OECD CRS - The next evolutionary step of the automatic reporting

 

Enormous amounts of money are kept abroad and go untaxed to the extent that taxpayers fail to comply with tax obligations in their home jurisdictions.

 

The tax compliance has become a topic of the day for all the governments all around the world. In this respect, new tax regulations and exchange of information in this matter are being implemented rapidly and successfully, i.e. FATCA, UK FATCA, tax treaties, CRS, EU directives, Rubik agreements, etc.

 

The Foreign Accounts Tax Compliance Act (FATCA) was a first significant step in governments’ efforts to improve global tax compliance. FATCA and the Intergovernmental Agreements (IGA) aim to promote cross border tax compliance by implementing an international standard for the automatic exchange of tax information relating to US investors.

 

OECD published a Common Reporting Standard (CRS) for the Automatic Exchange of Information (AEOI). The CRS will be effective from January 2016 for more than 50 ‘early adopter’ countries. Financial institutions based in a country that adopts the CRS will, subject to the enactment of enabling legislation, be required to implement new processes with respect to customer on-boarding, pre-existing customer due diligence, entity and product classification, compliance and in final stage annual reporting.

To prevent taxpayers from circumventing the CRS it is specifically designed with a broad scope:

A single global standard for automatic exchange of financial account information.

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Strict requirements for account classification.

Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.

Broader range of financial information to be reported.

The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and 4 other similar types of income) but also account balances and sales proceeds from financial assets.

Under the CRS the definition of a Financial Account includes equity and debt interests in certain types of Financial Institutions that are regularly traded on a stock exchange. 

Broader range of financial institutions in scope of the CRS.

The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.