OECD announces Authorised Intermediary system for withholding on portfolio investments


By Sally P. Schreiber, J.D.

The Organisation for Economic Co-operation and Development (OECD) announced that, at its January 2013 meeting, its Committee on Fiscal Affairs (CFA) approved a standardised international system for information reporting and claiming reduced tax withholding on portfolio investments.

The Treaty Relief and Compliance Enhancement (TRACE) Implementation Package, according to the OECD, is intended to be used by countries that want to adopt the Authorised Intermediary (AI) system, which is designed to standardise the procedures for claiming exemption from or reduced withholding on portfolio investments at source. The package contains procedures and forms for agreements between financial intermediaries and the countries in which the portfolio income is sourced.

Although the OECD describes the programme as beneficial to investors because it simplifies the process for claiming treaty or other tax benefits when investments are “held through a complex network of domestic and foreign intermediaries”, it also requires detailed information reporting by the AIs to the source countries. AIs participating in the programme must provide annually to the source country investor-specific information about the beneficial owners of the income, including income received, name and address of the beneficial owner, and, if the investor’s resident country issues taxpayer identification numbers (TIN), that number, or whatever the resident country uses to identify individual taxpayers.

In approving the TRACE programme, the OECD announced that it would use a version of extensible mark-up language (XML) designed for the system, Trace XML Schema, to implement the programme.

At the same meeting, the OECD also approved more work on the following issues: working on the relationship between TRACE and the US Foreign Account Tax Compliance Act (FATCA) and other international compliance initiatives; and developing a plan for a multi-country adoption of the AI system and assisting countries in adopting the system (see OECD, “About the TRACE Project”).   

Sally P. Schreiber (sschreiber@aicpa.org) is a CGMA Magazine senior editor.

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