Originally agreed in 2014 between 47 countries, the Common Reporting Standard (CRS) is a global initiative launched by the OECD that was originally based on FATCA (the US Foreign Account Tax Compliance Act) with the intention of preventing tax evasion through the use of Automatic Exchange of Information Agreements between countries’ tax authorities.
Now, over 100 countries have signed up to the use of CRS for sharing information, including all countries in the European Union, China, India, Hong Kong, Russia. As the United States has already implemented their own version with FATCA and offer reciprocal access, they are not officially signed up to these initiatives.
What is the Common Reporting Standard?
The primary goal of the Common Reporting Standard is to determine and clarify the personal financial information that must be shared regarding assets, income and taxable amounts across international borders. The CRS defines the information that is required to be shared, the financial institutions required to report, the types of people that are subject to information exchange and defines the procedures that financial institutions must follow.
CRS originally came into use in 2017 and every year additional countries begin sharing information. This means that most people with any multi-national element to their tax affairs are likely to be subject to it. HM Revenue & Customs (the UK tax authority) started to receive its first information under the UK’s Automatic Exchange of Information Agreements on 1 October 2018.
Common Reporting Standard and offshore tax avoidance schemes
While the Common Reporting Standard and the Automatic Exchange of Information Agreements are far reaching, their aim and purpose is to find and reduce/eliminate the number of people who use secretive offshore tax avoidance schemes and who fail to declare foreign income or gains in hope that the relevant tax authorities simply will not find out.
As more countries sign up to the CRS and the Automatic Exchange of Information it is more and more likely that tax authorities will be able to uncover these offshore accounts or structures and ensure tax payers are paying the correct amount of tax in the right jurisdictions.
Who does the Common Reporting Standard apply to?
The Common Reporting Standard and the Automatic Exchange of Information applies to any person with financial accounts or responsibilities outside of their country of tax residence. This means that virtually everybody who lives “abroad” will be subject to the CRS, providing they have a financial account in their home country.
As part of this, you will probably have noticed that when you open any financial account, your country of residence is asked for.
How will I know if the CRS applies to me?
As part of the CRS, financial institutions located in countries where the CRS and Automatic Exchange of Information agreements are in place are required to inform their account holders that their information will be shared with the relevant authorities (e.g. HMRC for UK tax residents).
Therefore, if CRS applies to you, you should have received a letter or notification from the financial institution(s) that you hold an account with that your information will be shared with the appropriate tax authorities.
What information gets shared as part of the CRS?
As part of the Common Reporting Standard and the Automatic Exchange of Information Agreements, the following information about you/your account will be shared:
- Date of birth
- Place of birth
- Country/countries of tax residence
- Tax Identification Number/National Insurance Number (or equivalent where applicable)
- Account details (of the bank account or similar)
- The total account balance/value of your accounts calculated at the end of the calendar year, including any interest (excluding the balance of any excluded accounts)
A small selection of financial accounts is excluded, although this will vary depending on each jurisdiction. For example, in the UK, Premium Bonds are excluded.
What the Common Reporting Standard means for individuals
For British expats and UK tax residents, it is important to understand that the reporting runs annually from January 1st to December 31st and is therefore not in line with the UK tax year. It is also vital to understand that it is a legal requirement for financial institutions to provide the information, and therefore it cannot be evaded without severe penalties being applied.
Once the information has been shared it will be analysed and checked against the various tax laws/rules within that jurisdiction. If an individual has incorrectly filed and paid their taxes, they will be subject to severe penalties within that jurisdiction.
For example, if a British person has been found to be actively avoiding CRS and not paid the correct amount of tax to the HMRC, a potential penalty of 300% of the tax owed will be applied. That individual may also face criminal prosecution.
However, each jurisdiction will have their own penalties and fines systems in place.
What you need to do
Ultimately, if you have accounts with financial institutions outside your country of residence, you must ensure that your tax affairs are in order, correct and all correct taxes declared in all relevant jurisdictions.
It may be sensible to assume that under CRS, the UK tax authorities will receive information on all your overseas financial accounts if you are UK tax resident.
If you are resident outside the UK, your jurisdiction of residence may also receive information if they are signed up to CRS and any Automatic Exchange of Information Agreements.
Failing to declare foreign income and gains and hoping it will not be noticed is simply not an option. This means that if you have any undeclared income or gains from recent previous years, you must get your affairs in order.
The penalties for failure to correct your prior year tax position are much higher if HMRC have to prompt you for disclosure in comparison to a voluntary disclosure.
Request a free introduction to a qualified tax consultant
If you are concerned about the Common Reporting Standard, the sharing of information with tax authorities, have gains or income that you have not declared, or simply want peace of mind that everything is OK, we can help.
Request a free introduction to a qualified tax specialist who has a full understanding of the Common Reporting Standard. As part of our introductory service, you will receive a free initial consultation that lasts for around 15 minutes and will enable you to have your general CRS questions answered.
Following the consultation, if you need further advice or services, the consultant will be able to provide a fee quotation which will clearly define any services and charges, and you will be free to decide whether to proceed or not.