No more secret's? The Common Reporting Standard has arrived.

 

Common Reporting Standard (CRS)

 

Increasing tax revenue on unreported assets is a key role for tax agencies around the world and in recent years governments have become much more aware of the large amounts of undisclosed wealth held in offshore accounts. The problem has been that without the information being available on these assets, then how can they be taxed?

 

The introduction of the Foreign Account Tax Compliance Act or “FATCA” by the Internal Revenue Service in March 2010 was one way that the US decided to mandate reporting of foreign accounts above a certain level. Briefly, FATCA targets tax “Offshore non compliance” by accounts held by US individuals and on financial institutions holding accounts of US individuals. This simply means that (as well as the individual), the bank or institution has a duty to report such accounts to the IRS or face heavy fines. The result means that such information is available to the IRS and assets can be taxed and penalties for past non-disclosure are issued accordingly.

 

 FATCA led tax agents of other developed countries to follow suit and develop their own “FATCA” regimes. The UK and other countries started to think about how they would approach this and then in May 2014 The Organisation for Economic Co-operation and Development (OECD) endorsed The Declaration on Automatic Exchange of Information in Tax Matters. This brought in a timetable for what has become known as the “Common Reporting Standard” (CRS). At that time forty-seven countries tentatively agreed to participate, these countries became known as the "early adopters".

 

What is the CRS?

 

CRS allows governments around the world to receive information on their tax residents who have financial accounts in other countries who have signed up to the agreement. So, for (a simple) example - country A can ask or even automatically receive information on an individual resident in that country who holds assets or has income in country B.

 

Reportable income includes all types of investment income (including interest, dividends, income from insurance contracts, annuities, rental income etc.) and account balances and sales proceeds from financial assets. Individuals include Companies, trusts and foundations.

 

When does it start?

 

CRS started on the 1st of January 2016 with the first exchanges of information due to commence in September 2017, the swill be exchanges of information between the "early adopter" countries mentioned above. Countries who have signed up after the initial signatories will begin reporting in 2018.

 

CRS applies to both new and existing accounts, so at this stage if the country where the individual is resident has signed up to the agreement, reporting will take place next year.

 

What gets reported?

 

Reporting is based on residence not citizenship as it is all about tax compliance in the country where you are tax resident. Information such as identity and residence of account holder, account details, reporting entity, account balance/value and income/sale or redemption proceeds will be reported on an annual basis, with the further proviso that there is no minimum limit to such accounts.

 

Which countries have signed up to the agreement?

 

To date more than 80 countries have agreed to become signatories to the CRS and will implement over the next few years. As this is a global initiative it would seem that automatic reporting of financial and personal information would become the norm, wherever you are resident. As with FATCA, countries that don’t agree to be signatories could find it difficult to operate any kind of financial institution due to currency constraints.

 

What does this mean for me?

 

Maybe nothing, but it could mean more tax depending on your residency and the assets or incomes location, or even penalties for unpaid tax. What it doesn’t mean that holding accounts, investments, property, etc. around the world is wrong – BUT the introduction of CRS certainly makes it even more important to ensure that you plan and have the correct structures in place to both comply and make your affairs as tax efficient as possible within the rules.

 

For more information please email info@montpelierasia.com

 

 

 

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