Tax Transparency - The New Global Reporting Standard

The goalposts in international tax reporting are moving rapidly.

In conjunction with the G20, the OECD developed the Common Reporting Standard (CRS) as a global standard for the automatic exchange of information. This was approved by the OECD Council on 15 July 2014 and in October 2014 over 50 jurisdictions confirmed adoption of the CRS by signing a multilateral competent authority agreement. Nearly 80 jurisdictions have now committed to start exchanging data in September 2017: many others will begin participation in 2018.

How will it work

Financial Institutions (FIs), which include banks, insurance companies, trusts and TCSPs, will be compelled under domestic law to provide their local taxation authorities with financial data on relevant persons (in other words, the beneficial owners of bank accounts and those with an interest in trusts and other entities) who are resident in other participating countries. This data will be passed automatically to the relevant countries (within nine months of the end of the relevant calendar year) in a standard format that can easily be imported into the taxpayer databases of each country. The data will be analysed to identify those who may have evaded or
avoided tax and even those who may simply have made an error in their tax returns.

As with FATCA, the FIs that must provide data include banks, other depository and custodial institutions, investment entities and some insurance companies. However, unlike FATCA, there are fewer exempt institutions.

Local reporting FIs will have due diligence obligations which differ for new and existing accounts, high and low value accounts as well as individual and entity accounts. The obligation will include a review of electronic data for evidence of where each of their customers is resident (including PO boxes, ‘care-of’ addresses, ‘hold mail’
instructions and standing instructions to send funds to resident based accounts) but could also include a ‘paper search’ of existing documents, self-certification by the client and an ‘actual knowledge’ test for client relationship managers.