Just five years ago the suggestion that more than half the countries in the world, representing significantly more than that in terms of investible wealth, would be systematically sharing client information might have been seen as a fantasy.
With the infrastructure established through FATCA, and a widespread growing frustration with the hidden economy compounded by the significant public sector debt after the banking crisis, the OECD has galvanised 100 countries into action. As of 11 December 2015, this comprises 56 ‘early adopters’, with a further 41 countries following suit just a year later, and another three waiting in the wings (see the full list here: http://www.oecd.org/tax/transparency/AEOI-commitments.pdf). The list is not static, having doubled in number over 2015 alone.
Surprising to some will be the inclusion of the likes of Switzerland, Singapore, UAE, China and Russia, and the exclusion currently of the USA. Within Europe the EU is fully committed, as are the UK Crown Dependencies, namely Guernsey, Jersey and the Isle of Man. Specifically, the EU has transposed the CRS through a directive on ‘Administrative Cooperation’, so as to regulate member states between themselves, and at the time of writing, most participants are busily translating into domestic law the appropriate bilateral taxation treaties or Tax Information Exchange Agreements (TIEAs) as a necessary precursor.
Like FATCA, the detail is fiendishly complicated, with over 300 pages of commentary and 200 pages of implementation notes contained within the OECD CRS portal http://www.oecd.org/tax/automatic-exchange/. Although not all countries have finalised their domestic requirements or published guidance, from the currently available information, who will this impact, how and when?
Unlike the drawn out and often unachievable process of exchange of information upon request, the CRS represents a quantum advance by providing an automatic exchange of information. Not, of course, all information to all participating Governments, but information based upon tax residency. Whereas FATCA provides data to the IRS on US ‘persons’ (citizens and green card holders) with wealth outside the US, the CRS operates on a tax residency basis (with disregard for nationality, domicile or citizenship). In other words, the CRS provides that a UK domicile, tax resident in France, with wealth in Singapore, will have data on them and their relevant assets in Singapore made available by the Singapore financial institution annually to the French tax authority (albeit through the Singapore tax authority). Like FATCA, the reporting of assets will depend on the information held by financial institutions on account holders and the self-certification made by them to the institution.
Click here to read our next article about what information must be reported, who is reported on and who needs to make a report under the new rules.