The Common Reporting Standard (CRS) and the Automatic Exchange of Information
The Common Reporting Standard was created to help authorities work with financial institutions to eliminate tax evasion – and it affects most non-residents.
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Originally agreed in 2014 between 47 countries, the Common Reporting Standard (CRS) is a global initiative led by the Organisation for Economic Co-operation and Development (OECD). It was originally based on the US Foreign Account Tax Compliance Act (FATCA) with the intention of preventing tax evasion via Automatic Exchange of Information Agreements between different countries’ tax authorities.
Today, over 100 countries have signed up to use the CRS for sharing information, including all countries in the European Union, China, India, Hong Kong and Russia. As the United States had 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 what personal financial information must be shared regarding assets, income and taxable amounts across international borders. The CRS defines the information required to be shared, the financial institutions required to report, the types of people who are subject to information exchange and the procedures financial institutions must follow.
CRS originally came into use in 2017 and every year after, more countries begin sharing information. Now, this means most people with any multi-national element to their tax affairs are likely to be subject to it. HM Revenue & Customs (HMRC, the UK tax authority) started receiving 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 or eliminate the number of people using secretive offshore tax avoidance schemes and failing to declare foreign income or gains in hope the relevant tax authorities simply won't find out.
As more countries sign up to the CRS and the Automatic Exchange of Information, it becomes 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 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 will be asked for.
How will I know if the CRS applies to me?
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) you hold accounts 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 and your account will be shared:
- Name
- Address
- Date of birth
- Place of birth
- Country/countries of tax residence
- Tax Identification Number/National Insurance Number (or equivalent, where applicable)
- Account details (e.g. bank account number 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 are 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's important to note that reporting runs annually from January 1st to December 31st and therefore is not in line with the UK tax year. It's also vital to understand that it's a legal requirement for financial institutions to provide this information, therefore it cannot be evaded without severe penalties.
Once information has been shared, it will be analysed and checked against the various tax laws/rules within each jurisdiction. If an individual has incorrectly filed and paid their taxes, they will be subject to penalties within that jurisdiction.
For example, if a British person has been found to be actively avoiding CRS and has not paid the correct amount of tax to the HMRC, a significant potential penalty of 300% of the tax owed will be applied. The individual may also face criminal prosecution.
Each jurisdiction will have their own penalties and fines systems in place.
What you need to do
If you have accounts with financial institutions outside your country of residence, you must ensure your tax affairs are in order and all correct taxes are declared in all relevant jurisdictions.
If you are a UK tax resident, it is sensible to assume that under CRS, the UK tax authorities will receive information on all of your overseas financial accounts.
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 not an option. 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 need to prompt you for disclosure in comparison to a voluntary disclosure.
Request a free introduction to a qualified tax consultant
If you're concerned about the Common Reporting Standard, the sharing of information with or between tax authorities, have gains or income 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 discovery call lasting around 15 minutes, which will enable you to have your general CRS questions answered.
If you need any further advice or services following the discovery call, the consultant will provide a proposal clearly outling their recommended services and fees, and you will be free to decide whether to proceed or not.
