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Home » Legal & Financial » OECD Common Reporting Standard for Financial Information
OECD Common Reporting Standard  for Financial Information

OECD Common Reporting Standard for Financial Information

 

 

I wrote the following article which appeared in the January 2016 edition of The Islander. Despite widespread publicity about a global crackdown on tax evasion there are many people who do not seem to believe they will be caught. For those who fall into this category – read on!

 

On 13 February 2014, the Organisation for Economic Co-operation and Development (OECD), at the request of the G8 and the G20, released a model Competent Authority Agreement (CAA) and Common Reporting Standard (CRS) designed to create a global standard for the automatic exchange of financial account information.

 

The publication of the CAA and the CRS was a significant structural step in government’s efforts to improve cross border tax compliance. This followed a raft of tax compliance legislation such as the US Foreign Account Tax Compliance Act (FATCA) and active campaigns of voluntary disclosures and legal procedures, most recently in Germany and Italy.

 

Following on from FATCA, which was aimed at preventing tax evasion by US citizens, the OECD’s Common Reporting Standard (CRS), came into effect on 1 January 2016. This will be the standard for the automatic exchange of taxpayer information by a number of source -countries to the residence countries, i.e. from where is invested to where the investor is tax resident.

 

Tax authorities (jurisdictions) will obtain financial information about clients from local financial institutions and automatically exchange that information with other countries on an annual basis.

 

What is the Common Reporting Standard (CRS)?

 

Offshore tax evasion is a serious problem for governments all over the world. The exchange of financial information is seen as a critical tool to help combat tax fraud and evasion. The aim is that such information can provide timely information to tax authorities on non-compliance. The Common Reporting Standard (CRS) introduces a global standard for the automatic exchange of financial account information between tax authorities worldwide. To date, around 102 countries have signed up to the CRS, with 58 ‘early adopter’ countries going live from 1 January 2016.

 

The catalyst for CRS is widely regarded as being the UK/US Inter-Governmental Agreement (IGA) in 2012 which implemented the US Foreign Account Tax Compliance Act (FATCA). This was aimed at preventing tax evasion by US citizens investing abroad and requires foreign financial institutions to identify US account holders and disclose details about their accounts.

 

 

 

 

 

 

 

 

 

 

Presenting the new standard, OECD Secretary-General Angel Curria said:

 

 

“This is a real game changer. Globalisation of the world’s financial system has made it increasingly simple for people to make, hold and manage investments outside their country of residence. This new standard on automatic exchange of information will ramp up international tax co-operation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.”

 

 

The list of accounts covered by the CRS is similar to FATCA and includes depository accounts, custodial accounts, cash-value insurance contracts, annuity contracts and certain equity or debt interests in a financial institution. There are specific classes of account that are excluded from the definition, including certain retirement or pension accounts, certain tax favoured savings accounts, certain life insurance contracts, estate accounts and other accounts that present a low risk of being used to evade tax (which will be defined by local law).

 

The CRS will impact a greater number of accounts than FATCA. Instead of purely identifying US citizens or residents, a financial institution will be required to identify the residency of all their reportable customers.

 

The information to be reported includes the name, address, taxpayer identification number (TIN), date of birth (for individuals), account number (or functional equivalent), account balance or value, gross amounts paid to the account in the year, and total gross proceeds paid or credited to the account.

 

Governments around the world are determined to tackle tax evasion and the CRS is another component in this global battle. Anyone not convinced that the net is tightening on tax evaders should read HMRC’s “No Safe Havens” publication.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, produced by St. James’s Place Wealth Management, contact Roy Duns of St. James’s Place Wealth Management on 0191 385 1530 or email roy.duns@sjpp.co.uk.

 

 

Representing only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products.

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