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Common Reporting Standard – the next initiative in global tax transparency
17 August 2017
Where are we today?
Cyprus and an increasing number of countries around the world (more than 100 at present) adopted the Common Reporting Standard for the Automatic Exchange of Information developed by the Organization of Economic Co-operation & Development (OECD) to facilitate the automatic exchange of information for “reportable bank accounts” between the participating countries for:
- Individual Accounts held by natural persons tax resident in another jurisdiction; and
- Corporate Bank accounts of companies earning primarily passive income.
The CRS is an initiative targeted at tax evasion. The regime obliges Reporting Financial Institutions (RFIs) to implement account due diligence and reporting procedures. The crux of the regime will require RFIs to identify the tax residencies of all of their account holders and to report client and account information to the RFIs local tax authority on an annual basis. The first go-live date for the CRS was January 2016 for account due diligence obligations, with the first set of reports due in 2017.
What Information is Requested by the Bank?
Banks commenced collecting the information they would need in order to assess the need to exchange information for the given company. If so, the banks provide information to their jurisdiction’s tax authority for further sending to the jurisdictions of tax residency of the individuals to whom the accounts belong personally or through the companies owned by the individuals.
Self certification form
The Banks collect the information in respect of individual and corporate bank accounts by requiring the owners of the accounts to complete self-certification forms. Upon receiving these forms the Banks review the information provided by the clients and categorise the clients.
Three key parameters are required on the form:
- If the income received in the company’s account is “active” or “passive” ;
- Tax Registration numbers of the account holders; and
- Country of tax residence.
The information about “active” and “passive” accounts shall be disclosed to the jurisdictions of tax residency of the account holders and depending on the classification of the reporting entity, the information about the controlling persons may also be disclosed. It is therefore of critical importance to identify whether the accounts are active or passive.
What is Active Income?
Active income includes, for example -
- trading in products,
- trading in financial instruments
- providing services
- providing financing
- dividend received from subsidiaries generating active income
- income from property construction
The information about “active” accounts shall be disclosed to the jurisdictions of tax residency of the account holders, however the controlling persons shall not be disclosed.
What is Passive Income?
Broadly, passive income includes, for example:
- dividend income
- interest income from deposits where deposit-placing is the primary business of the company
- rents and royalties;
- capital gains;
- receipts under cash value insurance contracts
The information about “passive” accounts shall be disclosed to the jurisdictions of tax residency of the account holders, including the controlling persons.
Tax Registration Numbers
The bank will require tax registration numbers of all reportable persons, i.e. entities and individuals resident in the States participating in the automatic exchange of information.
When do I need to give the information?
The information must be provided for the existing accounts when the bank sends the self-certification form. For new accounts the banks are requesting the information in the application to open a bank account.
When will the banks start giving information and what information will be provided?
EU and most EEA countries, are to exchange the information for the first time in September 2017 in respect of the reportable accounts at 31 December 2016. Other countries, including Russia and Switzerland, committed to start exchanging information from the year 2018 in respect of the year 2017.
How can Consulco assist?
Consulco has developed solutions to address key aspects of the CRS provisions of account identification, withholding and reporting. We remain committed to sharing our insights and views on CRS and are happy to review your company’s activities to identify whether its accounts are passive or active.
CRS Services provided by Consulco
Consulco can assist in providing the correct classification to a client
Review of Self-Certification Forms
Review the self-certification forms provided by the Bank to its prospective/existing clients in relation to CRS and provide our feedback together with any recommendation for improvement.
Annual assessment of investors
On an annual basis an entity may be required to review the status of its investors in order to identify the existence of Reportable Persons for CRS purposes
Preparation of annual reporting
For Entities classified as Financial Institutions we undertake to fulfill the requirement of reporting information about specified account holders and counterparties to the Cyprus Tax Authorities
Consulco is an independent trust services and investment management group operating since 1993 and managed by Marios Hajiroussos, Dmitry Khenkin and Elena Hajiroussou.
© Consulco Limited 2017. All rights reserved.No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Consulco Limited. The information provided in this publication does not constitute legal, tax or investment advice and no responsibility is accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it.