WHAT IS COMMON REPORTING STANDARD (CRS)?
In February 2012, the G20 has called for automatic exchange of information as a means to improve comprehensive information exchange to fight against tax avoidance and evasion. The Organisation for Economic Co-operation and Development (OECD) was thus mandated to develop a new global model for automatic exchange of information
In February 2014, the OECD launched the Common Reporting Standard (CRS) as the new single global standard for automatic exchange of information. The CRS was duly endorsed by the G20.
DEFINITIONS OF CRS:
It involves the systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income (e.g. account balance or value, dividends, interest, royalties, salaries, pensions, etc.).
The CRS builds closely on FATCA and has three components:
- the reporting and due diligence rules;
- the Model Competent Authority Agreement (Model CAA), which contains the detailed rules on the exchange of information; and
- the OECD Commentaries, which provide additional guidance on local implementation of the CAA and CRS.
How it usually works:
- Under the CRS, your country’s tax authority receives from the relevant Financial Institutions
- (FIs), the information required to be disclosed and transmits that information to the relevant
- tax authorities. The tax authority in your country acts as the intermediary between the FI and the Revenue Authority of the Participating Jurisdictions.
Financial Institution (FIs) are required to submit their reports electronically or manually to your tax authority for onward transmission to the relevant tax authorities. Your country’s tax authority encrypts reports submitted by the FIs before transfer to the tax authority using secured file transfer protocol.
It is the responsibility of each FI to decide whether it should get registered with the Tax Authority in respect of the CRS and to provide the correct information in the required format for exchange with the foreign tax authorities.
The diagram below outlines the roles of the various stakeholders involved in the implementation of the CRS.
CONSEQUENCES OF CRS ON OFFSHORE BANK ACCOUNTS
As depicted on the above diagram, it is evident that the traditional offshore routine won’t work anymore. Assuming that you are a resident in Country Y and you have an offshore bank account in Country X and both countries X and Y have signed the Convention on Mutual Administrative Assistance in Tax Matters (the Convention) developed by the OECD, it basically means that all information such as account balance, interest received, etc would be communicated to your Tax Authority in Country Y.
As compared to FATCA which tends to be more specific, the CRS is more broad and hence gives each member country the liberty to have its own interpretation on CRS, unless already specified by the OECD. For example, the definition of tax resident under the CRS may be interpreted differently. The definition of tax resident in itself is the quite tricky part and requires you to grasp the legal framework of any country you might be interested to deal with.
ARE ALL COUNTRIES IN THE WORLD, MEMBER OF MUTUAL ADMINISTRATIVE ASSITANCE IN TAX MATTERS?
Luckily or unluckily, not all countries are participants of the Convention. You may have a look on below link for more information of Jurisdiction, which are participants of the Conventions:
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