The Common Reporting Standard
The Common Reporting Standard (“CRS”) or the global standard for the automatic exchange of financial information builds on the US Foreign Account Tax Compliance Act (FATCA) and is part of a worldwide initiative aimed to countering offshore tax evasion.
The Organization for Economic Cooperation and Development (“OECD”), through the development of the CRS creates a system of inter-state cooperation on exchange of taxpayer information and looks towards a globally coordinated approach for disclosure of income earned by individuals and entities.
The widespread adoption of the CRS as well as its incorporation into domestic law has created obligations with which entities as well as individuals are obliged to conform. While substantive reporting and due diligence obligations regarding account holders are only imposed on specific “Financial Institutions”- the definition of which includes banks, custodians, investment entities, funds, insurance entities and similar entities - nevertheless individuals as well as Non-Financial Entities (“NFEs) are not exempt from the scope of certain requirements.
Please visit the link below to find the jurisdictions which have committed to the implementation of CRS:
http://www.oecd.org/tax/transparency/AEOI-commitments.pdf
Reportable accounts and Reportable persons
The term Reportable account is defined as a financial account held by one or more Reportable Persons or by a Passive Non-Financial Entity with one or more Controlling Persons that is a Reportable Person.
The term Reportable Person means an individual or Entity that is resident in a Reportable Jurisdiction under the tax laws of such jurisdiction, or an estate of a decedent that was a resident of a Reportable Jurisdiction, other than:
- a corporation the stock of which is regularly traded on one or more established securities markets;
- any corporation that is a Related Entity of a corporation described in (i);
- a Governmental Entity;
- an International Organization;
- a Central Bank; or
- a Financial Institution.
CRS Self-certification forms
Individuals: Individuals will be required to complete a “CRS self-certification form” by Financial Institutions with which they engage. The form requires individuals to state their country(ies) of tax residence, the tax authorities of which will consequently receive information relating to the individuals’ financial accounts.
Entities: The “CRS self-certification form” will also be required from entities for determining whether the entities (and for certain entities whether their controlling persons) are reportable under the CRS. Specifically, the form requires the entity’s (or for certain entities their controlling person(s)’), country(ies) of tax residence.
Accordingly, information on the entity’s financial accounts will be reported to the tax authorities of the country(ies) of tax residence of the entity and for certain entities also to the tax authorities of the country(ies) of residence of the entities’ controlling persons.
Furthermore, the entity, through the form is required to declare its classification under CRS, depending on which, different reporting obligations or disclosure of information may arise. It is essential to bear in mind that the self-certification form is subject to review and confirmation by the Financial Institution and thus diligence must be ensured in its completion.
Important Dates
Financial Institutions will report the relevant information to their respective tax authorities on an annual basis and under the Reciprocal Automatic Exchange Framework there will subsequently be an exchange of such information between tax authorities of all CRS reportable jurisdictions.
1 January 2016: CRS go-live date. Accounts opened on or after this date will be referred to as ‘new accounts’. New account opening procedures must be in place to record tax residence.
31 December 2016: Due diligence procedures completed for high-value preexisting individual accounts.
30 June 2017: Cyprus Financial Institutions must complete and submit to the Cyprus Tax Authorities their reporting, in respect of new accounts and preexisting individual high-value accounts.
30 September 2017: The Cyprus Tax Authorities must transmit the information submitted by the Cyprus Financial Institutions to early adopter jurisdictions. The information will relate to the 2016 year.
31 December 2017: Due diligence procedures completed for preexisting low value individual accounts and preexisting entity accounts.
30 June 2018: Cyprus Financial Institutions must complete and submit to the Cyprus Tax Authorities their reporting, in respect of all accounts.
30 September 2018: The Cyprus Tax authorities must transmit the information submitted by the Cyprus Financial Institutions to all signatory jurisdictions. The information will relate to the 2017 year.
Risks stemming from incorrect or untimely completion of CRS self-certification forms
- Incorrect entity classification under the CRS may lead to the wrong conclusions as to the reporting requirements for the entity. In addition, it may lead to prevention of opening of new accounts or closure/suspension of existing accounts in a financial institution.
- Failure to timely or correctly provide the CRS self-certification forms may lead to the imposition of penalties or sanctions for account holders (pending the expected adoption of measures by jurisdictions).
- Incorrect country(ies) of residence declared may lead to the wrong conclusions as to whether an account is reportable.
- Reputational risks.
CPM Services
CPM can assist you in assessing the impact of CRS for your company. Please contact us.
https://www.cpm.com.cy/cyproman/corporate-services/contact.html