provisionally-largely-compliant

Micronesia, Federated States of

To see the determinations and rating of all published reports click here.

Overall rating is Provisionally Largely Compliant

Micronesia, Federated States of has been reviewed under the fast-track procedures and assigned provisional overall rating. Micronesia, Federated States of will be scheduled to undergo a full review under the strengthened 2016 Terms of Reference in the near future.

Table of Determinations and Ratings of the Phase 1 Review

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   Even though at the moment there are no companies registered under the laws of Chuuk and Kosrae, corporations formed under the laws of these states are not expressly obliged to have information available on their owners.  The FSM should ensure that information on the owners of all corporations formed in the FSM territory be available. 
There are no requirements for the maintenance of information on trusts which have trustees resident in the FSM.  The FSM should ensure that the ownership and identity information of trusts is available in accordance with the standard. 
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2)
Determination Factors Recommendations
The element is not in place.   Corporations formed under the laws of Chuuk and Kosrae, any partnerships formed under the laws of Yap and Pohnpei, foreign companies and any partnerships carrying on business in the FSM do not have specific obligations to keep accounting records. Apart from major corporations that are subject to the Corporate Income Tax, the requirements to keep accounting records under tax law are not specific enough. Foreign trusts not carrying on business in the FSM have no obligation to keep accounting records.  The FSM should ensure that these entities and arrangements be required explicitly to keep reliable accounting records and underlying documentation. 
It is not clear what underlying documents are required to be kept by corporations formed under the laws of the FSM (except captive insurance companies) and the laws of Yap and Pohnpei.  The FSM should ensure that underlying documentation to the standard is kept by all entities and arrangements. 
Except for captive insurance companies, the commercial legislation does not specify for how long companies formed under the FSM and state laws should keep accounting records. The retention period of accounting information under tax law is three years.  The FSM should establish that reliable accounting information for all entities and arrangement is kept for at least five years. 
Banking information should be available for all account-holders. (ToR A.3)
Determination Factors Recommendations
The element is in place.      
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1)
Determination Factors Recommendations
The element is not in place.   The FSM authorities do not have the power to obtain information for EOI purposes absent a domestic tax interest. Secrecy provisions prevent the FSM authorities from exchanging information with foreign counterparts.  The FSM should enact and implement legislation that would give the government powers to access and exchange information pursuant to a request under an exchange of information mechanism. 
The scope of professional secrecy is not consistent with the international standard as attorneys are bound by a duty of confidentiality which relates to all information relating to the representation of a client and applies at all time.  The FSM should ensure that professional secrecy is consistent with the standard for the purpose of exchange of information. 
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2)
Determination Factors Recommendations
The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.      
Exchange of information mechanisms should provide for effective exchange of information. (ToR C.1)
Determination Factors Recommendations
The element is not in place.   To date, the FSM has not entered into any instruments providing for exchange of information to the standard.  The FSM should develop its exchange of information network with all relevant partners. 
The FSM authorities do not have the power to obtain information for EOI purposes absent a domestic tax interest.  The FSM should enact legislation that would give the government powers to access information pursuant to a request under an exchange of information mechanism. 
The jurisdictions' network of information exchange mechanisms should cover all relevant partners. (ToR C.2)
Determination Factors Recommendations
The element is not in place.   To date, the FSM has not entered into any instruments providing for exchange of information to the standard. While no jurisdiction has approached the FSM for the negotiation of an EOI agreement, it is noted that the FSM has not enacted legislation that would enable it to give full effect to the terms of an EOI agreement.  The FSM should ensure that it can give full effect to the terms of any EOI arrangements it enters into. 
  The FSM should develop its exchange of information network with all relevant partners. 
The jurisdictions' mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3)
Determination Factors Recommendations
The element is not in place.   To date, the FSM has not entered into any instruments providing for exchange of information to the standard.  The FSM should develop its exchange of information network with all relevant partners. 
The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4)
Determination Factors Recommendations
The element is not in place.   To date, the FSM has not entered into any instruments providing for exchange of information to the standard.  The FSM should develop its exchange of information network with all relevant partners. 
The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5)
Determination Factors Recommendations
The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.      

Earlier self-assessment based annual reports entitled Tax Co-operation 2010: Towards a Level Playing Field are also available.