CRS regulatory approaches: four months and four countries
June 05, 2015
The Common Reporting Standard (CRS) sets a minimum standard for cooperation between jurisdictions in relation to the automatic exchange of taxpayer information collected by financial institutions. The revised EU Directive on Administrative Cooperation in Tax Matters (DAC2) provides the mechanism for adopting CRS in the EU, however, local implementing law is still required by EU Member States.
When the UK published the International Tax Compliance Regulations (2015) this March, the legislation included a number of departures from DAC2, such as the obligation to notify account holders who have been reported for FATCA [Foreign Account Tax Compliance Act] purposes. Observers predicted that other jurisdictions would follow the UK’s lead by introducing differences from DAC2, thereby increasing the complexity and potential cost of CRS change programmes for affected financial institutions. Over the last few months draft regulations in Denmark, Spain and Sweden have been published to transpose CRS into local law.
The main observations are:
- Effective date: UK regulations are effective from 15 April 2015, whilst all others are effective from 1 January 2016.
- Participating jurisdictions: While Sweden has elected to defer identifying participating CRS jurisdictions, the other countries identify EU Member States as participating, as well as jurisdictions that have entered into agreements with the EU, such as Switzerland. The UK and Denmark have provided supporting lists that identify other jurisdictions outside the EU, while Spain intends to publish a separate list once information sharing agreements are either executed directly or with the EU as applicable. The CRS requirements contain an obligation to collect tax information from non-resident account holders, regardless of whether specific agreements have been executed to share this information with another country.
- Entities without tax residence: The UK and Swedish regulations do not address this topic; however, UK guidance notes that interpret the regulations apply a management and control concept. Danish and Spanish requirements include rules that focus on place of incorporation, administration/management and where the entity is subject to fiscal supervision. These requirements may require additional client due diligence to determine where a transparent entity is resident. More generally, the Danish and Spanish definitions relating to fiscal supervision reflect a trend linking CRS to local regulatory regimes.
- Compliance: While the UK regulations are alone in including penalties, the other jurisdictions are expected to apply penalties that are linked to existing tax reporting regimes. Swedish guidance goes a step further than the others, noting that compliance failures could be referred to the Swedish fiscal regulator. In the UK, we anticipate a similar dialogue between the UK financial regulators and tax authority in relation to CRS compliance failures; however, this is not explicitly covered by the UK regulations.
These differences may put pressure on strategic decisions being adopted in central change management programmes and could further complicate the development of consistent business requirements and attestation models for global CRS programmes.
To find out more about how we can help you manage the evolving technical requirements and implementation of CRS please contact me at [email protected] for more information.