The practical implementation of the CRS is still causing challenges as a result of uncertainties arising from the reading of the CRS rules
The practical implementation of the CRS is still causing challenges as a result of uncertainties arising from the reading of the CRS rules; as such, the OECD have updated their CRS Frequently Asked Questions (“FAQs”) (a link to the document is here) with some valuable guidance to help clarify the position and provide certainty for entities trying to implement the CRS.
Areas that may be of particular interest dealt with in the latest update include the following:
• The OECD have specifically stated that entities must use the CRS definition of Investment Entity Financial Institution when classifying entities under CRS (ie it is not appropriate to use the IGA definition from the FATCA regime). This approach is consistent with existing guidance published by the Income Tax Division – however, there are a number of jurisdictions that had allowed continued use for CRS purposes of the wider “managed by” test set out in the IGAs with the US.
• The OECD have confirmed that the so called “stop at FI” approach is not acceptable when identifying the Controlling Persons of a Passive NFE where there is a Financial Institution in the chain of legal ownership. Specifically, they confirmed that when determining the Controlling Persons of a Passive NFE, the CRS does not allow an FI to not determine/report such Controlling Persons on the basis that there is a Financial Institution in the ownership chain between the Passive NFE and the Controlling person.