With recent developments well underway in establishing this common approach, the European Union has now incorporated the Common Reporting Standard ("CRS") into a revised Directive on Administrative Cooperation ("DAC") providing a legal basis for EU member states to exchange financial account information under CRS. The revised DAC came into force on 1 January 2015.
In April 2013, after entering into enhanced automatic tax information exchange agreements with the US ("US FATCA") and the Crown Dependencies ("UK CDOT"), the UK set up a pilot with a number of other tax administrations. This pilot explored the possibility of developing a common approach to automatically exchanging financial account information on a wider scale. This approach was supported by the G20 and taken forward by the Organisation for Economic Co-operation and Development ("OECD") who commissioned the development of a Global Standard for the automatic exchange of information, which is now referred to as the Common Reporting Standard.
On 21 July 2014, OECD published the Standard for Automatic Exchange of Information in Tax Matters (the Standard).
The Standard consists of the following:
+ The Model Competent Authority Agreement ("CAA") which is intended as a template for intergovernmental agreements;
+ The Common Reporting Standard that contains the reporting and due diligence standard that underpins the automatic exchange of information;
+ The Commentaries that illustrate and interpret the CAA and the CRS;
+ Guidance in technical solutions, including an XML schema to be used for exchanging the information and standards in relations to data safeguards and confidentiality, transmission and encryption.
Following publication of the CRS and its associated commentary in June 2014 by the OECD, the European Union incorporated the CRS into a revised DAC providing a legal basis for EU member states to exchange financial account information under CRS.
More than 90 jurisdictions have already committed to the swift implementation of the CRS. Of these, over 50 are committed to first exchange in 2017. In these "early adopter" jurisdictions, new account opening procedures need to be in place from 1 January 2016.
The publication of the CAA and the CRS is a significant structural step in the efforts of various governments to improve cross-border tax compliance. This follows a raft of tax compliance legislation such as the US FATCA and active campaigns of voluntary disclosures and legal procedures.
The CRS, with a view to maximizing efficiency and reducing cost for financial institutions, draws extensively on the intergovernmental approach to implementing US FATCA. While the intergovernmental approach to US FATCA reporting does deviate in certain aspects from the CRS, the differences are driven by the multilateral nature of the CRS system and other US specific aspects, in particular the concept of taxation based on the basis of citizenship and the presence of a significant and comprehensive FATCA withholding tax.
Under CRS and DAC, it will be necessary to carry out due diligence and reporting for all account holders’ residents in a large number of different participating jurisdictions and unlike FATCA, for CRS there is no de-minimis thresholds for pre-existing individual accounts. As such, a greater number of accounts will fall within CRS scope.
+ 1 January 2016 – New financial account opening procedures requiring self-certification by the customer should be in place for early adopter countries
+ 31 December 2016 – First reporting period ends.
+ June 2017 – Deadline for information to be reported by financial institutions to the local tax authorities in respect of the first reporting period in early adopter countries.
+ September 2017 – Information to be exchanged by local tax authority with partner jurisdictions.
Do I need to report?
Any financial institution that is resident in a CRS participating jurisdiction will be required to carry out the due diligence processes for identifying reportable accounts held by a participating jurisdiction person and to report certain financial information to its local tax authority.
In relation to new accounts opened after 1 January 2016, the financial institutions will generally be required to ask the person opening the account to certify their residence for tax purposes.
Similarly for pre-existing accounts opened before 1 January 2016, the general requirement is for financial institutions to use the information they have on file or to use self-certifications to establish whether information about the account holder needs to be reported.
Some categories of financial institutions were specifically excluded from being required to report information due to posing a low risk of being used to evade tax.
What to report?
Reportable account is defined as an account which belongs to a reportable person or to a passive non-financial entity with one or more controlling person(s) that is a reportable person, provided it has been identified during due diligence procedures.
Reportable person means an individual or entity that is tax resident in a CRS participating jurisdiction and does not include (i) corporation stock of which is regularly traded on one or more established securities markets and a related entity of theirs; (ii) governmental entity; (iii) an international organisation; (iv) a Central Bank; or (v) a financial institution (which will itself be subject to the rules and obligations of the CRS).
Therefore, in general, financial institutions will be obliged to report financial accounts held by:
+ Individuals from CRS participating jurisdictions; and
+ Passive non-financial entities from CRS participating jurisdictions and/or their controlling persons (individuals) from CRS participating jurisdictions.
Certain financial accounts are seen to be low risk of being used to evade tax and are specifically excluded from needing to be reviewed.
Once financial accounts are determined to be reportable accounts, the financial institution must report certain information in relation to that account to its local tax authority. The information to be exchanged includes:
+ The name, address, tax identification number (if any), date and place of birth;
+ The account number;
+ The name and identifying number (if any) of the reporting financial institution;
+ The account balance or value;
+ The total gross amount of interest, dividends, and other income from financial assets; and
+ Gross proceeds from the sale or redemptions of financial assets.
Do you need help with your CRS reporting or want to find out more details? At the Aztec Group we have welcomed the CRS and harmonised our procedures to implement CRS in all our offices to ensure we have effective and fully automated reporting process. To discuss your requirements or to simply to find out more, please get in touch with me.
 Early adopters countries (reporting start in September 2017): Anguilla, Argentina, Belgium, Bermuda, British Virgin Islands, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Jersey, Italy, South Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Turks and Caicos Islands, United Kingdom.
 The Participating jurisdiction means a jurisdiction (i) with which a Competent Authority Agreement is signed, and (ii) which is identified in the published list. Please visit the OECD’s website for the latest list of Participating Jurisdictions.
previous comment / Udi Vithanage
If you would like to discuss outsourcing to the Aztec Group or are considering migrating a fund or SPV, please contact James Duffield, our Head of Business Development on +44 20 3818 0250.
Aztec Group Guernsey
Aztec Financial Services (Guernsey) Limited
PO Box 656, East Wing, Trafalgar Court
Les Banques, St Peter Port, Guernsey, GY1 3PP
Telephone: +44 1481 749700
Facsimile: +44 1481 749749
Video Conference: +44 1481 725947
Aztec Group Jersey
Aztec Financial Services (Jersey) Limited
Aztec Group House, PO Box 730
11-15 Seaton Place, St Helier, Jersey, JE4 0QH
Telephone: +44 1534 833000
Facsimile: +44 1534 833033
Video Conference: +44 1534 832002
Aztec Group UK - London
Aztec Financial Services (UK) Limited
2 Throgmorton Avenue
Telephone: +44 20 3818 0250
Aztec Group Luxembourg
Aztec Financial Services (Luxembourg) S.A.
7, rue Lou Hemmer, L-1748, Luxembourg – Findel
Grand-Duché de Luxembourg
Telephone:+352 246 160 6000
Facsimile: +352 246 160 6016
Aztec Group The Netherlands
Aztec Financial Services (Netherlands) BV
Spaces Zuidas, Barbara Strozzilaan 201
1083 HN Amsterdam, The Netherlands
Telephone: +31 20 794 4820
Facsimile: +31 20 794 4821
Aztec Group UK - Southampton
Aztec Financial Services (UK) Limited
Forum 3, Solent Business Park
Parkway South, Whiteley, Fareham, PO15 7FH
Telephone: +44 238 202 2300
Facsimile: +44 238 202 2309