IN414 - Make Sure You Are Ready For The Common Reporting Standard (CRS)

The Common Reporting Standard (CRS) is based on FATCA principles and will result in a substantial increase in the flow of cross-border personal financial information.

FATCA (Foreign Account Tax Compliance Act) was introduced by the United States in 2010. FATCA requires financial institutions outside the US to report information regarding financial accounts held by their US clients to the Internal Revenue Services in the US. 

What are the implications of CRS?

The major change introduced by CRS is that financial information collected by one country about residents of another country may be shared automatically on an annual basis between countries that have signed up to CRS.

What is the Automatic Exchange of Information (AEOI)?

AEOI is designed to ensure that the information supplied is recorded and provided in accordance with the same rules and principles across participating countries. The objective is to make the exchange of information process as smooth as possible.

Which jurisdictions are implementing CRS and when?

CRS has been endorsed by 97 jurisdictions, including all of the G20 group of countries. 61 countries have signed a Multilateral Competent Authority Agreement (“MCAA”) committing them to CRS.

56 countries, including 10 G20 members and all EU Member States, started to implement CRS on 1 January 2016. These jurisdictions will start exchanging information with each other by the end of September 2017, based on information  they will have collected during the calendar year 2016. The remaining 11 signatories will begin exchanging information in 2018, based on information they will have collected during the calendar year 2017.

Which entities have to report?

Entities defined as Financial Institutions (FIs) have to collect data and report. These include depository institutions, such as banks, investment entities (including investment houses, funds, trusts and foundations), specified insurance companies and custodial institutions.

Distinguishing between FIs and non-FIs

An entity which is not a FI is defined as a Non Financial Entity (NFE). Companies, partnerships, trusts, foundations and other legal entities that are not financial institutions can be classified as NFEs. A NFE has no registration or reporting obligations. However, an entity is required to determine its classification and, where necessary, self-certify its classification to the financial institution that maintains its accounts.

It may be quite difficult to distinguish between a FI and a NFE; however there are certain broad concepts:

  • Trusts, foundations and companies established for private or family purposes will be NFEs if they are managed or administered by family members or individuals connected to the family.
  • Trusts, foundations and companies established for private or family purposes will be FIs if they are managed or administered by professional fiduciaries or if their assets are managed by professional asset managers.

When will the Automatic Exchange of Tax Information begin?

Annual reporting will begin in September 2017 for some countries and September 2018 for others.

What will be reported?

Information that FIs need to report relating to their account holders includes:

  • Name, date and place of birth.
  • Address and country of residence.
  • Tax residence and tax identification numbers relating to the account holder.
  • All types of account balances (including custody accounts), investment income (interest, dividends etc.) and gross proceeds from the disposal of financial assets.

How is Dixcart assisting clients?

Professional staff across the Dixcart offices are working directly with clients to review existing corporate and fiduciary structures and to ensure, where appropriate, that full compliance with CRS is taking place.

Clients need to fully understand when and how individual countries will implement CRS. Dixcart can provide this information and discuss the specific implications with clients.

Please speak to your usual Dixcart contact or email: advice@dixcart.com if you need any additional information regarding CRS and the action you should be taking.

Categories: Jurisdiction, Multi-Jurisdiction, Year, 2016