On 17 July 2023 the OECD published a report with the title Enhancing International Tax Transparency on Real Estate for the meeting of G20 finance ministers and central bank governors.
Tax authorities do not possess sufficient information on aspects of foreign real estate holdings of residents that may affect their tax position. There are resulting tax compliance risks and the Financial Action Task Force (FATF) has also identified the real estate area as a risk area. The OECD report considers the current level of tax transparency on foreign owned real estate and how this could be improved, taking account of progress made in other compliance areas.
The report looks at potential tax compliance risks related to foreign real estate holdings and the advantages of increased tax transparency in the area. The most important features of a successful tax transparency framework are examined and possible improvements to the current situation are suggested. The report notes that progress could be made with few extra compliance costs by exchanging information that is already available from the existing international channels. In the longer term, potential steps towards improved information exchange for real estate through common due diligence and reporting rules are explored. The report also suggests a direct access-based model, accessible to government agencies on a real-time basis.
Recommendations
The report includes a roadmap with recommended steps that could be undertaken by jurisdictions aiming to increase the level of tax transparency on real estate. In the short term, countries could aim to improve the exchange of information and reporting requirements by assessing the real estate information that is available for exchange.
This could be followed by development of a common XML schema and the development of a multilateral competent authority agreement for countries wishing to participate in real estate information exchange. The multilateral agreement could be based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC). Countries could then agree on the type of information available for exchange and the timing, format and transmission method while also proving for data safeguards.
The report looks at longer term structural solutions such as the exchange of information based on common due diligence. Countries would need to define a standard set of information to collect from intermediaries and taxpayers. Common due diligence rules could be introduced for verifying the information; and the reporting and due diligence rules could be implemented into the domestic law of participating jurisdictions. A multilateral competent authority agreement, based on the MAAC, could be developed to regulate the information exchanges.
The report also suggests that government agencies could directly access relevant information in real time. Jurisdictions could arrive at a definition of the minimum information to include in domestic registers, and if necessary common minimum criteria for reviewing the reliability of the information in the registers. A common IT architecture could be set up for interconnecting and querying the registers through a single query portal. An agreed approach could be established for access to the registers, setting out which agencies can obtain access, the permitted purpose for access and confidentiality requirements. The arrangements for interconnection of registers and for access could be governed by an international legal instrument.
