Common Reporting Standards (CRS)

Overview

The Common Reporting Standards, or CRS, represents the global expansion to improve tax transparency and combat tax evasion. CRS, also referred to as the Automatic Exchange of Information for Tax Matters (AEOI), has been developed by the Organization for Economic Co-operation (“OECD”) working with G20 countries and the European Union (EU). The CRS currently has 94 countries that have agreed to participate in a reciprocal exchange of information about accounts held by individuals with a tax residency in a different jurisdiction.

Covered Jurisdictions:

  • 58 1st Wave Adopters – 2017 data exchange reporting begins
  • 36 2nd Wave Adopters – 2018 data exchange reporting begin
  • 5 committed but without formally indicating a date

CRS is unlike FATCA and CDOT in that there is no legislative body overseeing the reporting requirement.  Instead, the OECD has published a series of documents that drive recommendations about how to carry out reporting:

  1. CRS – Outlines the scope of information that will be required to be reported as well as the due diligence requirements for protecting this data.
  2. CRS Schema and User Guide – Provides a standardized approach for Financial Institutions (FIs) to transmit information electronically to Competent Authorities.
  3. CRS Commentary – Sets out detailed guidance on how to apply the CRS standards, CAA rules and shows examples.
  4. Model Competent Authority Agreement (MCAA) – Example of language to establish a basis that allows for the exchange of information between participating jurisdictions.

With no minimum thresholds, CRS ushers in a new level of global reporting transparency that will become the new reality for organizations to manage.

Organizational Risks

The global expansion of reporting will cause institutions to have significantly greater reporting obligations under CRS than FATCA or CDOT requires. Reportable volume for organizations, as compared with FATCA and CDOT, will be significantly higher and will likely include jurisdictions that Financial Institutions have not had to report previously. Short-term solutions that have been put in place for FATCA are likely not be reusable due to the scope and complexities of CRS. Institutions that have little or no FATCA exposure can have substantive CRS obligations.

Challenges

Even with the words ‘Common’ and ‘Standard’ in CRS, participating jurisdictions are not required to follow the documents published by the OECD – they are guidelines only and largely considered a baseline. Every country is able to deviate and expand on these minimum standards as they set the requirements for their specific jurisdiction. This will add complexity, confusion and create many unknown factors that will be realized over the coming months and years.

Additionally, accurately capturing who must report is no longer a binary categorization of account holders like CDOT (UK person or not) or FATCA (US citizen or not). There is now a requirement to understand where the account holders have tax residency, including where account holders are reportable in more than one tax jurisdiction. People often live, move and conduct business in multiple places throughout the world, creating multiple tax jurisdiction identification issues.

In addition, FIs are challenged with:

  • Significantly higher volume of reporting due to:
    • No minimum thresholds for accounts
    • Mobility of reportable individuals
  • Increased reporting complexity as more countries join and adopt their own requirements
  • No standard withholding or penalty – each of the local jurisdictions are required adopt their own penalties
  • Managing and reporting non-English character sets

Finally, the US currently has no plans to participate in CRS.  This requires FIs around the world to monitor, maintain and ensure compliance on FATCA and CRS at the same time.

Reporting Timeline

2017

  • First Reporting Deadline for First Wave Jurisdictions
    • Who to report – Qualifying pre-existing high value accounts, New accounts since January 1, 2016
    • What to report – Account balances, gross payments, gross proceeds and any other data required by each local country legislation to the relevant competent authority
  • Specific deadlines by jurisdiction will be defined as jurisdictions publish their requirements

2018

  • Second Reporting Deadline for First Wave Jurisdictions
    • Who to report – All qualifying accounts
    • What to report – Same as 2017
  • First Reporting Deadline for Second Wave Jurisdictions
    • Who to report – Qualifying pre-existing high value accounts, New accounts since January 1, 2017
    • What to report – Account balances, gross payments, gross proceeds and any other data required by each local country legislation to the relevant competent authority

2019 and on

  • All Jurisdictions
    • Who to report – All qualifying accounts
    • What to report – Same as 2018