OECD Common Reporting

February 24th, 2014 by Stephen Jones Leave a reply »

On 13 February 2014, the Organization for Economic Co-operation and Development (OECD), at the request of the G8 and the G20, released a model Competent Authority Agreement (CAA) and Common Reporting Standard (CRS) designed to create a global standard for the automatic exchange of financial account information.

The publication of the CAA and the CRS is a significant step in governments’ efforts to improve cross border tax compliance. This follows a raft of tax compliance legislation such as the US Foreign Account Tax Compliance Act (FATCA) and active campaigns of voluntary disclosures and legal procedures.

The CRS is another global compliance burden for financial institutions and increases the risks and costs of servicing globally mobile wealthy customers – an otherwise attractive customer segment.

The OECD has modelled the CRS on FATCA, which means it may be possible to leverage existing and planned
FATCA processes and systems. However, the data required is different, and the volume of reporting required is likely to be significantly greater under the CRS.

The OECD’s model CRS,is designed to be a standardized approach to identifying and reporting information about taxpayers by financial institutions that will be exchanged with residence jurisdictions.

The common reporting standard will require financial institutions and brokers to report information to their own jurisdiction and this information will in turn be passed on to other relevant countries automatically each year. It is not designed to replace any existing basis or any other means of information exchange, but instead intends to supplement current measures. It applies to financial accounts and sets out the due diligence which financial institutions will need to follow in order to comply
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This could mean new customer due diligence procedures being required as early as 2015 with the first reporting being due in 2016. It seems unlikely that all jurisdictions intending to participate will be able to
enter into agreements under the same timeframe. Due to the increased scope and volume of information required by the CRS, financial institutions may need to reconsider their approach to FATCA compliance to accommodate the new standard.

Significant uncertainties remain and commentary is not expected to be released until the summer of 2014.
about the detailed requirements. Financial institutions will want to see competent authorities providing clear guidance to help clients determine their tax residency.

The standard has no direct legal force but it is expected that jurisdictions will follow the model CAA and CRS closely when implementing bilateral agreements.

There is significant political will to implement this standard, with more than 40 jurisdictions signing up for early adoption. The expected timeframe could see jurisdictions seeking to sign agreements in 2014, with new customer due diligence procedures required in 2015 and reporting in 2016.

Many OECD countries may be reluctant to sign up to information exchange with less developed countries which may not have the legal and basic processing capacities to keep the information confidential and to use it only for the purposes for which it’s been collected. The OECD may need to go further, e.g. by providing withholding tax mechanisms to enable less developed countries to collect tax

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