16 June 2017
From 1 July 2017, the Common Reporting Standard (“CRS”) will come into effect as a single global standard for the collection, reporting and exchange of financial account information on foreign tax residents in more than 100 international jurisdictions.
In February 2014, the G20 Finance Ministers and Central Bank Governors endorsed the CRS as the mechanism for automatic exchange of tax information between multiple countries.
The CRS, with a view to maximising efficiency and reducing cost for financial institutions, draws extensively on the Intergovernmental Agreement (“IGA”) approach to implementing the US Foreign Account Tax Compliance Act (“FATCA”).
The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
There are four types of financial institutions covered by the CRS: custodial institutions; depository institutions; investment entities; and specified insurance companies.
The CRS definition of “entity” covers both legal persons (for example, incorporated companies) and legal arrangements (for example, trusts). This means that such legal persons and legal arrangements can (depending on the circumstances) be financial institutions.
However, the definition of “entity” does not cover individuals. This means that individuals cannot be financial institutions.
Reporting Financial Institutions should ensure that they are prepared for the introduction of CRS from 1 July 2017. Entities should start the process of adapting their systems and updating their account documentation (terms and conditions, application forms, disclosure documents) to ensure they can meet the due diligence and reporting requirements for submission of first accounts by 31 July 2018.
Details can be found at the OECD’s CRS Implementation Handbook: https://www.oecd.org/tax/exchange-of-tax-information/implementation-handbook-standard-for-automatic-exchange-of-financial-information-in-tax-matters.pdf