What is the Common Reporting Standard (“CRS”)1?
The CRS was developed by the Organization for Economic Co-operation and Development to facilitate exchange on a global scale of information relating to tax matters to fight tax evasion. The CRS describes how a participating jurisdiction will provide tax-related information to, as well as receive from, other participating jurisdictions.
The CRS is part of a recent trend of inter-governmental agreements (“IGAs”) for jurisdictions to enforce tax regulations through mutually sharing tax-related information. IGAs have been signed by various countries and the United States (“U.S.”) to facilitate the U.S.’ implementation of the Foreign Account Tax Compliance Act (“FATCA”) and between the United Kingdom and each of the Crown Dependencies and Overseas Territories. The CRS further extends the regime on a global scale.
The exchange of tax-related information pursuant to IGAs is generally known as Automatic Exchange of Information (“AEOI”). More than 100 jurisdictions, including Dubai, Hong Kong, Luxembourg and Switzerland, have endorsed the CRS and will implement AEOI pursuant to the CRS in either 2017 or 2018.
The CRS describes what account information will be exchanged, the financial institutions (“FIs”) required to report (“Reporting FIs”), the different types of accounts and taxpayers covered, as well as the customer due diligence procedures to be followed by FIs in identifying accounts that will need to be reported (“Reportable Accounts”).
Is CRS the same as FATCA?
CRS builds on existing systems and processes conceived in FATCA. Pursuant to both CRS and FATCA:
- Reporting FIs include banks, custodians, brokers, certain collective investment vehicles and certain insurance companies.
- Information that needs to be reported by Reporting FIs includes interest, dividends, account balances, sale proceeds of financial assets and other income and payments from assets in accounts maintained by the relevant account holders in such Reporting FIs.
- To facilitate reporting, Reporting FIs must conduct identification procedures (“due diligence procedures”) to identify Reportable Accounts.
- The due diligence procedures applied by Reporting FIs differ according to whether an account is “pre-existing” or “new”. A “pre-existing account” is an account maintained by a Reporting FI as of 31 December 2015 or as of a day before the implementation date2 as set by a participating jurisdiction under CRS and as of 30 June 2014 under FATCA. A “new account” is an account opened with a Reporting FI on or after 1 January 2016 or on or after the implementation date as set by a participating jurisdiction under CRS and on or after 1 July 2014 under FATCA.
- Reporting FIs must perform the appropriate due diligence procedures in relation to both pre-existing and new individual and entity accounts (which include trusts and foundations).
- The AEOI takes place annually with reports containing information on accounts as at the preceding calendar year end.
However, there are various key differences between CRS and FATCA such as:
- FATCA requires Reporting FIs to register with the U.S. Internal Revenue Service (“IRS”) to obtain Global Intermediary Identification Numbers. Under CRS, Reporting FIs of a participating jurisdiction are generally required to register with the tax authority in that jurisdiction.
- Under FATCA, non-U.S. FIs that do not register and enter into a reporting agreement with the IRS are subject to a 30% withholding tax by U.S. FIs and other types of U.S. withholding agents on certain U.S. source withholdable payments3 made to, or from the non-U.S. FIs. Under CRS, there is no withholding tax imposed for non-compliance but local penalties as may be determined by the local jurisdiction will apply.
- FATCA only requires Reporting FIs to report on accounts of U.S. citizens and U.S. tax residents while CRS requires Reporting FIs to report on accounts of tax residents of all other participating jurisdictions.
- CRS requires Reporting FIs to report more information (“Reportable Information”) than FATCA. FATCA requires reporting of the following information with respect to the account holder of the Reportable Account: name, address, taxpayer identification number, account number, account balance, income & proceeds from sales, name and identification number (if any) of the Reporting FI. CRS additionally requires reporting of the account holder’s tax residency, date and place of birth.
- Under FATCA, pre-existing individual accounts under US$50K and pre-existing entity accounts under US$250K do not need to be reported. Under CRS, only pre-existing accounts under US$250K do not need to be reported.
- Under FATCA, accounts held by FIs are reportable under very exceptional circumstances. Under CRS, FIs in non-participating jurisdictions must be treated as passive Non-Financial Entities4 (“NFEs”), requiring FIs to identify and possibly report the Controlling Person(s)5. Importantly, the U.S. is not a CRS participating jurisdiction.
What does CRS require Reporting FIs to do?
Under CRS, the following are the required due diligence procedures by Reporting FIs:
Belonging to individuals:
- For accounts with balances of or less than US$1M, a Reporting FI must:
- Get documents to show the account holder’s permanent residence or determine the account holder’s residence by looking for the existence of certain indicators6 used to determine the tax jurisdiction of the account holder.
- If there are conflicting indicators, a Reporting FI must get the account holder’s self-certification7 (and/or additional documentary evidence to establish the account holder’s tax residency).
- Absent the self-certification, the Reporting FI must report the information on the account to all other participating jurisdictions for which an indicator has been found.
- For accounts with balances over US$1M, a Reporting FI must apply enhanced due diligence procedures, including a review of the account holder’s permanent hardcopy files and test if the account’s relationship manager has actual knowledge that the account holder is a Reportable Person8.
Belonging to entities9:
- For accounts with balances of less than US$250K do not have to be reviewed for whether they are held by tax residents of participating jurisdictions.
- For accounts with balances of US$250K or more a Reporting FI must:
- Determine whether accounts are held by a Reporting Person(s).
- If they are not held by a Reporting Person(s), review whether the Entity is a passive NFE and if so, determine whether the Controlling Person(s) of the passive NFE are Reporting Persons.
Belonging to individuals and entities
- A Reporting FIs must obtain a self-certification by the account holder of their tax residency and confirm that the account holder’s self-certification is reasonable
After identifying the Reportable Accounts, each Reporting FI must report the Reportable Information to the local tax authority of the participating jurisdiction, which would forward the Reportable Information to other participating jurisdictions where the Reportable Person is a tax resident.
What is Singapore’s stance on the CRS?
Singapore has committed to implement the CRS from 1 Jan 2017, with the AEOI between Singapore and other participating jurisdictions to be implemented by 2018. The Singapore Ministry of Finance (“MOF”) consulted publicly10 in March 2016 on amendments to the Income Tax Act to facilitate Singapore’s adoption of the CRS. On 11 July 2016, MOF, the Monetary Authority of Singapore (“MAS”) and Inland Revenue Authority of Singapore (“IRAS”) publicly consulted11 on proposed regulations (“Draft Regulations”) for Singapore’s standard of AEOI.
The Draft Regulations clarify how certain terms used in CRS apply in Singapore and specify what are CRS-permitted modifications to the due diligence requirements of Singapore-based reporting FIs (“Reporting SGFIs”). For instance, such Reporting SGFIs can appoint agents to perform due diligence and reporting obligations. They can also opt to use new account due diligence procedures for pre-existing accounts or use due diligence procedures applicable to accounts with balances over US$1M for accounts with balances of or less than US$1M.
Subject to some exclusions, the Draft Regulations impose reporting obligations on the following Reporting SGFIs:
- custodial institutions;
- depository institutions;
- investment entities; or
- specified insurance companies.
Under the Draft Regulations, a Singapore FI (“SGFI”) should assess whether it is a Reporting SGFI and if yes, register as a Reporting SGFI with the Comptroller12 of IRAS, or a person authorized by the Comptroller, no later than 31 March 2018. An application for registration must be submitted electronically, unless the Comptroller permits it to be submitted in another method. A Reporting SGFI must prepare and submit to the Comptroller of IRAS, or a person authorized by the Comptroller, a return setting out the requisite information in relation to every Reportable Account maintained with it at any time during the relevant calendar year. This return is to be submitted before 31 May of the year following the calendar year to which the return relates to. The first return submission deadline for Reporting SGFIs is 31 May 2018 for Reportable Accounts maintained during the calendar year of 2017.
The ambit of Reporting SGFIs is wide, and likely to include banks, finance companies, certain capital markets services license holders13, licensed trust companies, registered fund management companies, certain collective investment schemes and licensed insurers located in Singapore.
Ahead of the 31 May 2018 deadline to submit a return for calendar year 2017:
- A SGFI should assess if it is a Reporting SGFI and if yes register as a Reporting SGFI with IRAS.
- A Reporting SGFI should assess if it can perform the requisite due diligence procedures for pre-existing and new accounts as required in the Draft Regulations. As Singapore’s CRS implementation date is 1 January 2017, pre-existing accounts will be all accounts maintained by Reporting SGFIs prior to 1 January 2017 while new accounts will be those opened by Reporting SGFIs on or after 1 January 2017. In particular, Reporting SGFIs should assess if they have enough customer information to enable the Reporting SGFI to satisfy the due diligence requirements. If it does not, a Reporting SGFI should look at how to collect this.
- If it identifies that it has Reportable Accounts, a Reporting SGFI should assess if it has collected enough customer information for purposes of preparing the requisite submission to the Comptroller of IRAS. If it does not, a Reporting SGFI should look at how to collect this.
1Following is the link to CRS: http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/standard-for-automatic-exchange-of-financial-account-information-in-tax-matters/common-reporting-standard_9789264216525-5-en#.V5HDy01PrDc#page1
2Aside from the above noted implementation date for CRS, a Participating Jurisdiction is allowed to choose a later implementation date.
3A withholdable payment means a payment of U.S. source income that is fixed or determinable, annual or periodical income or the gross proceeds from the disposal of property that produces U.S. source interest or dividend income.
4The term “NFE” means any entity that is not a FI as defined under CRS. For a NFE, the determination of whether the NFE is a passive NFE depends on not falling within the criteria set out in CRS to be considered as an active NFE. This assessment can be made on the basis of available information. If the assessment whether the NFE is active or passive cannot be made, a self-certification may be required.
5Controlling Persons mean the natural persons who exercise control over an entity. The term “Controlling Persons” must be interpreted in a manner consistent with the Financial Action Task Force Recommendations.
6Indicators used to determine the tax jurisdiction of an account. They are the following:
- Identification of the account holder as a resident of other participating jurisdiction;
- Current mailing or residence address (including a post office box) in another participating jurisdiction;-
- One or more telephone numbers in another Participating Jurisdiction and no telephone number in the jurisdiction of the Reporting FI;-
- Standing instructions (other than with respect to a depository account) to transfer funds to an account maintained in another Participating Jurisdiction;
- Currently effective power of attorney or signatory authority granted to a person with an address in another Participating Jurisdiction; or
- A “hold mail” instruction or “in-care-of” address in another participating jurisdiction if the Reporting FI does not have any other address on file for the account holder
7A self-certification is a signed statement containing required CRS information to establish the tax residency of the account holder.
8A Reportable Person is a tax resident of another Participating Jurisdiction other than those specifically excluded as such under CRS.
9An entity means a legal person or a legal arrangement such as a corporation, partnership, trust or foundation.
10For more details, see http://www.mof.gov.sg/Public-Consultation/Public-Consultation-Closed/2016/Public-Consultation-on-Draft-Income-Tax-Amendment-No-2-Bill-2016
11For more details, see http://www.mof.gov.sg/Public-Consultation/Public-Consultation-Open/Public-Consultation-on-Proposed-Regulations-on-The-Standard-for-Automatic-Exchange-of-Financial-Account-Information-in-Tax-Matters
12“Comptroller” means the Comptroller of Income Tax appointed under section 3(1) of the Income Tax Act of Singapore.
13Reporting SGFIs include capital markets services license holders authorized to carry out the following regulated activities:
- Dealing in securities;
- Trading in futures contracts;
- Leveraged foreign exchange trading;
- Fund management;
- Real estate investment trust management;
- Providing custodial services for securities.