CRS reporting update, June 2017

Emily Deane TEPSTEP attended the most recent CRS Business Advisory Group hosted by HMRC and discussed the following issues:

FAQs

HMRC advised that new documents on the OECD portal have been published along with some additional FAQs.

Anti-avoidance

Members were interested to know when the OECD will publish its loophole paper which will review loophole reporting strategies.

HMRC advised it does not expect imminent changes to the OECD’s anti-avoidance strategy but does expect a review prior to that planned in 2019.

In the meantime, the OECD has launched a facility for parties to disclose CRS schemes which are potentially used to circumvent CRS reporting.

US TINs – invalid format

The number of the US Taxpayer Identification Number (TIN) to be submitted has to be in a certain format, otherwise the return will be rejected.

In some cases a nine-zero approach will be accepted but some accounts with missing TINs are causing difficulties having been submitted in an incorrect format. The ‘missing TIN’ cases are inevitably causing issues for users and HMRC. Members agreed that there will be problems next year when the nine-zero approach will no longer be accepted.

HMRC recognises these difficulties and has been liaising with the IRS regarding the TIN issues. A member also mentioned that the issue was being raised by industry groups in EU circles.

Invalid self-certifications

Members agreed that HMRC’s guidance is ambiguous if a self-certification is returned to the financial institution but contains errors. For example, would HMRC accept a self cert that had been returned, but not signed, in a time sensitive case?

HMRC declined to generalise on self-certification issues, stating that each example has to be judged on its own specific issues. It confirmed that it is up to the financial institution to decide whether it is satisfied that a person is non reportable. The financial institution should apply due diligence procedures based on guidance and common sense.

The mediation period and the cut off timing were also discussed. HMRC stated that it is up to the individual financial institution’s procedures as to the cut off. It was agreed that it can be a grey area with some contradictions, and in some cases the financial institution may need to decide whether a person is reportable, whilst the validation is undertaken. More clarity on this issue was requested from HMRC.

HMRC customer support

HMRC has been receiving increasing numbers of calls from clients of financial institutions, rather than the financial institutions themselves. This is causing problems, particularly when close to filing dates. As a result, HMRC has asked financial institutions to omit its contact details from notes that accompany the self-certifications, stating these are not relevant to clients and it does not have the resources to deal with additional queries.

STEP will continue to attend the periodic working group to discuss ongoing technical issues with HMRC.

Resources:

STEP Guidance Note: CRS and trusts
Live STEP webinar on ‘CRS and Trustees’ with John Riches TEP and Samantha Morgan TEP, 13 June

 

Emily Deane TEP is STEP Technical Counsel

OECD: ‘Public release of taxpayer information is not consistent with the international standards for tax transparency’

George_Hodgson-2016STEP yesterday (14 April) received a letter from Mr Kosie Louw, Chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which was sent to all members of the Global Forum.

 

The letter contains the following statement:

‘I want to state that the public release of taxpayer information is not consistent with the international standards for tax transparency. Indeed, a key aspect of our work has been concerned with ensuring that when such information is held by governmental authorities it is shared only with persons authorised in accordance with the standard and the applicable international agreements that give effect to both EOIR and AEOI.’

STEP welcomes this statement, which reinforces our message that while we support international initiatives on transparency and anti-money laundering, families have a right to legitimate confidentiality in their financial affairs and there must be effective safeguards to protect their information from risk of abuse.

We look forward to working with the OECD in the weeks and months ahead to support and inform their efforts in combatting tax evasion and any actions that support criminal activity such as money laundering and terrorist financing, and to rebuild public confidence in the international finance system.

 

George Hodgson, Deputy Chief Executive, STEP

When is an international standard not a standard?

george_hodgson2International standards can be difficult to implement, requiring change and compromise. Once implemented, however, they ought to make life much easier for everyone. Indeed ideally they should become so universal that we barely notice them. A good example is Bluetooth, the international standard for how electronic devices talk to each other, which is now so universal that few of us probably realise that it is how our mobile phone connects to the hands-free system in the car.

The OECD’s international standard for automatic tax information exchange, the Common Reporting Standard, is an example of a standard still in the tricky implementation stage. So far, most of the focus has been on ensuring that jurisdictions will meet the Standard’s requirements for providing tax information. But if the Common Reporting Standard is to function effectively as an international standard, it is equally important to ensure that the Common Reporting Standard is universally accepted by countries when they receive tax information.

That is not currently happening.

A short while ago the EU published a ‘blacklist’ of 30 jurisdictions judged to be failing to meet standards of ‘good governance’ in tax matters. The EU list was in turn based on blacklists compiled by a group of 15 EU Member States. As soon as it was published the EU list was widely condemned as out-of-date and inaccurate, but the fundamental point was that many of the blacklisted jurisdictions were compliant with current international tax agreements and had committed to implementing the new Common Reporting Standard. Given their compliance, it seemed entirely fair to ask ‘why were they being blacklisted?’

The EU defence seemed to be that this was simply bringing together blacklists established by EU Member States, prompting the OECD Global Forum itself to comment that it was ‘very unfortunate that this exercise … looked like the establishment of a list’. In the view of both the OECD and the Global Forum, ‘the only [emphasis added] agreeable assessment of countries as regards their cooperation is made by the Global Forum’.

The OECD’s position, that if there is to be an effective global standard for tax cooperation then there has to be a single, consistent approach to judging compliance, seems well founded. We have now, however, seen yet another example of a tax authority deciding it can impose its own arbitrary judgment of the compliance of other jurisdictions with international standards of tax cooperation: in the US, Washington DC has recently announced its own blacklist of 39 jurisdictions deemed to be tax havens. This is in spite of many of the jurisdictions named being judged by the independent OECD process as being compliant with all international standards of tax cooperation.

These kinds of episodes risk seriously damaging the effectiveness of attempts to establish strong, consistent international standards for tax cooperation. We are in a situation, to go back to the Bluetooth analogy, in which the makers of mobile phones are all working to a common standard for transmitting information but the makers of the hands free equipment are working to a range of differing standards for receiving the information.

The OECD is still developing the peer-review process that will police the Common Reporting Standard. Most of the debate around this so far has been on assessing the performance of jurisdictions in terms providing information. It is becoming increasingly clear, however, that equally important will be an assessment of how that information is handled when received – not just in terms of keeping tax information safe and protecting it from abuse, but also in terms of accepting compliance with Common Reporting Standard as a valid benchmark of compliance with international standards of tax cooperation. Without this, the Common Reporting Standard risks becoming an irrelevance.

George Hodgson is STEP Deputy Chief Executive

G-20 Summit – global automatic tax information exchange by 2014?

For the press, the most eye-catching item on the agenda at the recent G-20 Finance Ministers Summit in St Petersburg was the (still rather vague) proposal to clamp down on corporate tax avoidance by tackling base erosion and profit shifting. For many STEP members, however, perhaps the most important item was the (very firm) instruction to the OECD that it should produce a clear timeline for completing work on a single global standard for automatic information exchange in 2014 in time for the next G-20 summit in October.

The proposed OECD global standard is to be largely based on the FATCA Model 1 IGA model. If we therefore put the G-20/OECD initiative alongside the recent statement from the US (that  delayed FATCA reporting for a further six months and also seemed to recognise that FATCA Model 1 IGAs seemed to offer a much easier solution to everyone than raw FATCA) it becomes relatively easy to envisage that in reality rather than the introduction of unilateral FATCA reporting to be followed quickly by a new system of OECD multilateral FATCA-style reporting, we will actually see a single move globally to automatic exchange of information (AEOI), perhaps in 2015 or 2016.

Multilateral AEOI has always been the long-term objective of bodies such as the OECD. But there now seem to be growing numbers putting their weight behind the OECD model, including most recently the EU Commission. With the US also showing (some might say rare) flexibility regarding the introduction of its own (unilateral) AEOI model, it may be that consensus has now been built for a quick move to global AEOI in the next 24 months.

George Hodgson, STEP Deputy Chief Executive

The European FATCA

The EU Commission held a full day meeting with experts to explain its plans for developing full multilateral automatic exchange of tax information across the EU. Of, course the EU already has the Savings Tax Directive, but that only covers interest income, and plans to extend it have long been held up by objections from Belgium, Luxembourg and Austria that they were not prepared to agree to the extension until certain issues, like automatic information exchange with Switzerland and the treatment of ‘Anglo-Saxon’ trusts had been resolved.

The EU has opened discussion with Switzerland, and we were in Brussels a couple of weeks ago making a major presentation on trusts (to all 27 Member States, including Belgium, Luxembourg and Austria), so the Savings Tax Directive project is inching forward. In the meanwhile, however, it is clear that politically the EU is keen to develop its own version of FATCA as quickly as possible. Its chosen way of doing this is to extend the Administrative Co-operation Directive (DAC, another acronym for the lexicon!) to cover all payments and account values by 2015.

The Commission objection to FATCA is that it is US-centric and not really suitable for multi-lateral rather than bi-lateral information exchange. All of which is true and the reason why the G-8 has asked the OECD to work on its own model for multi-lateral automatic information exchange.

As all the experts in Brussels (including STEP) therefore pointed out, the result is that potentially over the next 2 years the industry will have to work on implementing 3 different tax information exchange systems at once – FATCA, DAC and whatever the OECD comes up with – each basically designed to do the same thing but each doing it slightly differently. This is clearly absurd, but it will be interesting to see who blinks first.

George Hodgson, STEP Deputy Chief Executive

G-8 Wash-up

For STEP members I suspect the G-8 meeting has confirmed a couple of things, but left others open to question. The final communique confirms that we are moving from tax information exchange on request to automatic tax information exchange as the international standard. Moreover the OECD paper released for the G8 summit suggests strongly that Model 1 style FATCA Intergovernmental Agreements (IGA) are likely to be the basis of the new global automatic information exchange mechanisms. None of that should come as a major surprise to anyone.

It also looks like the debate about improving transparency of beneficial ownership has been a difficult one for G-8, in spite of this being the area where the UK worked hardest to build expectations ahead of the summit.

At the end of the day the G-8 members have agreed to implement the latest FATF Recommendations, but they would have to in any case.

The US has also agreed to look at the issues that prevent effective access to beneficial ownership information in some US states, but without any clear timetable or indication of how it proposes to tackle the issue.

The UK is pressing ahead with a corporate register of beneficial ownership, but seems unlikely to make this a public register. On most reports it has also secured an agreement with the CDs and Overseas Territories regarding Mutual Assistance.

The direction of travel on all these issues is nevertheless clear. Later this week, for example, I am attending an EU meeting with the Commission on moving to automatic information exchange. As a senior figure at this week’s STEP Guernsey conference put it, the important issue for both the industry and jurisdictions in this environment is to ensure they are seen as part of the solution, not part of the problem.

George Hodgson, STEP Deputy Chief Executive