To improve tax transparency and assist with the fight against global tax evasion, the G20 agreed that it was necessary to introduce new requirements for financial institutions to gathering and report information on their customers.

These requirements are referred to as the Common Reporting Standard (CRS). It was developed for the G20 by the Organization for Economic Cooperation and Development (OECD), approved by the OECD Council on 15 July 2014 and endorsed by the G20 in September 2014.

The details

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 currently over 100 jurisdictions committed to the implementation of CRS, with “early adopter” countries including the United Kingdom and Jersey who completed the first exchange of information in 2017.

Financial institutions located or resident in these jurisdictions were required to implement new client documentation and reporting procedures as early as 1 January 2016.  Further jurisdictions have committed to adopt similar procedures in subsequent years.

All reporting financial institutions in participating jurisdictions are subject to CRS.  This means they are required to conduct due diligence to identify the tax residence of account holders and controlling persons of certain account holders.  Many jurisdictions have adopted a wider approach to CRS, allowing account due diligence to be performed even on those account holders and controlling persons that are not resident in the participating jurisdictions.

In March 2018 the OECD issued new model disclosure rules requiring intermediaries such as lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients (as promoters or service providers) to avoid reporting under the CRS or to disguise beneficial owners of offshore entities or trusts.

What is reported

Information reported (for individuals and reportable entity account holders as well as controlling persons of entity account holders) includes the following:

  • Name and address
  • Date and country of birth, if required
  • Jurisdiction(s) of tax residence, and Tax Identification Number (TIN) (where applicable)
  • Account number or functional equivalent
  • Account balance at beginning and end of reporting period
  • Income including gross dividends, interest and other income deposited into the account
  • Gross proceeds from the sale or redemption of assets deposited into the account

Banks are not under any obligation to notify their customers that information can or will be disclosed to tax authorities of other CRS member countries.

CRS and the Foreign Account Tax Compliance Act (FATCA)

FATCA was signed into US law on 18 March 2010.  Its primary objective was to reduce US tax evasion by identifying US taxpayers who invested directly in accounts outside the US or indirectly through the ownership of entities who hold accounts outside the US.  Treasury officials had estimated the tax loss in this area to be over $100billion annually.

There are reporting and withholding tax implications for US citizens who are non-compliant under FATCA.  CRS similarly aims to identify and report individuals and certain entity account holders and their controlling persons that are tax residents of reportable jurisdictions.  CRS is therefore modelled on FATCA.  Unlike FATCA, however, there are no withholding taxes due under CRS and the law of each individual jurisdiction will impose penalties or sanctions for non-compliance with the requirements of CRS.

How can WLH Tax help

If you hold overseas assets, bank or investment accounts and you have concerns that you may not have fulfilled your UK tax obligations and you wish to make a voluntary disclosure to HMRC or if your offshore assets are currently subject to an HMRC investigation, please contact us for a free, confidential and no obligation discussion.  We are happy to have an initial free of charge meeting with prospective clients.

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