The common reporting standards ('CRS') is a new global standard on the automatic exchange of financial account information between countries which is designed to combat tax evasion. The key points of note are:-
Over 90 countries will automatically share information obtained from financial institutions for non-resident beneficiaries.
This information will be shared by Irish Revenue annually and similarly it will receive financial information in relation to offshore bank accounts and other financial assets owned by Irish resident individuals.
Unlike previous exchanges of information (which were infrequent and made on a request basis), sharing of information under the CRS will be automatic.
The Irish Revenue Commissioners will have unprecedented access to the financial details of Irish resident individuals from 2017.
Persons with unreported income or undisclosed offshore bank accounts (or other investments) face significant penalties (including prosecution) as a result of the information that will become available. These persons can minimise their exposure by making a pre-emptive submission to Revenue during 2016.
ANNUAL SHARING OF FINANCIAL INFORMATION
Until now, the parties to tax treaties have shared financial information information upon request, which has not proved effective in preventing tax evasion.
Designed by the Organisation for Economic Co-operation and Development ('OECD'), working with G20 countries, and in close co-operation with the EU, the global CRS will see jurisdictions gather financial information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
The standard consists of two components: the CRS, which contains the reporting and due diligence rules and the Model CAA, which contains the detailed rules on the exchange of information.
HOW WILL CRS OPERATE
To prevent circumventing the CRS it is designed with a broad scope across three dimensions as follows:-
The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.
The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.
Over 90 jurisdictions (including all jurisdictions in the EU and nearly all other major jurisdictions) have signed agreements to implement CRS into domestic legislation. The earliest adopters, including Ireland, have legislated that CRS commenced on 1 January 2016 with other jurisdictions joining in subsequent years.
In Ireland, elsewhere, financial institutions must treat accounts held by clients who are tax resident in one of over 90 jurisdictions as reportable. Irish banks have already written to account holders seeking the disclosure of certain information and will disclose financial information unless the beneficial owner of an account 'opts out' by providing certain information.
Countries operating CRS in 2016 (and reporting in 2017) include:-
Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom
Countries that will operate CRS from 2017 (and report in 2018) include:-
Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay, Vanuatu
THE UNITED STATES
Currently the United States is not a signatory to CRS and therefore financial bank accounts, and other financial assets, located there will not automatically be disclosed to the Irish Revenue. Revenue may seek information from the US however the risks with this are substantially less than under the automatic reporting that arises under CRS.
IRISH INDIVIDUALS WITH OFFSHORE ACCONTS
More than 90 countries have now indicated that they will implement CRS reporting in their jurisdiction. It will oblige financial institutions and investment entities to report certain information in relation to non-resident investors to the local tax authorities.
This information will then be passed on by the local tax authorities to the Irish tax authorities beginning in 2017.
Individuals with undeclared income or holding undeclared offshore bank accounts should regularise their affairs with Revenue before 2017. In many cases the mere disclosure of non-Irish bank accounts will not give rise to tax issues. Individuals with undeclared income may be exposed to interest, penalties and in some cases prosecution for tax fraud. These individuals can significantly reduce exposure to these risks by making an unprompted voluntary disclosure to Revenue before 2017.