The Tribune

By Thamara Saunders-Munnings

On October 29, 2014, some 51 countries from the Organisation for Economic Co-operation and Development’s (OECD) ‘Global Forum on Transparency and Exchange of Information for Tax Purposes’, and the G-20 countries, endorsed a new Standard for Automatic Exchange of Financial Account Information in Tax Matters.

The new standard has been affectionately coined the ‘Global Account Tax Compliance Act’ (GATCA); ‘the Automatic Exchange of Information’ (AEIO); and, most recently, the ‘Common Reporting Standard’ (the CRS). Some may call it the new wave taking the Bahamas’ financial services industry by storm. It follows closely behind the US Foreign Account Tax Compliance Act (FATCA) in seekinl to reduce the possibility of global tax evasion, and mirrors the Model 1 Intergovernmental Agreement (IGA) that many countries will use for implementing FATCA. Yet there are fundamental differences.

The new standard builds extensively on the previous OECD work in the area of automatic information exchange. It incorporates the progress made by the European Union (EU), along with global anti-money laundering standards, the IGAs and FATCA implementation. These acted as a catalyst in developing the exchange of information in a multilateral context. The CRS mandates that financial institutions (FI’s) report information on accounts held by non-resident individuals and entities to the Competent Tax Authority (CTA) within their jurisdiction. This information, inclusive of trusts and foundations, will then be forwarded annually to the relevant tax authorities in the account holder’s country of residence. In the Bahamas, our CTA would be the financial ssecretary at the Ministry of Finance.

What are the benefits of the CRS? It is designed to facilitate the discovery of previously undetected tax evasion, and the recovery of lost government revenue. In doing so, it is designed to act as a catalyst for the voluntary disclosure of concealed assets by taxpayers, simultaneously strengthening the existing standard of Exchange of Information on Request (EOIR). The most pertinent advantage is the stronger collaboration between financial institutions and tax administrations in increasing transparency, cooperation and accountability internationally.

To prevent taxpayers from circumventing the CRS, it is designed with a broad scope. The standard stipulates the financial account information to be exchanged; the financial institutions that are required to report; and the various taxpayers that this includes. Thus the CRS embraces a wide range of information, mandating that deposit-taking banks, custodial institutions, certain investment entities and insurance companies must report.

This information encompasses the following components;

• The Account Holder’s name; address, taxpayer identification number, date and place of birth, account numbers and account balances. The account information includes account balances, interest, dividends, and the sale and redemption from financial assets.

• The financial information to be reported with respect to reportable accounts includes all types of investment income, including interest income, dividends, income from certain insurance contracts and other similar types of income. Account balances are also included.

• The total gross amount of dividends, rents, royalties, salaries, wages, annuities, licensing fees, mortgage payments, gains, profits and other income paid or credited to the account are due payable in 2016. Any gross proceeds from the sale or disposition of assets of a type that can produce interest, dividends or capital gains are due payable in 2017. This includes, but is not limited to, gross proceeds from custodial fees.

According to the OECD website, the collection of CRS information will begin in 2015, and reporting it to the jurisdictional tax authority will begin in 2016.

FATCA vs. CRS

• The CRS will require financial institutions to report information to their own jurisdiction, and this will in turn be automatically passed to the relevant tax authorities in other countries each year. It is not designed to replace any other means of information exchange, but instead will supplement current measures.

FATCA, on the other hand, requires financial institutions outside the US to pass information about their US customers to the Internal Revenue Service (IRS).

• While the CRS is closely modelled on FATCA, it is not simply a straightforward extension of the latter. The CRS is based upon tax residence and, unlike FATCA, does not refer to citizenship. Financial institutions are not limited to reporting on US persons only, but must also report on substantially more accounts than they would have under FATCA alone.

• Unlike FATCA, which forgives tax liability on smaller accounts (less than $50,000), all individual accounts and new accounts opened by financial entities are considered reportable,by the CRS.

• The CRS is similar to FATCA, and is explicitly modelled on the approach taken in the latter’s Model 1 IGA. There is a 30 per cent withholding tax imposed on US source income for any financial institution, and their clients, who fail to comply with the FATCA requirements. However, there is no such withholding option under the CRS. The data required is different ,and the volumes are likely to be significantly greater under the CRS.

In the final analysis, it is evident there is no escaping the CRS tide and its implications. It is incumbent upon all parties concerned to take the necessary steps and exercise due diligence to comply with it. Failure to adhere to this complex and diverse tax legislation will be detrimental to all financial institutions, their clients and, ultimately, the Bahamian financial services industry.

• NB: This article does not encompass the full scope and intricacies of the CRS . For further information visit the OCED website at: www.OCED.org.

Thamara Saunders-Munnings began her legal practice at Davis & Co in November 2005, and was a junior counsel in the Pinewood and the Marco City election court cases.

Mrs Saunders-Munnings attended the University of Buckingham in England and the BPP Professional Education Law School. She was called to the Bar of England & Wales, and the Bahamas Bar, in 2005. She has acquired numerous compliance certifications.