The Common Reporting System: What it means for you
Cyprus is becoming more compliant than ever before and as a jurisdiction has done its best to work in parallel with regulatory authorities locally and abroad.
Due to Cyprus being the international financial service hub that it is, it is imperative for those using Cyprus as a part of their business structure to work in collaboration with existing regulatory frameworks.
It's no secret that governments across the globe have struggled to ensure that they are collecting all payable taxes from their tax residents. Today, governments are progressively focused on tax transparency, ensuring that their residents are complying with the tax provisions of the land and warranting that they are disbursing the taxes they owe.
Similar to the FATCA, (The Foreign Account Tax Compliance Act), that requires non-US financial institutions to report details of accounts held by US persons; the Organisation for Economic Co-operation and Development (OECD) in collaboration with the G20 countries and the European Union have devised their own scheme known as the Common Reporting System (more commonly known as the CRS).
The CRS possesses many similarities to FATCA in regards to the terminology and requirements however the main difference between the CRS and the FATCA is that the CRS targets individuals based on their tax residency and not citizenship.
In April 2013, this common goal united the G20 countries to endorse the Common Reporting Standard (CRS) as the new standard for the automatic exchange of information between participating governments. Subsequently, in February 2014, the text of the global standard of the CRS was published, and for many countries has already been implement as of January 2016. The said scheme is said to take effect for the remaining jurisdictions by 2017 and 2018.
This, in turn, means that it will become mandatory for financial institutions in G20 countries and within the European Union to report to their home tax authorities specific particulars of account holders. In other words, financial institutions in participating countries of the CRS must identify where the account holders are tax residents and report it annually to its relevant tax authority.
The information exchanged is expected to be as follows:
Tax Identification Number
Financial data in regards to the as year end balances and total incoming and outgoing payments *
*subject to the nature of the entity and the role of the primary signatories
It should be noted that since early 2016 the European Union has already been implementing the Common Reporting Standard (CRS) through the EU Directive on Administrative Cooperation.
Taking on this approach allows for the automatic exchange between the regulated jurisdictions without any further agreements until the CRS replaces this method entirely by 2017.
Non-European countries that will adopt the new CRS Scheme will have to enter into multi-lateral agreements with each other to arrange the exchange of information. What’s more, in regards to non-EU jurisdictions, several legislative changes may have to take place to ensure that such agreements are compatible with the legislation of other fellow non-European counterparties and to ensure the legality of such sensitive data exchange is deemed legal.
Clients need to be conscious that their information can be shared by banking and other financial institutions between correlating jurisdictions within the EU via the CRS and outside EU borders under multi-lateral agreements with 'third-countries'. Disclosure does not necessarily imply tax penalties however defiance from the clients when requested to disclose their financial information may suggest that they may not be complying with the tax laws of the land and thus may prompt further investigation from the authorities.
At MPC Legal, we advise our clients that there is increasingly no option for a client but to be completely compliant. It is essential that clients read the terms and conditions of their banking agreements carefully to ensure they understand the implemented disclosure regulations imposed on them and enter into open discourse with their chosen financial institutions regarding such disclosure.
It is essential that clients read the terms and conditions of their banking agreements carefully to ensure they understand the implemented disclosure regulations imposed on them and enter into open discourse regarding their payable taxes with their chosen financial institutions.