A number of countries, including the UK, have recently issued a joint statement committing themselves to the early adoption of the Organisation for Economic Co-operation and Development (OECD's) new standard for the automatic exchange of information between tax authorities. This is known as the Common Reporting Standard (CRS). The statement recognises tax evasion as a global problem requiring the global solution of CRS as way to work together to tackle cross-border tax evasion.
The statement included a timetable for implementation that identifies a commencement date of 1 January 2016, with first exchange of information taking place by the end of September 2017. The CRS is based on the US Foreign Tax Compliance Act (FATCA) and implementation arrangements cover different matters such as account identification, due diligence procedures for high and low-value accounts, exchange of information and reporting, also noting a distinction between pre-existing and new accounts categorised as both low and high value (accounts will pre-existing if open on 31 December 2015).
Each country will need to enact the necessary domestic legislation and entered into appropriate international agreements to allow exchange of information.
This will put more immediate pressure on financial institutions to develop policies and procedures to comply with the CRS, particularly as the volume of data required to be collected, analysed and reported may be even be greater than under FATCA, as it covers many more countries than just the US, and also has a 'start date' of 1 January 2016. Clear guidance will be needed from government bodies to help reporting businesses to determine the information needed in order to put in place the necessary procedures to collate, record and report the information.
Any financial institutions affected by FATCA should take into account CRS and consider whether current or proposed FATCA procedures can be used or adapted. There are bound to be differences, which will add to compliance burdens.
The OECD intends to release further information and guidance later this year – it will be essential for financial institutions to understand this in order to become CRS compliant – if this guidance is delayed it may put intolerable pressure on financial institutions.
One complication is that different countries may interpret issues differently, leading to variable standards applied across adopting countries. This will require appropriate systems and procedures to deal with any complications. Please get in touch with your usual Smith & Williamson contact to discuss how your business should be preparing for these significant compliance developments.
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