1. What is CRS?
CRS is an acronym for the Common Reporting Standard. It is a global initiative championed and developed by the Organisation for Economic Co-operation and Development (the “OECD”) and is broadly based on the piece of US legislation that brought in the Foreign Account Tax Compliance Act (“FATCA”). The fundamental objective of both CRS and FATCA is identifying persons who may be evading tax in their home country through the use of foreign or offshore accounts or entities. Approximately 100 countries have committed to exchange data with each other on an annual basis under the CRS regime.
2. When does CRS start?
CRS is being brought into effect in a phased manner. 56 countries implemented CRS as of 1st January 2016, with a view to exchanging information during the summer of 2017. A further 40 countries are expected to implement CRS with effect from 1st January 2017, and will be exchanging information with all other committed countries in the summer of 2018.
3. How does CRS affect entities managed by JTC?
16 of the 18 jurisdictions in which JTC Group operate are already committed to the implementation of CRS. Any entity or trust that is resident in a Country participating under the CRS regime is legally obliged to undertake a classification under the CRS regime. Once this classification outcome is known, this will determine what additional actions, if any, might be necessary by that entity.
4. What do you mean by ‘classification’ of an entity?
Every entity (including Trusts) needs to determine whether it is a Financial Institution (FI) or a NonFinancial Entity (NFE) and there are sub-categories of each status. There are rules that guide the assessment and categorisation of any given entity and it is these rules that JTC will follow to determine the status of all relevant client entities.
5. Isn’t the classification of an entity the same as that under US or UK FATCA regimes?
Not always. There are a number of key differences between the various existing FATCA regimes and CRS which might result in an entity in which you hold an interest being classified differently under the CRS regime.
6. What difference does that classification have on reporting?
Broadly speaking, an entity that is a Financial Institution will have some reporting obligations itself. It may also be obliged to register online with the Tax Authorities within certain jurisdictions relevant to its operations to identify itself and confirm that it will be making reports of data. An entity that is a NonFinancial Entity has no direct reporting requirements but where that entity holds accounts (e.g.: a bank account) with another Financial Institution they may have to make a report depending on the circumstances.
7. Which Countries are party to CRS?
The list of current jurisdictions committed can be accessed via the website of the OECD by following this link: http://www.oecd.org/tax/transparency/AEOI-commitments.pdf
8. My Home Country of tax residence is included on the list of participating jurisdictions, what does this mean for me?
Where an entity that is classified as a Financial Institution has ‘account holders’ (which definition includes beneficial owners of companies and beneficiaries of trusts) resident in a participating jurisdiction, it will be obliged to transmit data in respect of that person to the tax authorities within its own jurisdiction who will then share that information on an annual basis with the jurisdiction of residence of those relevant account holders. This will include personal details about you in order for the tax authorities to identify you within your country, as well as financial information about the accounts that you hold with entities outside of your home country.
9. My Home Country of tax residence is not included on the list of participating jurisdictions, so why are you telling me about CRS?
Even where it is known that there are no account holders resident in a jurisdiction which is party to CRS, an entity that is resident in a Country which is participating will have certain obligations depending on its classification. In some cases, this will include a legal obligation to undertake an enhanced file review. There is not an ‘Opt Out’ for this part of the process even if an entity anticipates that it will have nothing to report. During this process we may require additional information and your co-operation is vital even if you are content that you are not a Reportable Person.
10. Am I an ‘Account Holder’?
In the situation of a bank, the account holders are simply the owners of the bank accounts held with that bank. In the case of entities that are administered the situation is a little more complex, for example:
|Type of Entity||Account Holders might include|
|Company||The Shareholders (including those for whom shares are held on a nominee arrangement); or holders of certain types of debt interest in the company|
|Trust||The Settlor, some Trustees, Protectors, and certain types of beneficiaries (where there are benefits being provided or the class of beneficiary has a defined right to any part of the capital or income of the Trust)|
|Fund vehicles||Most ‘investors’ in a fund will potentially be seen as an account holder.|
11. What if I am uncertain as to where I am resident for tax purposes?
The rules on Tax Residence are a complex subject, and it is quite possible for an individual to be resident in more than one jurisdiction for tax purposes. If you are in any doubt as to where you are tax resident, we would advise you to seek personal tax advice as a priority.
12. What information will be reported?
- The name, address, date of birth, place of birth and Social Security Number or Tax Identification Number of each individual account holder.
- In the case of an account maintained by an entity that is not itself subject to reporting under CRS, the same details for each substantial owner that is resident in a CRS participating jurisdiction.
- The account number.
- The account balance or value at each year end.
- Gross dividends, interest and other amounts paid or credited to the account in the year.
13. What information do you need from me?
Much of the information that is required to be reported upon should already be held on our records. In certain circumstances, we may require your assistance with accessing information to value certain interests within underlying structures, or simply require you to confirm your tax residencies, Social Security numbers or Tax Identification numbers. Where this is the case, we will write to you directly under separate cover.
14. What if I do not give you this information?
Depending on what information we already hold on you, we may already be in possession of sufficient data to exchange information under the normal reporting format. If there is currently insufficient information for the enhanced file review and you do not respond, or refuse to provide such information upon request, we may thereafter be required to report information on your interests as a ‘non-responder’ to the tax authorities.
15. What if my circumstances change?
As any changes to your personal details might have an impact on what information would be disclosed to the tax authorities, we ask that you notify us in a timely fashion should any of your personal details change.
16. Will you be deducting any amounts from payments that you receive or that you send to me in respect of the entity under CRS?
No. We are not required to make any deductions or withhold any taxes on payments received or payments made under the CRS regime.
17. Will I see what you will report in advance?
JTC will use its best endeavours to provide you with a copy of what is to be reported in advance of its filing so that you are aware of what information we have given and can provide this to your tax advisor. The reporting is a legal obligation based on the records we hold and is not optional.
18. If I move the entity to another jurisdiction – is the reporting avoided?
This is unlikely. If a jurisdiction has already implemented CRS with effect from 1st January 2016 there may already be some reporting obligation that has been triggered. Even if the entity is in a jurisdiction yet to implement CRS, consideration should be given to the fact that in the next few years approximately 100 countries across the world will be a party to the Common Reporting Standard or other similar agreements to exchange data. Entities in those jurisdictions that are not participating will be required to provide enhanced information on their ultimate owners when dealing with any CRS participating Financial Institution. As with any re-domiciliation, we would strongly urge that professional advice be taken to understand the impact of CRS to any entity in which you hold an interest, and to ensure that any restructuring considered does not fall foul of various Anti-Avoidance provisions that have been brought in to local legislation by various jurisdictions as part of their legal framework for CRS.
19. Does CRS replace FATCA?
Whilst CRS will effectively phase out the reporting under ‘UK FATCA’ – the agreements for exchange of tax information that the United Kingdom has with its Crown Dependencies and Overseas Territories during 2017, it will not replace US FATCA. The United States has confirmed that they will continue to exchange data only under the existing US FATCA arrangements, and they have made no commitment thus far to replace or enter into any additional arrangements under the Common Reporting Standard. If you are resident in a jurisdiction other than the United States however, it is possible that you might be subject to reporting under both the US FATCA and the Common Reporting Standard regimes. We have produced a similar guide for the US FATCA and UK FATCA regimes that you may find useful, but we do recommend that you seek advice surrounding your unique personal circumstances and how the various automatic exchange of information regimes might affect you.
20. What if I want further information?
We are always on hand and willing to discuss how we can assist clients in respect of those entities we administer and your usual relationship team will be able to direct any queries internally. JTC Group do not provide tax advice so if your query relates to your personal tax and residency circumstances we recommend you seek third party tax or legal advice and we will be happy to make introductions to potential suppliers of these services if required.
This publication is intended to provide an overview of the subject matter (errors and omissions excepted) and is not comprehensive in nature or to be construed as legal, tax or investment advice. We recommend that clients seek professional advice on any particular matter.