What are the consequences of the law on automatic exchange of tax information?

albert-barossoWhat are the consequences of the law on automatic exchange of tax information? 

Albert Barroso Enrich, a senior tax consultant of Augé Grup, answers:

For Andorra, Law 19/2016 of 30 November on the automatic exchange of information in tax matters (Llei 19/2016, del 30 de novembre, intercanvi automátic d’informació en materia fiscal) represents a step towards International tax transparency. It is the result of the agreement on the Common Reporting Standard OECD (CRS). This agreement on the CRS has been adopted by more than 100 countries in the world and, for Andorra, this Law came into force on 1 January 2017.

This law implies that certain Andorran bank accounts held directly or indirectly by non- residents of Andorra should be communicated each year to the tax Authorities of the country of residence. The following examples are subject to reporting:

– Accounts held by non-resident individuals;

– Company accounts called Passive Non-Financial Entities (“PNFE”) and held by non-resident individuals or companies.

For information purposes, the Law defines the concept of PNFE (as opposed to the Active Non-Financial Entity, “ANFE”), but the clearest definition is that of a company in which more than 50% of the gross revenue comes from passive income (dividends, land income, interests), or where more than 50% of the assets generate or are intended to generate passive income.

The information in the annual report includes the account number, the identity of the holder and the existing balance. The aim of this law is to avoid the existence of opaque accounts, that result from an unrecognized or even illicit activity, and thus endow the international tax entities with a deterrent tool against fraud and money laundering.

Thus, a large number of investors potentially interested in Andorra, seeking legal security and that respect the tax obligations of their country of origin, ask the following question: “Are there cases where the Andorran bank has no obligation of automatic exchange of bank information?”

To answer this question, reference is made to the aforementioned Law, in particular to its Section VIII, which specifies the conditions of exemption for the Andorran bank to exchange information. The most recurrent cases can be identified as the following:

– Accounts of individuals who become tax residents in Andorra;

-Accounts of the Passive Non-Financial Entities (PNFE) held by Andorran tax residents;

– Accounts of non-resident individuals in Andorra, provided that such accounts are intended exclusively to cover payments related to the possession or use of real estate property located in Andorra, that the average balance does not exceed USD 10,000 and it is used for the domiciliation to receive consumption invoice, among other payments;

– Accounts of Active Non-Financial Entities (ANFE), without exception: the Law covers a wide range of areas, but there are two special cases:
• a commercial company providing services or selling products, such as a boutique, a professional firm or an international trading company; In general, any activity which, by its nature, generates less than 50% of income considered as “passive”,
• a corporation whose primary business is the holding of the share capital of one or more subsidiaries that develop an economic activity (excluding financial institutions), in particular the provision of services to the subsidiaries and financing, that is, a Holding Company will be considered as an Active Non-Financial Entity if its subsidiaries are operational.

Read more: Legal advice online with Augé Grup ...