OECD: Treaty Relief and Compliance Enhancement (TRACE) – Implementation Package approved by CFAFebruary 19, 2013
According to a press release issued by the OECD on 11 February 2013, the Committee on Fiscal Affairs (CFA) approved at its meeting in January 2013 the TRACE Implementation Package, a self-contained set of agreements and forms to be used by any country that wants to implement the Authorised Intermediary (AI) system.
In 2006, the CFA and the Business and Industry Advisory Committee (BIAC) agreed to work on improving the process by which portfolio investors may claim treaty benefits. The objectives of the work on procedures were twofold:
- To develop treaty relief systems that are as efficient as possible, in order to minimize administrative costs and allocate the costs to the appropriate parties
- To identify solutions that enhance the ability of both source and residence countries to ensure proper compliance with tax obligations
To this end, an informal consultative group (ICG) made up of government representatives and of experts from the business community was created.
In February 2010, the CFA decided to release the Pilot Group’s draft for public consultation and approved the creation of:
a) the TRACE Group made up of government representatives
b) TRACE IT Expert Group, a joint group of all of the agreements and forms that would pass between a source country and the financial intermediaries and investors participating in the system.
In January 2009, the CFA released for public comment two reports by the ICG:
- The Report on the Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (see OECD-1, News 26 January 2009), which discusses technical issues and makes recommendations with respect to the treaty eligibility of collective investment vehicles, was referred to Working Party 1 for further work. The CFA released its final report on the Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (see OECD-4, News 1 June 2010) on 31 May 2010, and the recommendations made in that report were incorporated into the 2010 update to the OECD Model (2010).
- The Report on Possible Improvements to Procedures for Tax Relief for Cross-Border Investors makes a number of recommendations on “best practices” regarding procedures for making and granting claims for treaty benefits for intermediated structures. The report recommends that countries develop systems for claiming treaty benefits that allow authorized intermediaries to make claims on behalf of investors on a “pooled” basis (see OECD-1, News 29 January 2009).
The AI system is a standardized system for claiming withholding tax relief at source on portfolio investments.
It removes the administrative barriers that currently affect the ability of portfolio investors to effectively claim the reduced rates of withholding tax to which they are entitled, pursuant to tax treaties or to domestic law of the country of investment.
It minimizes administrative costs for all stakeholders and enhances the ability of both source and residence countries to ensure proper compliance with tax obligations.
The TRACE Group will now work on a plan for country adoption of the AI system and will assist countries considering implementing the system.
Work will also continue to ensure that the reporting requirements under TRACE are aligned to those of other emerging reporting regimes (including FATCA) in order to reduce implementation costs for all stakeholders.
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