The Common Reporting Standard

Tuesday 22 November 2016

By Michael Nudd, Global Chief Risk Officer

Introduction

Tax transparency is high on the agenda for many governments as they seek to improve international tax compliance and tackle tax evasion. The US’ Foreign Account Tax Compliance Act (FATCA), and the Organisation for Economic Co-operation and Development (OECD)’s Common Reporting Standard (CRS) are information-gathering and reporting mechanisms, widely referred to as Automatic Exchange of Information (AEOI), for Financial Institutions (FIs) in participating countries to help fight against tax evasion and protect the integrity of tax systems.

This article aims to outline the CRS, which will see a significant increase in the customer due diligence and reporting obligations of FIs across the world.

What is the Common Reporting Standard?

Developed by the OECD and endorsed as the new global standard for the automatic exchange of financial account information, the CRS will better aid the fight against tax evasion and improve tax compliance.

More than 100 countries have already committed to implementing CRS legislation in either 2016 or 2017, with the first exchanges of information taking place in the year following implementation.

As with other FIs, Equiom Group businesses operating in jurisdictions that have committed to implementing the CRS will be required to comply with local legislation. This includes implementing new requirements for customer on-boarding, pre-existing customer due diligence, entity classification, governance, and reporting.

CRS fundamentals

The CRS is a big step towards a globally coordinated approach to the disclosure of income earned by individuals and organisations and it builds upon other information-sharing legislation, such as FATCA and the European Union Savings Directive, which was repealed in November 2015.

Tax authorities in participating jurisdictions have entered into Competent Authority Agreements (CAAs) with other participating and reportable jurisdictions and accordingly have an obligation to exchange information. FIs located in participating jurisdictions must identify and report annually to their local tax authorities certain accounts (Reportable Accounts) held by tax residents of reportable jurisdictions, or accounts held by certain entities in which such persons have an interest. Local tax authorities will, in turn, forward the information to the relevant reportable jurisdictions with which they have a CAA.

Collecting complex and varied information

The CRS relies heavily on local anti-money laundering (AML) and know your customer (KYC) requirements and on self-certification by account holders. While the intention is to have a single global standard, requirements may vary across countries making it more difficult for FIs to standardise their approach. The main obligation is to identify and confirm the tax residence status of all new and pre-existing account holders.

In order to achieve this, with effect from 1 January 2016, in the first wave of participating jurisdictions (the ‘early adopters’), new account holders have been required to complete a self-certification form in which they indicate their residence(s) for tax purposes. Entity account holders have similarly been required to indicate their CRS status on the form, and in some cases provide information on their Controlling Persons.

A review will also be performed on pre-existing customer data already provided to us in order to:

  • Identify, and possibly remediate, reportable jurisdiction indicators with respect to the customer
  • Request a valid, signed and dated self-certification form in order to certify the tax residence, tax identification number and CRS status where required

In gathering data, residency or tax residency within a particular country is the decisive factor, not citizenship.

What is a Reportable Account and what will be reported?

For CRS purposes, the following are considered to be Reportable Accounts:

  • Accounts for individuals and entities identified as tax resident in one or more reportable jurisdictions
  • Accounts for entities that are classified as Passive Non-Financial Entities with Controlling Persons that are identified as being resident in a reportable jurisdiction


Client information to be reported will generally include name, address, tax residence, tax identification number, date and place of birth, account balance or value and income paid or credited to the account (including interest and dividends).

Data protection for CRS purposes

Safeguarding client information is a cornerstone of Equiom Group and we will only share information with local tax authorities where required by law.

The local tax authority will then only share relevant client information with those jurisdictions with which they have entered into a CAA. If the account holder has multiple tax residences, then the information may be shared with multiple tax authorities.


Here are some key questions and answers to consider in relation to CRS:

What is CRS?

CRS was developed by the OECD as the new global standard for the automatic exchange of financial account information to fight tax evasion and improve tax compliance.

How does it work?

The first step in CRS is the collection of the information to identify Reportable Accounts. Equiom is required by law to identify accounts for individuals and entities that should be reported, and then securely report the required information to the local tax authority.

Once the local tax authority has received the information from a financial institution, it will then exchange the information with the tax authority of the jurisdiction in which the individual or entity is tax resident. The local tax authority will only exchange information with jurisdictions with a CAA in place.

How does the CRS differ from FATCA?

CRS is an international standard with reporting based on tax residency in Reportable Jurisdictions. The scope of FATCA is limited to the identification and reporting of US tax payers, based on both tax residency and citizenship.

What should I do if I am asked to provide Equiom with information?

As Equiom is legally obliged to collect certain information for CRS purposes to identify Reportable Accounts and report such accounts to their local tax authorities, account holders must complete self-certifications and provide other documentation or information when requested to allow us to report accurately.

Should I be concerned about the confidentiality of my personal information?

Where Equiom requests information solely for the purposes of CRS, we are not permitted to use the information for any other purpose. The information will be provided to the local tax authority in accordance with the relevant local legislation. Information exchanged between jurisdictions is subject to confidentiality rules and exchanging jurisdictions must also ensure the protection of personal data.

Why choose Equiom?

Equiom understands the objectives of CRS and the global concerns about tax evasion, and we are working to ensure compliance with all domestic laws within our operating jurisdictions.

Equiom is committed to minimising the impact of CRS on our customers by working closely with tax authorities and industry associations to clarify requirements and establish industry best practices for full CRS compliance.


Contact

For more information about CRS, please contact my colleague Andy Halsall