Efficiency 2015 Annual Report

Progressive Approach towards Declaring Income

Vladislavs Hveckovičs, Chairman of the Board and Acting Head of the Asset Structuring Department of ABLV Corporate Services, briefly on the prehistory of the new standard and possible reasons for implementing the OECD CRS.

The Standard for Automatic Exchange of Financial Account Information, OECD CRS, was approved within a very short time: the first negotiations took place in September 2013. So, from the moment when the international standard for exchange went under discussion to its actual coming into force passed a bit more than two years. Taking into account that during that time the standard wasn’t only elaborated in details but it also entered into force in almost all major countries, the pace of implementation is impressive indeed.

Although tax authorities have been always keen to know more about foreign accounts of respective residents, it was the standard for exchange of information about American taxpayers’ accounts adopted in the USA, the Foreign Account Tax Compliance Act (FATCA), that was a real breakthrough in the area of automatic exchange of information. When developing the “American system of automatic exchange”, numerous revolutionary ideas were implemented which were mainly based on the absence of piety towards the European idea of “banking secret”.

Taking into account that the global economy still can’t get over the most protracted economic crisis of our age, the majority of the governments of modern economies faced a serious budget deficit which led to numerous problems of social nature and, inevitably, to the increased burden of taxation for an average taxpayer.

Although, opening a bank account abroad is an absolutely legal activity in the majority of countries, lately a trend of extremely negative attitude of EU residents towards foreign accounts and offshore companies is clearly emerging. An average European taxpayer believes big international companies and individuals of considerable means don’t pay their “fair part” of the tax by using various expensive solutions for diminishing the effective tax rate.

In Great Britain, France and Germany such opinion of the average taxpayer was quickly supported by political quarters. The tax authorities of these countries believe the majority of their well-to-do residents have significant undeclared savings and income to apply taxes to. The possibility to reach these undeclared savings and thus guarantee the fund flow to the budgets became the European “white wale”.

The countries which have less hopes that their residents possess large amounts of undeclared “treasuries” generally didn’t have much choice. Should the system of automatic exchange of information not take effect even in a small country, all the flow of undeclared income would stream there. So, one of legislators’ aims was to coordinate the participation of all countries with advanced banking system.

For now, the number of countries which refused to join the system of automatic exchange of information is small indeed: it’s the majority of CIS member states (except for Russia), Vanuatu, Bahrain, Panama, Nauru and the USA.

Table of Contents

Creative team: Arnis Artemovičs, Ernests Bernis, Jānis Bunte, Anna Celma, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Samanta Priedīte, Jūlija Surikova, Romans Surnačovs
Project managers: Anna Celma, Jūlija Surikova
Interviews: Jānis Bunte, Ingrīda Drazdovska, Konstantīns Gaivoronskis, Katrina Gordejeva, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Romāns Meļņiks, Sergejs Pavlovs, Romans Surnačovs, Jānis Šķupelis
Text authors: Leonīds Aļšanskis, Jānis Bunte, Anna Celma, Vladislavs Hveckovičs, Jānis Grīnbergs, Māris Kannenieks, Ļubova Kazačenoka, Jekaterina Koļesina, Zane Kurzemniece, Aleksandrs Pāže, Gints Pumpurs, Dmitrijs Semjonovs, Jūlija Surikova, Kaspars Vanags, Benoit Wtterwulghe
Photography: Arnis Artemovičs, Uldis Bertāns, Mārtiņš Cīrulis, Ieva Čīka, Krišjānis Eihmanis, Andrejs Hroneloks, Alise Jastremska, Valdis Kauliņš, Valts Kleins, Marks Litvjakovs, Sergejs Mazurs, Reinis Oliņš, Samanta Priedīte, Gatis Rozenfelds, Polina Viljun, LETA foto, Marka.photo, Studija F64
Proofreader: Jānis Frišvalds
Translators: Jekaterina Koļesina, Nataļja Malašonoka, Lidija Marsova, Jūlija Surikova
Design: Aivis Lizums, Valters Horsts

All rights protected by the Copyright Law of the Republic of Latvia.
Reproduction is prohibited without the consent of ABLV Bank, AS.