The Common Reporting Standard (“CRS”) was born out of an OECD-led initiative currently supported by over 100 countries (“Participating Countries”). CRS requires jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. The purpose of CRS is to counter tax evasion.
CRS 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 due diligence procedures to be followed by financial institutions. Participating Countries are committed to increasing tax transparency through the automatic exchange of tax related information with the aim of countering tax evasion. This means that governments who have signed up to CRS are obliged to exchange their citizens’ tax information with other governments who have also signed up to CRS. So-called “early adopter” Participating Countries, like the British Virgin Islands, will commence information reporting in July 2017 for the 2016 calendar year. More recent signatories, so-called “late adopters”, will commence information reporting in 2018. Late-adopting signatories include Mauritius and Switzerland who will commence reporting in 2018 for the 2017 calendar year.
Does CRS affect you? If you are an individual who is tax resident in a Participating Country A and you hold a financial account with a financial institution in Participating Country B, the latter will exchange your tax information with Participating Country A. The definition of a “financial account” has a wide scope and encompasses not only depository and custodial accounts, but also equity and debt interests held in investment entities. These include not only shareholdings or units in collective investment schemes, but also equity interests in a trust, or similar legal arrangement.
If you are a tax resident in more than one Participating Country, this will likely lead to multi–jurisdictional reporting of the same account information. In order to avoid additional CRS reporting it is important to structure your estate in such a manner so as to minimize the impact of CRS. For example, if you are a protector of a trust, you may want to consider being removed as protector as protectors are reportable persons in terms of CRS. You may consider utilizing a legal entity to hold your assets that is exempt from CRS reporting, for example, in certain jurisdictions pension funds are exempt from CRS reporting.
Tax laws and the laws governing CRS are not straightforward. We strongly recommend that you consult a tax or legal advisor to make sure that you comply with the applicable tax laws and reporting obligations. Whilst Osiris is unable to provide you with tax or legal advice, we have established a network of expert and experienced tax and legal professionals who are available to assist our clients.