Monaco Minister of Finance: Non-residents and the exchange of financial information

Thierry Orsini, Director General of the Ministry of Finance and Economy to the left of Minister of Finance, Jean Castellini
Thierry Orsini, Director General of the Ministry of Finance and Economy to the left of Minister of Finance and Economy, Jean Castellini

At a meeting with the press on Friday, December 16, Finance Minister Jean Castellini, reiterated Monaco’s commitment to implement the automatic exchange of financial account information in time to commence exchanges in 2018. This followed the signing on December 14 of the CRS Multilateral Competent Authority Agreement and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, which are both based on Article 6 of the Mutual Administrative Assistance in Tax Matters Convention.

Mr Castellini gave an overview of the year and how financial institutions will start to gather the information to be transmitted during the automatic exchange, knowing that this data must be transferred at the latest September 30, 2018.

“This date may seem far away, but it will start in two weeks so its essential that we have a number of tools and/or ratified texts to be able to show to the EU and to the OECD that we are ready and that we have kept all our promises,” the Minister of Finance said.

What happened last week?
The Minister of State, accompanied by the Minister of Finance and Economy, presented on December 14 to Mr Angel Gurría, Secretary General of the OECD at La Muette, headquarters of the OECD in Paris, the instrument of ratification of the Convention on Mutual Administrative Assistance in Tax Matters, signed by HSH Prince Albert II of Monaco.

This common reporting standard provides that the tax administration collect from financial institutions information concerning the accounts of their non-resident customers in the Principality and automatically forward them to the tax authorities of their country of residence, while preserving the rights of the taxpayers by guaranteeing the confidential treatment of the data exchanged.

On the evening of December 15, two laws were voted by Monaco’s National Assembly, which serve to complement the major texts that were voted on November 29. These texts concerned the convention on the assistance administrative mutuelle, or, the multilateral agreement of the OECD signed by Monaco October 13, 2014.

Mr Castellini acknowledged the involvement of the National Assembly and the equanimity with which they studied this text within a very short time frame. “An excellent example of collaboration between the elected representatives of the Monegasques and the government,” he stated.

When did it all begin?
In 2005, within the EU, there was no agreement between the 25 or 26 countries about the taxation of non-residents and the declaration of revenue in, often foreign-held, accounts. A measure, which was supposed to be transitory, was to be applied to the EU-member states as well as to a number of non-EU countries, including the Principality of Monaco, to ensure a homogeneity within Europe between EU-member states and other European countries, such as Monaco, Switzerland, Andorra and Lichtenstein.

“In the meantime, the world changed,” said Mr Castellini. “There was the economic crisis, different G20 summits, and even within the EU, the countries which had not accepted the free exchange of information finally agreed. The question for Monaco was why should countries outside the EU agree to apply rules and methods when among the member states of the EU there was no agreement?”

However, once the member states agreed, it became legitimate to undertake negotiations for two reasons. It is easier for Monaco and other countries outside the EU to negotiate with the EU as a whole rather than with individual countries, and secondly, the standard envisaged for the passage of the directive of 2005 towards the automatic exchange of information was 99% the same as that of the OECD.

“So there again, we said to ourselves, it would be better, and technically easier to apply the same rules, rather than trying to apply two different standards.”

How does the automatic exchange of information work?
Minister Castellini explained that in order to predict how the automatic exchanges will function, everyone concerned must agree on the principles and in effect, this is what the multilateral agreement does”.

This text has been in existence for quite a while and has provided the framework to bring together all the states to the OECD forum to enable the change in the common reporting standard by which states exchange fiscal information from an ‘on demand’ exchange of information, to an automatic exchange. During the Global Forum on Transparency and Exchange of Information for Tax Purposes, in Berlin in October 2014, members committed to this change and defined how it could be implemented.

“This is the culmination of all the work done since 2009 and the signature of a number of bilateral agreements since autumn 2009, as well as a number of new agreements signed, including an agreement to avoid double taxation – we have today some 30 agreements.

“On the other side is the EU and discussions began in 2013. The European commissioner, Mr Semeta, was received in Monaco in the summer of 2013 and we started to negotiate a protocol to modify a measure that existed since 2005, the directive sur la fiscalité de l’etat.

What’s happened over the past year?
On February 22, 2016, the text was approved by the commissioner and Mr Castellini, and this agreement was then signed in Brussels by the Minister of State.

“For these texts to take effect, at least two laws, followed by other regulatory texts, had to be voted. The two laws which were voted December 15, 2016 evening by the National Council, one serves to protect the confidentiality of the information of the automatic exchange, while the other concerns the prescription and the criminal sanctions applicable.

“On December 23, two other texts will be published concerning an ordonnance souvereigne and an arrêté ministeriel (a ministerial order), which fix the list of jurisdiction partners, those with whom we will be exchanging information automatically.”

Getting removed from lists
Financial institutions can begin to gather information to allow for the exchange of information in 2018. “Another of our objectives for 2017,” explained the Minister, “is to continue to work with certain EU-member states, who continue to place Monaco on a discriminatory list, so that we can be removed from this list.”

He added, “This may take a few weeks or months for the legislative and administrative procedures, but there is no reason why we should not be removed from this list.”

For the OCDE, the existing bilateral agreements and the exchange of information on demand will continue to be applied. This may concern Monaco residents. Once a certain number of elements have been transferred automatically, the country concerned may request additional information about a person or an account, via the bilateral agreement.

“We have never been as transparent and we have never been as attractive,” Mr Castellini stated. “It’s important for our residents to know what the future will bring, and for those who are thinking of settling in Monaco and developing a business here, and this number continues to increase. The question of fiscal cooperation can only provide, in a changing world, a stability and a long-term vision which is greatly appreciated.”

What to expect in 2017 and 2018?
Thierry Orsini, Director General of the Ministry of Finance and Economy, gave details about what will happen from January 1, 2017.

The first step will be for the banks to identify declarable accounts. This will start from January 1, 2017, for new accounts. There will be a new procedure to identify clients based on “self-certification”.

A new client will fill in a document containing all the elements necessary for the bank to determine if the account holder and the account is reportable.

Then there are other timelines for existing accounts of individuals, and according to the amounts held in the accounts, for banks to update all their clients’ files for some before January 1, 2018, for others until 30 Dec 2018. The standards allow a certain tolerance for these identification checks and updates to take place.

The next step is that a platform will be created on Monaco to which the financial establishments must register, in order to report all the accounts concerned. In Monaco, all the institutions will make a declaration country by country. If there is no information to be declared for a particular country, a déclaration néante (a nil declaration), will be made. “Technically and for IT reasons, it is better to make a nil declaration,” said Mr Orsini, “so that the system is set up correctly, than not to make a declaration at all and then have to make a modification later if the situation changes.”

Once the reportable accounts and account holders have been identified, the banks will communicate the information onto the platform in Monaco. They will have until June 30, 2018, as one of the pieces of information to be communicated will be the balance of the account on December 31. Monaco will then have until September 30 to send all the declarations to the OECD Platform, which will then automatically transmit the information to the countries concerned.

This will be the same scheme every year. The balance of the account of the previous year must be on the platform by June 30 of the current year, and communicated to the common platform by September 30.

Will there be a penalty?
Sanctions can be applied to financial institutions that fail to comply with the reporting standards.

The client is responsible to communicate all changes of circumstance (a non-resident to resident status) to the bank. There are penal sanctions for any client making a false certification or incomplete information, or failing to communicate a change of circumstance. It will be necessary as from next year, for financial institutions to inform clients of their responsibilities, as the consequences could be heavy.

The information transmitted by the OECD depends on the type of account, it concerns certain transactions on the account, it’s not only the balance. Also, if the account has been closed, this information is transmitted.

There is no minimum amount for accounts to be reported.

Minster Castellini said approximately 50 percent of accounts are held by non-residents, but the majority of the account management concerns more recent accounts of residents.

The financial institutions in Monaco have undertaken an enormous task over the past few years to encourage their clients to certify themselves resident, or asked their clients to sign a document stating that the amounts deposited in their accounts were fiscally transparent.

If a client had not wished to respect these obligations, the accounts were closed.

Corporate taxation
Regarding company taxation, Mr Castellini asserted: “There are still practices that concern companies that are quite legal but which the OECD and the EU cannot continue to encourage in this period of crisis.

The question of the taxation of a company where it is carrying out its business and making its benefits is now a central question being addressed by the OCDE and the EU. Monaco does not play the game of trying to attract companies by proposing a tax framework that could be considered detrimental by other countries, and we fully support, since 2009, the work of the OCDE on the taxation of non-residents, and on Base Erosion and Profit Shifting, a tax avoidance strategy used by some multinational companies, where profits are shifted from where they are made to countries where taxation is lower.”

Article first published December 20, 2016.

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