OECD global standard for tax information exchange crucial but costs for financial services firms could be significant

Published at 12:10 PM on 13 February 2014

The Organisation of Economic Cooperation and Development (OECD) today released the Common Reporting Standard (CRS), which seeks to establish automatic exchange of tax information as the new global standard for Governments. The approach is at the heart of the battle against tax evasion, but will impose significant costs upon financial institutions having to provide the information, say experts at PwC.

As with the Foreign Account Tax Compliance Act (FATCA), the CRS imposes obligations on Financial Institutions to review and collect information so as to identify where account holders pay tax and then to provide this to the relevant tax authority.

Simon Leach, financial services tax partner at PwC, commented:

"Automatic exchange of information is crucial in the continuous fight against tax evasion but the new regime will mean significant costs for financial institutions as they have to modify and build systems to meet their obligations. The details released today will at least allow firms to determine the scope of their obligations under the CRS but still leave many questions to be answered. The OECD is currently developing commentary to accompany the CRS which is expected to be published in June. This will hopefully explain how the CRS is to be implemented and strike a balance between what's workable in practice and minimising the costs of implementation."

Each jurisdiction wanting to implement the CRS, and there are 42 that have committed to doing so, will, in most cases, need to pass domestic legislation.

Simon Leach, financial services tax partner at PwC, added:

 

"Though based on FATCA, the CRS does vary in certain areas and this will also present challenges for organisations as they continue to implement these measures to promote tax transparency. Until this further detail emerges around implementation, and the impact of the differences between the two models is understood, financial institutions will face continued uncertainty as they seek to ensure they are in compliance with these regimes."

These differences between FATCA and CRS include the removal of certain thresholds that under FATCA worked to limit the number of accounts to be reviewed. Also, the definition of what is a Financial Account has been changed in certain circumstances by removing an exemption for interests that are regularly traded on a recognised stock exchange. Over the coming months there will be further releases of information in relation to FATCA and the CRS that Financial institutions will need to monitor and react to.

- Ends -


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