The increasing international mobility of individuals, coupled with increasingly complicated tax codes makes it important that those who will potentially be affected by these measures are well versed and can be confident that their affairs stand up to scrutiny in the event of a tax authority investigation.
Transparency in relation to tax has never had a higher profile as governments across the world crack down on tax evasion.
A fundamental change that means the odds will now be stacked in favour of tax authorities and against the tax evader is the introduction of the Common Reporting Standard (CRS) and as a result automatic exchange of information. Certain details of assets held in one jurisdiction will be shared with the tax authorities of the jurisdiction in which the person is resident.
In advance of information being exchanged many countries have established disclosure facilities (with specific deadlines) whereby historical non-compliance can be addressed.
KPMG Internationals network of experts across jurisdictions to advise individuals how they could be impacted and how to make a voluntary disclosure.
A major catalyst behind the change was the Foreign Account Tax Compliance Act (FATCA) in the U.S., which was implemented in 2010. The aim of the legislation was to require non U.S. Financial Institutions to report to the U.S. Government any U.S. persons that owned financial accounts with that institution or were controlling persons.
In April 2013 the G5 group of countries (UK, Spain, Germany, France, and Italy) announced that they would also seek to enter into similar exchange of information agreements with each other that would allow for the automatic exchange of information in relation to each other’s tax residents. The G5 called on other countries to join the initiative and in 2014 the CRS in relation exchange of tax information was introduced in conjunction with the OECD. To date around 100 countries have committed to automatically exchange information.
The overall impact of the CRS is to oblige jurisdictions to obtain client information from their financial institutions and copy it automatically to the tax authorities in other jurisdictions annually. This will give the receiving tax authorities access to unprecedented levels of financial information concerning overseas wealth. What those authorities choose to do with that information remains to be seen but it would seem a safe assumption that their efforts to investigate those that they perceive to be at risk of having evaded tax will intensify.
This will include information on the individual holding the account (e.g. name, address, jurisdiction of residence) along with the account balance or value, income and proceeds from the sale or redemption of assets.
The reporting will be in relation to bank accounts but also entities such as trusts, companies and foundations.
This depends on the jurisdiction but the countries that have committed to information exchange so far will do so by 30 September 2017 or 30 September 2018. The information reported is in relation to the previous calendar year (e.g. information in relation to the year ended 31 December 2016 is reported on 30 September 2017).
CRS will affect all individuals with assets outside the country in which they are tax resident. Tax compliant individuals and those who have made incorrect tax filings through technical mistakes will be affected by the agreements, not just those that have deliberately evaded tax. The increasing international mobility of individuals, coupled with increasingly complicated tax codes makes it important that those who will potentially be affected by these measures are well versed and can be confident that their affairs stand up to scrutiny in the event of a tax authority investigation.