OECD opens consultation into mandatory disclosure of Common Reporting Standard avoidance schemes

OECD opens consultation into mandatory disclosure of Common Reporting Standard avoidance schemes

The Organisation for Economic Co-operation and Development, the Paris-based entity behind the global information exchange programme known as the Common Reporting Standard, has opened a consultation into a proposed regulatory regime that would require advisers and other service providers  to disclose information on any schemes designed to circumvent the CRS – and those who make use of them –  to the relevant national tax authorities.

This information would then be available to be viewed by any other tax authority signed up to the CRS.

The consultation on the so-called “Mandatory Disclosure Rules for Addressing CRS Avoidance Arrangements and Offshore Structures”, is described a coming in the wake of a declaration by the G7 finance ministers in May that called on the OECD to start “discussing possible ways to address arrangements designed to circumvent reporting under the Common Reporting Standard, or aimed at providing beneficial owners with the shelter of non-transparent structures”.

This declaration states that the discussions “should include consideration of ‘model mandatory disclosure rules inspired by the approach taken for avoidance arrangements outlined within the BEPS Action 12 Report'”, the OECD notes on page 3 of its public discussion draft.

In a statement announcing the proposal to introduce the new disclosure rules “of CRS avoidance arrangements and offshore structures”, the OECD notes that challenges “still remain” in the area of international tax transparency in spite of dramatic improvements over the past decade.

“High profile leaks, such as the release of the ‘Panama’ and the ‘Paradise’ papers by the International Consortium of Investigative Journalists underscore the widespred use of offshore structures to hide beneficial ownership of assets and income,” it adds.

The model rules being proposed, it explains,”are intended to target promoters and service providers with a material involvement in the design, marketing or implementation of CRS avoidance arrangements or offshore structures.

“[they] would require such intermediaries to disclose information on the scheme to their national tax authority.

“The rules contemplate that information on those schemes (including the identity of any user or beneficial owner) would then be made available to other tax authorities in accordance with the requirements of the applicable information exchange agreement.”

 

Those wishing to comment on the proposed disclosure rules must do so by 15 January, the OECD says, by email to [email protected] in Word document format, and addressed to “the International Co-operation and Tax Administration Division, OECD/CTPA”.

New global info reporting system

The Common Reporting Standard is a new global information reporting system, signed up to at this point by more than 100 countries and beginning to come into force this year, which aims to provide for the automatic exchange of financial account information across international borders by most countries for the first time.

Its origins lie in the 2008 global financial crisis, which also spawned America’s earlier and still existing information exchange scheme, FATCA. (FATCA, formally known as the Foreign Account Tax Compliance Act, still exists, and is the reason the US says it won’t be participating in the CRS.)

The first automatic CRS exchanges took place in September, with some 49 jurisdictions participating. Another 53 have committed to begin taking part in the automatic information exchange programme next year.

To read and download the OECD’s 45-page discussion paper, click here. 

To read how the OECD is defining a CRS “avoidance arrangement” in its draft Disclosure Rules document, see page 2, below.


DEFINITION OF A CRS AVOIDANCE ARRANGEMENT

Model Rule
12.   This Chapter sets out the hallmark for a CRS Avoidance Arrangement. The hallmark begins with a general description of the core features of CRS Avoidance Arrangements (the generic hallmark) and then provides examples of specific arrangements that fall within this general description (specific  hallmarks). This approach is designed to ensure that the hallmarks capture known CRS Avoidance
Arrangements while retaining the flexibility to cover as yet unidentified  arrangements that may pose risks to the integrity of the CRS.

1. Definition of a CRS Avoidance Arrangement

1.1 A “CRS Avoidance Arrangement” is any Arrangement for which it is reasonable to conclude that it is designed to, marketed as or has the effect of, circumventing CRS Legislation or exploiting an absence thereof. In any case a CRS Avoidance Arrangement includes, but is not limited to:

(a) the use of an account, product or investment that is not, or purports not to be, a Financial Account, but has features that are substantially similar to those of a Financial Account;

(b) an Arrangement to:

(i) transfer a Financial Account, or the monies and/or Financial Assets held in a
Financial Account to a Financial Institution that is not a Reporting Financial
Institution;
(ii) convert or transfer a Financial Account, or the monies and/or Financial Assets
held in a Financial Account, to a Financial Account that is not a Reportable
Account; or
(iii) convert a Financial Institution into a Financial Institution that is not a Reporting Financial Institution;

where it is reasonable to conclude that such conversion or transfer is designed to, marketed as or has the effect of circumventing CRS Legislation or exploiting an
absence thereof;

(c)  an Arrangement for which it is reasonable to conclude that it is designed to, marketed as, or has the effect of undermining, or exploiting weaknesses in, the due diligence procedures used by Financial Institutions to correctly identify:

(i) an Account Holder and/or Controlling Person; or
(ii) all the jurisdictions of tax residence of an Account Holder and/or Controlling Person;

(d)  an Arrangement for which it is reasonable to conclude that it is designed to, marketed as, or has the effect of allowing:

(i)  an Entity to qualify as an Active NFE;
(ii)  an investment to be made through an Entity without triggering a reporting
obligation under the CRS; or
(iii) a person to avoid being treated as a Controlling Person; and

(e) an Arrangement for which it is reasonable to conclude that it is designed to, marketed as, or has the effect of classifying or disguising a payment made for the benefit of an Account Holder or Controlling Person as a payment that is not reportable under CRS  Legislation.

1.2   The following capitalised terms shall have the meanings set out below:

(a) “Arrangement” means an agreement, scheme, plan or understanding, whether or not legally enforceable, and includes all the steps and transactions that bring that
Arrangement into effect.

(b)  “CRS Legislation” means the Standard for Automatic Exchange of Financial Account Information in Tax Matters as implemented in the domestic laws of the jurisdiction where the relevant account is maintained and includes any international legal instrument for the exchange of information collected pursuant to such laws that is in force and effect for that jurisdiction.

Capitalised terms that are not otherwise defined shall have the meanings given to them under the CRS Legislation.

(Excerpt from the OECD’s Mandatory Disclosure Rules for Addressing CRS Avoidance Arrangements and Offshore Structures

 

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