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Did you know that they know? About Common Reporting Standard (CRS)

WELCOME TO THE NEW ERA FOR INTERNATIONAL TAX PLANNING!

Bank secrecy is dead. Your local tax authority doesn’t even have to ask anymore to send information on your assets. Before 2016 the tax authorities had to have grounds to suspect tax evasion and only then would approach the bank. It has all changed as of January 1st 2016. Common Reporting Standard (CRS) went live now. CRS was known before as the Standard for Automatic Exchange of Financial Account Information in Tax Matters, but the abbreviation SAEFAITM was merely a tongue twister. It relies on US FATCA system, but there are too many differences between the 2 monsters (for example, CRS yet does not foresee any electronic database, united reporting template (at least between the EU Members), identification numbers for non-participants. FATCA is based on US citizenship, while CRS relies on tax residency.) Unlike its ancestor EU Savings Tax Directive, the CRS goes further than just reporting interests on income.

The financial institution will report the account holder’ s name, address, tax ID number; the balance, bonus / interests or dividend payments, salaries, directors’ fees, “agents’” fees, life insurance, pensions and property.

The bank will report to the local tax authority about all accounts holders, and the local tax authority will send automatic report to another country tax authority where the account holders are tax residents.

  • Financial institutions include banks, custodians, brokers, collective investment vehicles and some insurance and trust companies.

  • The reporting income will include accounts held by individuals and companies (meaning all types of entities, trusts and foundations too!)

  • By automatic reporting they mean systematic and periodic transmission of information on the tax payers to the corresponding tax authorities.

  • Account holders are identified on their tax residency, not citizenship. It appears that your new St. Kitts & Nevis passport will not help. You are considered a tax resident in the country where you spend over 183 days per year. The question about the location of your tax residency, has already appeared on the new application forms of your bank, hasn’t it?

  • Tax authority of your country will receive information from the bank where you hold private, offshore or onshore company account, automatically, without requesting it. They will compare it to your tax declaration. Hence any previously hidden incomes will be disclosed.

 

IT IS ALMOST GLOBAL

Nearly 100 countries have already entered the Common Reporting Standard.

The “early adopters” – all EU Member States, UK Overseas Territories (Gibraltar, British Virgin Islands, Bermuda’s etc. ), Liechtenstein and Luxembourg will make first reporting in September 2017 for the period from January 1st 2016 until December 31st 2016. These “early adopters” are:

Anguilla, Argentina, Austria, Barbados, Belgium, Bermuda, Bulgaria, British Virgin Islands, Cayman Islands, Chile, Colombia, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos, Uruguay, United Kingdom.

In 2018 a lot more jurisdictions will commit to CRS, including Switzerland. Thus, their reporting period will start on January 1st 2017:

Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, China, Costa Rica, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Marshall Islands, Macao (China), Malaysia, Monaco, New Zealand, Qatar, Russia, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates.

In case you didn’t find a certain jurisdiction, don’t worry: the CRS will have special rules on how to deal with certain investment entities based in non-participating jurisdictions. OR, may it happen so that bank, fearing the bureaucratic burden, will simply refuse to open accounts to non-participants? It happened when FATCA was introduced, and many banks stopped services to USA clients.

Promises are made that confidentiality principals will not suffer in the process. Time will tell, however, what is right and wrong. For now let’s face the fact of the brand new game. At least now you know that they know. And now is the time to act wiser, plan more efficiently, structure better. For further advice on this topic, contact us.

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