Nowhere to hide: CRS and how banks and tax authorities are sharing your information
Written by Duncan Taylor on October 22, 2018.
Back in July 2014 fifty countries ratified an agreement drawn up by the OECD Council to introduce a global, standardised system of sharing financial information and reporting financial activities between governments and financial institutions. The aim was to increase transparency and reduce tax fraud and evasion. This agreement spawned the Common Reporting Standard (CRS) which was introduced in 2016 to facilitate the automatic exchange of information.
You may not have heard of the CRS but if you have assets in a country other than where you live then the chances are that your information is being shared. In Asia China, Hong Kong, Malaysia, Singapore, Indonesia, Japan and Korea are already participating, as are all the other G20 countries with the exception of the US, which has its own FATCA mechanism, introduced in 2014 and believed by some to be a catalyst for the introduction of CRS. The full list of participating countries can be found on the OECD website here.
In actual fact, just because a country has signed up to CRS doesn’t mean automatic exchange of information occurs because there is no universal agreement and countries are not obliged to cooperate with all other signatories. Instead, individual countries must create their own bilateral CRS agreements with other signatories, in a similar vein to individual double taxation agreements between countries. So while countries such as France and Germany are pursuing exchange agreements with all participating jurisdictions, others are not. Switzerland, for example has opted to limit agreements to its most important trading partners.
What does it mean for you? Well, if you are a law abiding citizen who declares and pays taxes as you should in all jurisdictions where you have assets then not much. However if you live or have assets in participating jurisdictions then automatic exchange of information will apply to your current and savings accounts, deposits, foundations and trusts accounts, company accounts with predominantly passive income, debt securities and obligations and equity investments disguised as insurance. Accounts which the OECD deem to be a low risk of tax fraud currently remain outside the CRS and these include private pension insurance, life insurance, retirement equity investments with tax advantages and company accounts with active income.
You may have been contacted by banks and other financial institutions asking you to clarify where you are tax resident and this is as a result of CRS. If you are tax resident in another country from where you hold assets local tax authorities will be informed enabling them in turn to share financial information with the tax authorities of those countries.
Depending on the bilateral agreements in place, banks and other financial organisations will be required to report the following information on accounts held on an annual basis:
• Name, address, and Taxpayer Identification Number (TIN) of each account holder
• Account number and account balance or value at year end
• Gross dividends, interest, rents, royalties, salaries, wages, annuities, licensing fees, gains and profits and other income paid or credited to the account
• Any gross proceeds from the sale or disposition of assets of a type that can produce interest, dividends or capital gains
• Income from certain insurance products
If you are hoping to evade tax there are still countries where you can ‘hide’ investments but the risks of putting your money into countries such as Syria, Liberia, Gambia, Cuba or Iraq may outweigh the benefits! In any case, it’s not something we would ever advise our clients to do.