residence by searching for indicators. 

– If indicators are contradictory, self-certification and/or documentary evidence will be requested. If absent, the institution must report all relevant information with indications of residence in all reportable jurisdictions. 

For High-Value Accounts: 

– Enhanced due diligence procedures are applied, including searches in paper files and consultation with the financial advisor regarding their knowledge of the account holder. 

For new accounts of individuals:

– It requires obtaining self-certification from the account holder (and verifying its reliability). 

What indicators are used to verify the possible residence of the beneficiary?

• Historical addresses provided by the client. 
• Historical country phone codes. 
• History of countries where transfers or charges were made or received. 
• Countries where powers of attorney have been issued. 
• Checking with the client’s contact or advisor at the institution where the account is held. 
• Verifying if correspondence is undelivered or returned. 

What information is exchanged?

Information about interest, dividends, similar income, and account balances of financial assets and securities, sale amounts of securities, and insurance savings income: 

1. The name, address, tax identification number(s), date and place of birth (for individuals), of each Reportable Person who is the Account Holder, and where applicable, the name or corporate name, address, and tax ID(s) of the entity(ies) that, after due diligence procedures contemplated in CRS, are found to have one or more Control Persons who are Reportable Persons, as well as the name, address, tax ID(s), date, and place of birth of each Reportable Person. 

2. The account number (or functional equivalent if no account number). 

3. The name and identification number (if applicable) of the Reporting Financial Institution. 

4. The account balance or value (including, in the case of a Contract of Insurance with Cash Value or an Annuity Contract, the Cash Value or surrender value) at the end of the relevant calendar year or other appropriate reporting period, or in the event of account closure during that year, the closure data