Amid all the shouting in the overseas pension transfer industry about UK Chancellor Philip Hammond’s surprise announcement, last month, of a new “Overseas Transfer Charge” of 25% on most transfers of UK pensions out of the country, some pension industry experts have been keeping an eye on certain other major developments in the overseas pensions space.
Among those who have been watching, with some concern, has been Bethell Codrington, global head of pensions at TMF Group and an expert on pension transfers, particularly those into Malta, where TMF has a registered overseas pension scheme (ROPS, formerly and also still known as a QROPS).
Here, Codrington looks at how the Common Reporting Standard – the OECD’s new international regime aimed at enabling countries around the world to automatically exchange financial information about one another’s citizens and taxpayers – will affect those with pensions that are administered in a country other than the one in which the plan member happens to live.
Strange, but hardly anyone seems to be talking about what is formally known in Brussels as the “EU Council Directive 2014/107/EU of the 9th of December 2014 amending Directive 2011/16/EU”, even though it is coming into force imminently. This, of course, has to do with the mandatory automatic exchange of information that is called for under the OECD’s Common Reporting Standard (CRS), which will begin to take effect later this year, and is set to continue to do so through 2018.
The EU directive setting out how the CRS is to be adopted is to a degree jurisdictionally dependent, but in Malta, at least, the CRS will require all pension schemes to collect and report certain information about an account holder’s tax residence.
For this reason, individuals who have pensions there but aren’t tax resident in Malta, as well as their advisers, urgently need to understand what this will involve.
Around the world, most countries have their own rules for defining “tax residence”. In general, tax residence is the country in which a person is living; if they live in more than one country, it’s the one they live in mostly during the course of the year in question.
Special circumstances (such as studying abroad, working overseas, or extended travel) may cause a person to be resident elsewhere for a time, or resident in more than one country at the same time (known as dual residency).
The country/countries in which a person pays income tax are, therefore, likely to be their country/countries of tax residence.
Pension scheme information
Once the CRS is in force, Maltese pension scheme administrators will be legally obliged to pass on information about any scheme members they have who happen to be tax resident elsewhere. They will be required to do this in line with the provisions of “Regulation 8 of the Cooperation with Other Jurisdiction on Tax Matters Regulation (LN 295 of 2011 as amended)”, and they will need to do it by 30 April (in other words, by the end of this month).
What this means is that those who are members of pension schemes held in a country other than the one in which they are tax resident will no longer be able to “fly under the radar”, with respect to their tax obligations, on disclosure of their pension fund income.
Penalties regime, for failure to report
Below is how Malta intends to enforce compliance with the Common Reporting Standard.
The Penalties imposed upon Pension Scheme Trustees will encourage Compliance
Failure to report
Where this leads to the information having to be resubmitted this will have to be via the Commissioner.
In cases of minor errors, the Trustees will be subject to a penalty of:
The Commissioner will also engage with the Trustees to:
Such engagement from the Commissioner’s side does not exempt the Trustees from any applicable penalties. In the event that issues remain unresolved after a period of 18 months, then the Commissioner will apply any relevant penalties under the Income Tax Acts, Chapters 123 and 372 of the Laws of Malta, and regulation 44 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations. In cases of significant non-compliance the Trustees will be subject to a penalty of fifty thousand euro (€50,000).
The Commissioner will inform the foreign competent authority that would have communicated such non-compliance to the competent authority of Malta of any updates in the case.
Bethell Codrington is global head of pensions at TMF Group. Further information on the new CRS regime as it applies to Maltese pension scheme administrators may be obtained from TMF Group at [email protected]