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Tax
The Common Reporting Standard (CRS)
By Francis McGowan, Senior Associate, Tax and Advisory at PwC
What information needs to be reported on? CRS requires that only information relating to non-residents from reportable jurisdictions (i.e. countries who are signatories to the CRS) is reported. No returns have to be made to the CoIT if there is no reportable information.
RFIs must report the name, address, jurisdiction of residence, taxpayer identifica- tion number and date of birth of each reportable person, and in the case of an entity, each controlling person which is a reportable person on each reportable account (i.e. accounts controlled by an individual or entity that is resident in a reportable jurisdiction). RFIs must also report the account balance or value as at the end of the relevant year (or on date of closure of account). On some account types, RFIs report on interest, dividends, or other income, gross proceeds from sale or redemption paid or credited during the year.
What’s next?
The RFI’s first reporting deadline is 31 July 2017. This must be submitted by an electronic return. The CoIT’s automatic exchange deadline with other jurisdictions participating in CRS is 30 September 2017.
The first reporting period is the calendar year 2016. Local RFIs will need to review their current systems and contracts, and consider how these will need to be adapted to comply with the CRS reporting requirements. New accounting opening procedures may be required to collect the relevant information and this does not simply consist of one confirmation on tax residence at the time of on-boarding foreign clients. Systems and processes will need to continuously monitor key information such as tax residency status, account balances or gross proceeds to be paid or credited to an account holder. Fortunately, despite the differences between FATCA and CRS, RFIs can leverage the lessons learnt from FATCA in developing the processes for exchanging information under CRS.
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revised European Directive on Administrative Cooperation (DAC) (which provides the mechanism for adopting the CRS in the EU) into local law.
In Gibraltar, no guidance notes have been or are likely to be published to help to interpret the law to help identify which financial institutions have reporting obligations or the type of financial information and accounts which need to be reported. For assistance in interpretation, professional advice should be obtained.
Who ensures compliance in Gibraltar The Gibraltar Commissioner of Income Tax (CoIT) is the Competent Authority and there- fore responsible for ensuring that Gibraltar financial institutions comply with their obligations under CRS. Under CRS, reporting financial institutions (RFIs) will need to report accounts held by non-residents to the
There is nothing new about the idea of exchange of tax information between jurisdictions. However, since the global financial crisis of 2007 and 2008, there has been a change in
momentum with countries committing seriously to implement frameworks facilitating automatic exchange of tax information in a bid to catch tax evaders and claw back lost revenue.
The watershed moment galvanising support for exchange of tax information is widely attributed to the UBS scandal in 2007 when a whistle-blower disclosed information on tax evasion by US clients of the Swiss Bank UBS. This led to a US investigation into UBS. The legacy of the UBS scandal was the Foreign Account Tax Compliance Act (FATCA). Now Swiss financial institutions
‘The world is quickly becoming a much smaller place, both for tax evaders and tax administrations*
share account information directly with the CoIT which will be used for eventual US tax authority (IRS). FATCA then exchange with other jurisdictions. spawned UK FATCA (an exchange of If an RFI fails to comply with the CRS,
information agreement between the UK and its Crown Dependencies and Overseas Territories). The latest chapter on information exchange is CRS which is also inspired by FATCA and commonly referred to as global FATCA.
CRS was developed by the OECD and aims to effectively tackle tax evasion while minimising costs for governments and financial institutions by using a standardised automatic exchange model.
Gibraltar is committed
The Gibraltar Government has enacted the International Co-operation (improvement of international tax compliance) Regulations 2016 (“the Regulations”). The Regulations implement the OECD’s CRS system and the
the RFI will commit an offence and be liable to a fine of £3,000.
What does this mean for RFIs in Gibraltar? RFIs in Gibraltar will have a reporting obligation to the CoIT if they are depositary institutions, custodial institutions, investment entities and specified insurance companies.
Whilst it is generally straight forward to identify an institution with potential reporting obligations, it may be less clear for some organisations such as corporate administrators, company managers and corporate trustees. This should be looked at on a case by case basis using professional advice.
* OECD Secretary General Angel Gurria at the signing ceremony of the Multilateral Competent Authority Agreement for the Automatic Exchange of Financial Account Information (“the MAAC”). The exchange relationships under CRS between jurisdictions are typically based on the MAAC.
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