OECD Common Reporting Standard: Same-old, or something more?

Richard Cassell, (pictured), a partner in the London office of the international law firm Withers, considers the implications of the Common Reporting Standard – sometimes known as the “global FATCA”, or “GATCA” – which will begin to come into force in some countries as early as 2017.

Some time ago, we wrote an article on the Foreign Account Tax Compliance Act, which said that although FATCA’s tentacles are fairly intrusive, at the end of the day, it represents just another form for tax payers to complete.

Rather to my surprise, this article elicited a threat from one exasperated reader, who clearly thought I had grossly understated the threat. It is nice to know that somebody reads these articles.

So, to continue the theme, we are reporting today on further information reporting requirements – this time from the OECD – which has followed up on the US FATCA initiative with an international, automatic, multiparty information exchange network under its so-called Common Reporting Standard (CRS) framework.

The CRS principles are similar to those set forth in the intergovernmental agreements set up to implement FATCA across Europe and in other places. More than 50 countries have signed up as early adopters of CRS, including the UK, and they will start collect information from the first of January this year, for filing in 2017. More than 70 additional countries have pledged to introduce this by 2017.

Truly, then, there will be nowhere in the world to hide, apart from some rather exotic jurisdictions – and, ironically, the United States.

Yes, the US says it sees no need to sign up to CRS, even though just about everyone else is, because it has FATCA. It believes it is effectively participating in the global exchange of information, through its bilateral FATCA inter-government agreements.

The OECD does not agree, though, and so is classifying the US as a non-participating country.

Meanwhile, some commentators have got very excited about this apparent lacuna in the information exchange network, and are pressing those of their clients who wish to avoid information exchange to move their structures to the United States. “Just move your trust and holding company to Delaware, and your home jurisdiction need never know”, they are being told.

Counter-intuitively – because the US is not a participating jurisdiction –  this in fact means enhanced information reporting, unless not only the structure is moved to the United States but also all the investments.

Also bear in mind that the FATCA inter-governmental agreements are two-way streets, and the United States has spontaneously exchanged information with the United Kingdom and other countries under these agreements.

Who is affected?

Anybody who maintains any sort of financial account in a country within an OECD jurisdiction other than the United States will now be expected to comply with the new rules.

Most of those in the financial services industry will be familiar with the now increasingly-commonplace requirement to sign FATCA forms pursuant to bank due diligence requirements, even for ordinary bank accounts, which state whether or not an account-holder is a US person.

Under CRS, these forms will be expanded slightly, to certify an individual’s country of residence as well as to ascertain various tax-paying identification numbers.

For example, if you have an investment account in the United Kingdom and you are resident in Italy, then your investment account information will automatically be sent to Italy.

For individual account holders, it will seem as though it is just yet another form to complete. Provided you report your global income in your country of residence, then it should tally with information that is reported through CRS, so participating should be boringly bureaucratic, but ultimately, not too threatening. Behavioural changes, for them, won’t be necessary.

Trusts, company structures

However, for clients with trusts and partnership interests that own financial accounts, it will be necessary to look at the reporting requirements more closely. And here, there is a much greater risk arising from the information exchange process, because the information gathered is more extensive, and thus may potentially lead to home country audit risks.

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