Sharing Our Knowledge
More than 50 jurisdictions have committed to implementing a Common Reporting Standard ('CRS') from 1 January 2016.
The Common Reporting Standard is the global standard for the Automatic Exchange of Information ('AEOI') and aims to prevent cross-border tax evasion.
Many of the jurisdictions in which ford and our clients operate are early adopters of CRS, so we are obliged to gather certain information to ensure that any tax reporting undertaken in respect of 2016 is accurate and relevant.
What is Common Reporting Standard, or CRS?
The CRS is the global standard for the AEOI and aims to prevent cross-border tax evasion. It was developed by the Organisation for Economic Co-operation and Development ('OECD') following the introduction of Foreign Account Tax Compliance Act ('FATCA') by the USA.
The CRS has been designed to provide as much consistency with FATCA as possible but broadens the scope of reporting to non-US persons. CRS applies to all jurisdictions which have opted in to the regime.
There are more than 90 jurisdictions which have currently signed up to CRS, including Jersey, BVI, Cayman Islands, Singapore, Hong Kong, Switzerland, New Zealand and United Arab Emirates.
Entities, including trusts, companies and partnerships, in CRS-compliant jurisdictions will need to consider CRS and ensure that reporting is undertaken in respect of account holders who are resident in other CRS-compliant jurisdictions.
There is a phased introduction to CRS with some jurisdictions committing to implement CRS from 1 January 2016 with a view to undertaking the first exchanges of information during 2017 in respect of 2016 financial account information.
More jurisdictions have committed to implementation the following year whilst many more have yet to commit or indicate a timeline. The scope of reporting required by businesses will most likely increase as a consequence.
Why does CRS apply to me?
Under FATCA and the agreements subsequently reached between the UK and its Crown Dependencies and Overseas Territories, only financial account information in respect of US citizens and residents of the USA, UK, Crown Dependencies or Gibraltar was reportable.
CRS has significantly increased the scope of reporting so that residents in a CRS-compliant jurisdiction will be reportable to the extent that they hold certain financial accounts in a CRS-compliant jurisdiction.
As your professional advisers/corporate trustees, we wish to assure you that we have taken the appropriate steps to ensure our business is CRS compliant and will continue to do so.
Aqua have a dedicated team who are in charge of this initiative and are working with your client service team to implement our AEOI programme by developing our existing FATCA programme.
Whilst undertaking the significant work involved in becoming FATCA-compliant, it was anticipated that the scope of international tax reporting would only increase and we therefore invested resources to ensure that our databases and processes were appropriate for identifying and reporting on such information.
What needs to be done?
Aqua will be responsible for reporting to various authorities regarding financial account holders of entities under our administration. To facilitate such reporting, we need to ensure that the information held by us in respect of all clients is correct and current.
What do you need to do?
To assist us with ensuring that any information reported is appropriate, we have asked our clients to complete the Self-Certification Form providing details of all jurisdictions in which they are considered to be tax residents and return it to us at no later than 31 January 2016.
Please note that previous correspondence in respect of FATCA did not require a positive response, in the majority of cases, as we only targeted those individuals where we had identified USA or UK indicia for further information required.
As the scope of CRS is much broader than the existing regimes, we are expecting most, if not all, of our clients to be affected and therefore we cannot follow a similar approach in this circumstance.
What Aqua will do?
In the absence of a completed Self-Certification Form, we are obliged to rely on certain indicators which are identified within the data we currently hold on our records. The indicia specified under CRS are broader than tax residence. Therefore it is possible that financial account information may be reported to more jurisdictions than strictly necessary in the absence of a valid and current Self-Certification Form which clearly states where you are tax resident.
On an annual basis, we will report certain financial account information about reportable individuals and entities to the relevant authorities where necessary. The outcome of this will be that your domestic tax authorities may receive such financial account information on an annual basis in accordance with CRS.
Please note that such automatic exchange of information does not necessarily trigger a tax liability in the jurisdiction in which you are tax resident but may highlight a relationship with a financial account of which the tax authorities were previously unaware.
Provided you are fully compliant with your tax obligations there should be no cause for concern. If you are aware or concerned that you may not be complying with your tax obligations, we recommend that you seek advice to rectify this position as soon as possible.
How will CRS affect me?
It is likely that your interest in entities under our administration will be reported to your local tax authorities by the Comptroller of Taxes in Jersey. This will include, for example, shareholders, partners (of a partnership), settlors, protectors, beneficiaries, trustees, enforcers, appointers and ultimate beneficial owners.
What information will be reported, and to whom?
The information that will be reported includes identification information (name, address, tax residence and taxpayer reference as requested in the self-certification form) and financial information (account balance and amounts paid during the relevant year).
As previously mentioned, this information will be reported to your local tax authority by the Jersey Comptroller of Taxes.
What is the 'account balance'?
The account balance will generally be the net asset value based on the latest financial statements for the entity. In respect of trusts, the account balance will be determined by your relationship with the trust, for instance, the total value of the trust will be attributed to the settlor, trustee, protector or mandatory beneficiary. For a discretionary beneficiary, the account balance reportable will be nil.
What are 'amounts paid'?
Amounts paid include any dividends paid to shareholders, profits attributed to partners of a partnership and distributions made to beneficiaries of a trust, including discretionary beneficiaries. It also includes interest payments to debt holders who have advanced monies to the entity (e.g. interest bearing shareholder loans). It does not include professional fees or expenses incurred in the normal course of business.
When will this information be reported?
The information will be reported at differing times depending on the jurisdiction of the entity by way of example; the first reporting to be undertaken in Jersey is due by 30 June 2017 and for Singapore is expected to be 31 July 2018.
Why are protectors and trustees being reported when they have not received a benefit?
What is being reported does not necessarily trigger a tax liability in the jurisdiction in which you are tax resident but is intended to highlight a relationship with a financial account.
How does this differ to FATCA?
FATCA was concerned with capturing US individuals and the agreements between the UK and its crown dependencies and overseas territories were concerned with capturing UK individuals. CRS broadens the scope of reporting to non-US persons and applies to all jurisdictions that have opted into the regime. Currently, there are more than 90 jurisdictions that have signed up to CRS.
Why are we being advised of this now?
To allow sufficient time to capture the required information and enable Aqua to report as required.
Where can I go for further information?
If you would like to find out more about CRS or have any queries, please contact a member of the client team which managers your structure(s).