Common Reporting Standard

The Common Reporting Standard (CRS) is an information standard for the automatic exchange of information (AEOI) regarding bank accounts on a global level, between tax authorities, which the Organisation for Economic Co-operation and Development (OECD) developed in 2014.

Its purpose is to combat tax evasion. The idea was based on the US Foreign Account Tax Compliance Act (FATCA) implementation agreements and its legal basis is the Convention on Mutual Administrative Assistance in Tax Matters. 97 countries had signed an agreement to implement it, with more countries intending to sign later. First reporting occurred in 2017, with many of the rest starting in 2018.

History

Until 2014, the parties to most treaties for sharing assets, incomes and tax information internationally had shared it upon request, which was not effective in preventing tax evasion.[1]

2014 declaration

In May 2014, forty-seven countries tentatively agreed on a "common reporting standard", formally referred to as the Standard for Automatic Exchange of Financial Account Information: an agreement to share information on residents' assets and incomes automatically in conformation with the standard.[2] Endorsing countries included all 34 OECD countries, as well as Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore, and South Africa.[2]

In September 2014, the G-20 major economies, at their meeting in Cairns, Australia, issued a G20 Common Reporting Standard implementation plan.[3]

The new system was intended to transfer all relevant information automatically and systematically. The agreement has informally been referred to as GATCA (the global version of FATCA)",[1] but "CRS is not just an extension of FATCA".[4]

Multilateral Competent Authority Agreement, 2014-present

As of October 2014, 51 countries had signed up to the Multilateral Competent Authority Agreement (MCAA), to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters[5] The agreement specifies the details of what information will be exchanged and when, as set out in the Standard.[6]

As of July 2015, 53 jurisdictions had signed the agreement to automatically exchange information;[7] As of July 2016 83 jurisdictions had signed the agreement.[6]

All European Union (EU) countries, China, India, Hong Kong, Russia and 109 countries altogether have agreed to become signatories.[8] Yet many countries will not participate in the automatic information exchange.[9] Many of those that have not signed are small countries. In April 2016, shortly after the release of the Panama papers, Panama agreed to comply with the standard.[10] In Jan 2018, Panama has signed the MCAA at the OECD headquarters in Paris and become the 98th jurisdiction joining CRS MCAA. [11] The US position is unusual. It has not signed this specific treaty.[12] The U.S. receives information relating to US citizens' accounts from many countries due to the compliance requirements of the FATCA act. The United States, in many cases, will reciprocate by sharing banking data with countries for accounts which their citizens hold in the U.S.[13]

Information exchanged

The information and its exchange format are governed by a detailed standard, whose details are listed in a 44 page long document.[14]

Each participating country will annually automatically exchange with the other country the below information in the case of Jurisdiction A with respect to each Jurisdiction B reportable account, and in the case of Jurisdiction B with respect to each Jurisdiction A reportable account:[15]

  1. Name, address, Taxpayer Identification Number and date and place of birth of each Reportable Person.
  2. Account number
  3. Name and identifying number of the reporting financial institution;
  4. Account balance or value as of the end of the relevant calendar year (or other appropriate reporting period) or at its closure, if the account was closed.
  5. Capital gains, depending on the type of the account (dividends, interest, gross proceeds/redemptions, other)

Reportable accounts

OECD allows the participating countries to determine what accounts are reportable. "The term "reportable account" means a [Jurisdiction A] reportable account or a [Jurisdiction B] reportable account, depending on the context, provided it has been identified as such pursuant to due diligence procedures, consistent with the Annex, in place in [Jurisdiction A] or [Jurisdiction B]."[15]

This means that either jurisdiction may negotiate and determine its own reportable accounts in its agreement. For example, the United States, with its citizenship-based taxation, has established in its FATCA Intergovernmental Agreements that, accounts held by US citizens and US Persons for Tax purposes in the other country's jurisdiction need to be reported via FATCA.

Participants

The European Union adopted the CRS on 1 January 2016 after amending the part on administrative cooperation re taxation. First reporting was planned for September 2017.

As of June 2017, the following countries committed to start reporting in 2017:

Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom[16]

Starting to report in 2018:

Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Pakistan, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay, Vanuatu[16]

Non CRS countries participating in global transparency for tax purposes

Of the 142 countries which have signed on the Global Forum on Transparency and Exchange of Information for Tax Purposes,[17] the following countries have not yet signed on (as of May 2017) to the CRS:[18]

Liberia, Kenya, Armenia, Kingdom of Lesotho, Azerbaijan, Maldives, Mauritania, Botswana, Moldova, Burkina Faso, Morocco, Cameroon, Chad, Niger, Nigeria, Côte d’Ivoire, Papua New Guinea, Paraguay, Peru, Philippines, Djibouti, Dominican Republic, Ecuador, Egypt, El Salvador, Republic of Macedonia, Senegal, Gabon, Georgia, Guatemala, Tanzania, Guyana, Thailand, Togo, Tunisia, Uganda, Ukraine, Jamaica, United States.[18]

Reactions

Private sector

In 2016, a legal expert complained that "The CRS has a much more ambitious scope, however, and modelling the standard on the FATCA rules has created problems for implementing it in Europe".[19] And a "private sector advocacy group representing financial services and law firms" went even further seeing a "showdown" between the two regimes.[20]

Developing countries

Transparency groups have reacted in various ways, some of them criticising how developing countries were (not) considered and involved.[21] Collecting and providing information can be so costly and difficult for developing countries obviating participation in the scheme. Instead of offering a period of non-reciprocity, where developing countries could simply receive financial data, the only mention of non-reciprocity agreements is catering to tax havens.[21]

Loopholes

While tax havens will have to provide some information, they can use a number of loopholes (unequal standards for how information is shared e.g.) and also elect not to receive any info in return.[21] The Financial Transparency Coalition criticised the access cost of $73 to download OECD’s report itself, being "a perfect illustration of why this process needs to include low income countries from the start".[21]

The OECD reviews investment mechanisms worldwide to identify risks in compliance and loopholes. It opened a website for whistle-blowers to anonymously report CRS violations including for pensions, insurance, and citizenship-for-sale tools. The OECD has investigated and labeled specifically as "low-risk" an investment tool in Hong Kong called ORS (Occupational Retirement Scheme) which is classified as a "non-reporting financial institutions" and can be used to bypass CRS as it does not need reporting under CRS guidelines and can be used to effectively be like a shell company.[22]

See also

References

  1. 1 2 DBFS Consultants: "OECD's CRS is like a Global FATCA" www.dbfs.co.uk, DBFS Financial Consultancy Services, n.d. (subscription required)
  2. 1 2 47 Countries Endorse OECD’s GATCA profwilliambyrnes.com, 10 May 2014.
  3. ↑ Common Reporting Standard Implementation Plan g20australia.org, September 2014
  4. ↑ DBFS Consultants: timeline and structure of FATCA and CRS www.dbfs.co.uk, DBFS Financial Consultancy Services, March 2015.
  5. ↑ China, Hong Kong committed to global alliance to end banking secrecy scmp.com, South China Morning Post, 30 October 2014.
  6. 1 2 "Automatic Exchange of Information on Financial Accounts". The Banks.eu, 21 November 2016.
  7. ↑ Automatic Exchange of Information OECD , n.d.
  8. ↑ The United Arab Emirates become the 109th jurisdiction to join the most powerful multilateral treaty against offshore tax evasion and avoidance OECD press release, 21 April 2017.
  9. ↑ Countries Which Will Not Automatically Exchange Account Information TheBanks.eu, an independent Internet project about banking services in European countries and their dependent territories to help potential investors to find a bank satisfying their requirements, 8 January 2015.
  10. ↑ "Panama agrees to adopt global tax reporting standards". Deutsche Welle. 15 April 2016. Retrieved 2016-04-17.
  11. ↑ "Panama joins international tax co-operation efforts to end bank secrecy". OECD. 15 Jan 2018. Retrieved 2018-05-24.
  12. ↑ Is US Becoming World’s Leading Offshore Territory? Sputnik News, 15.12.2015
  13. ↑ "U.S. Treasury FATCA Resource Center". U.S. Treasury Department.
  14. ↑ "Common Reporting Standard (CRS) User Guide and Schema". Organisation for Economic Co-operation and Development.
  15. 1 2 "Archived copy" (PDF). Archived from the original (PDF) on 2014-05-14. Retrieved 2014-05-13. OECD
  16. 1 2 "CRS implementation by jurisdiction - 2017". OECD. 20 June 2017. Retrieved 28 June 2017.
  17. ↑ The 142 members of the Global Forum are: OECD, n.d. retrieved 28 June 2017
  18. 1 2 "CRS by jurisdiction - Organisation for Economic Co-operation and Development". www.oecd.org.
  19. ↑ Noseda, Filippo (February 15, 2016). "Comment:Privacy v transparency - Withers' Noseda on incoming OECD tax rules opening a new battle front" (blog). legalbusiness.co.uk. Retrieved 16 February 2016.
  20. ↑ Burggraf, Helen (March 7, 2016). "US and OECD showdown seen looming over CRS". internationalinvestment.net/. Retrieved 26 March 2016.
  21. 1 2 3 4 Boland-Rudder, Hamish (23 July 2014). "OECD's plan to end bank secrecy blasted by activists". The International Consortium of Investigative Journalists. Retrieved 24 July 2014.
  22. ↑ "How becoming a Hong Kong pensioner can save you tax". The Economist. May 2017. Retrieved 2017-06-28.
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