Analysis of Common Reporting Standard Loopholes

EU adds Saudi Arabia, Panama to dirty-money blacklist

In total 23 jurisdictions are listed. They are Afghanistan, American Samoa, the Bahamas, Botswana, North Korea, Ethiopia, Ghana, Guam, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, US Virgin Islands and Yemen.

How does the list of high-risk third countries differ from the common EU tax list of uncooperative tax jurisdictions?

The high-risk third country list aims to address risks to the EU's financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes. On the basis of this list, banks must apply higher due diligence controls to financial flows to the high risk third countries.

On the other hand, the common EU list of uncooperative tax jurisdictions addresses the external risks to Member States' tax bases, posed by third countries that do not adhere to international tax good governance standards. The two lists may overlap on some of the countries they feature, but they have different objectives, criteria and different compilation processes. While the EU list of uncooperative tax jurisdictions is a Council-led process, the EU list of high-risk third countries is established by the Commission based on EU anti-money laundering rules. The two lists complement each other in ensuring a double protection for the Single Market from external risks.
Pointless for UK Territories resisting public Registers of Ownership

There is much news that BVI, Cayman and other UK territories are fiercly opposing implementation of central beneficial ownership registers of entities and arrangements.

The UK has caved in to overseas territories over public ownership registers as the government has decided to delay the requirement until 2023 at the earliest. The decision follows fierce opposition from the British Overseas Territories such as BVI or Cayman that included threats to take the government to court or even to secede from the UK. Most territories have been campaigning in London against the measure and even calling the requirement colonialist, undemocratic and a breach of previous agreements.

Ignorance is seemingly bliss?

Secede? Court? Hold your horses. The EU Code of Conduct Group Business Taxation (CoCG) threatens to black list third countries as uncooperative tax havens if they fail three criteria - 1. tax transparency, 2. fair taxation, and 3. anti-BEPs minimum standards. The UK territories and dependancies expedited Economic Substance legislation to meet the fair taxation criterion. Now, the recent CoCG progress report to the EU Council indicates that the much anticipated 4th criterion will shortly be added.

In view of the initiative for global exchange of beneficial ownership information, the aspect of beneficial ownership will be incorporated as a fourth transparency criterion for screening.

It is clear that the ownership registers will have to be implemented expeditiously by the territories to avoid black listing as a tax haven. This has nothing to do with negotiations between the territories and the UK. It is highly likely this will all be done and dusted by 2020. These registers are equivalent to another level of automatic exchange of information meant to cover the weaknesses of the common reporting standard.

Overseas territories worried that the 2020 timetable for disclosure requirements would lead to an exodus of business moving towards more secretive tax havens. Territories including the Cayman Islands argued that public registers should only be compulsory when they are introduced worldwide.

This will no longer be a concern. The CoCG threat of black listing if the new 4th criterion is not met ensures all competitive 'tax havens' will simulataneously have public centralised UBO registers.

Website updated 13 February 2019: EU Council update on uncooperative tax havens

EU Council update on review process update on 3rd country uncooperative tax havens.

OECD publishes framework for AEOI peer review

FIs have 90 days to determine genuine tax residency of any pre-existing account that presented tax residency of one of the 20 high-risk RbI / CbI jurisdictions. CRS Commentary page 115 par (13) states "If a Reporting Financial Institution has relied on the residence address test described in subparagraph B(1) and there is a change in circumstances (e.g. OECD update) that causes the Reporting Financial Institution to know or have reason to know that the original Documentary Evidence is incorrect or unreliable, the Reporting Financial Institution must, by the later of the last day of the relevant calendar year, or 90 calendar days following the notice or discovery of such change in circumstances, obtain a self-certification and new Documentary Evidence to establish the residence(s) for tax purposes of the Account Holder. The OECD clampdown on RbI state steh use of a high risk jurisdiction is reason enough that the self certifivatiuon or documentary evidence cannot be relied upon. There is no need to wait for this to be translated into local CRS legislation.

OECD clamps down on residence by investment schmemes. OECD publishes initiative against 21 blacklisted jurisdictions providing residence and investment by investment schemes.

HK repeals non reporting FI status for ORSOs. In December 2017, the OECD conducted an assessment on Hong Kong’s inclusion of Mandatory Provident Fund schemes, ORSO registered schemes, ORSO pooling agreements and approved pooled investment funds as jurisdiction-specific low-risk non-reporting financial institutions and concluded that these entities should not be considered as NRFIs. To meet the international requirements, the Government will commence a legislative amendment exercise to remove these entities from the list of NRFIs under the Inland Revenue Ordinance.
Gibraltar pension plans next on the chopping block: Gibraltar trustee based pension segergated saving shams have not yet adopted the OECD updated CRS FAQ in June 2018, that compartmentalised savings accounts do not qualify as being equivalent to Broad Participation Retirement Plans, and hence do not qualify as non reporting FIs, which Gibraltar trustees promote in their marketing material.

Non cash value insurance policies loopholes closed: Life insurance Asian subsidiaries of insurers based in Switzerland and UK overseas territory, Bahamas insurers have exploited the non cash value insurance policy. These insurers ensured the policyholders signed a confidential rider that they could no longer access the policy assets. In effect, converting the policies to irrevocable non cash value policies, which were out of scope of the CRS. The June 2018 OECD CRS FAQ update mandates that if no-one can access the policy assets, then the reportable person will be the policy owner. It will be interesting to see how these policyholders pay taxes on the previously undeclared insurance policy assets as the policy is irrevocable.

OECD reviewing the recent practise of listing private investment companies on small stock exchanges such as Malta and Dutch Caribbean exchange,, without any trading occuring, to exploit the FATF AML rules that FIs do not have to identify beneficial owners of listed entities. CRS can override this by requiring FIs to identify significant shareholders owning more than 5% by obtaining this info directly from stock exchange.

OECD reviewing jurisdiction CRS guidance which wrongly opine that cash is not a financial asset, merely because it was omitte dfrom the CRS list of financial assets. This affects teh categorisation of Active NFE type A and investment entities.

OECD Publications on CRS

Common Reporting Standard and Commentary

Second edition of Implementation Handbook provides new guidance related to effective implementation.

CRS-related Frequently Asked Questions

List of jurisdictions committing to CRS by 2020, including developing members of Global Transparency Forum but not yet set the date for automatic exchange.
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List of signatories of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and intended Information Exchange Date.

Pascal Saint Amans quoted that the Model Disclosure Rules will be submitted to the G7 presidency and are part of a wider strategy of the OECD to monitor and act upon tendencies in the market that try to avoid CRS reporting and hide assets offshore.

Mandatory Disclosure Rules on avoidance of CRS
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List of members of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes.
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List by jurisdiction of specific the steps taken and choices made in the context of implementing the Standard.

Definition of tax residency rules for individuals and entities by jurisdiction.

Breakdown of updates by country
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CRS Guidance by Jurisdictionas per OECD AEoI Exchange Portal.

Not yet updated by OECD
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Tax Identification Number rules and formats by Jurisdiction as per OECD AEoI Exchange Portal.
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List of jurisdictions participating in the Convention of Mutual Administrative Assistance in Tax Matters.
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List of high risk residence and citizenship schemes by jurisdiction
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EU list of tax havens to be black or grey listed. Here is the listing process and criteria to be met to avoid grey listing.
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CRS Status Message XML Schema
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Peer reviews of the effectiveness of the implementation of the AEOI Standard starting in 2020.
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AEoI exchanges in 2018
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Written commitments by jurisdiction to avoid EU uncooperative tax havens black-list
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Beneficial Owner Toolkit

Newsworthy Updates

  • 6 December 2018 * OECD publishes Framework for AEoI Peer Review
  • 4 December 2018 * EU removes Namibia from its list of uncooperative jurisdictions
  • 21 November 2018 * Oman commits to CRS in 2020, Kuwait delays from 2018 to 2019
  • 20 November 2018 * Panama removed from Residence by Investment high risk list
  • 29 October 2018 * Ecuador signs the Multilateral Competant Authority Agreement, bringing the total number to 104.
  • 26 October 2018 * Kazahkstan commits to exchange CRS information in 2020
  • 22 October 2018 * OECD removes 3 more black-listed jurisdictions (Columbia, Montserrat and Mauritius) from high-risk RbI / CbI list because they have committed to automatic exchange of applicants with applicant's source country.
  • 17 October 2018 * OECD removes Monaco from Residence by investment black list because Monaco exchanges info with the jurisdiction where investor came from
  • 16 October 2018 * OECD OECD publishes initiative against 21 blacklisted jurisdictions providing residence and investment by investment schemes used to circumvent CRS.
  • 9 October 2018 * OECD updates list of 107 jurisdictions committed to CRS by 2020 and 42 Global Forum Members but not yet set date to implement automatic exchange of Financial Account Information
  • 2 October 2018 * EU removes Peru and Liechtenstein off grey list of tax havens. Paulo moves from blacklist to grey list
  • 24 September 2018 * 125 Jurisdictions participating in the CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS
  • 18 September 2018 * Hong Kong revokes non reporting FI status for providers of ORSO pension plans
  • 15 September 2018 * Update 153 members of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes
  • 14 September 2018 * Update format of Tax Identification Numbers by jurisdiction
  • 31 August 2018 * IRS publishes Revenue Procedure 2018-36 list of jurisdictions to reciprocate interest data to countries deemed safe, ignoring FATCA limited reciprocal data promises.
  • 7 August 2018 * Update 103 signatories of the Multilateral Competent Authority Agreement
  • 5 July 2018 * EU votes for a resolution for EU Members to suspend FATCA due to non reciprocity
  • 4 June 2018 CRS FAQ update closes loopholes concerning Hong Kong ORSO, Gibraltar QNUPS and other trust-based retirement funds, as well as irrevocable insurance.
  • 31 May 2018 * EU Commission Director General Taxation warns USA will be blacklisted in 2019 if it does not adopt CRS. Three out of seven blacklisted nations are US territories
  • 25 May 2018 * EU Council updates uncooperative tax havens list - blacklists 7 and greylists 65 jurisdictions
  • 6 April 2018 * 2nd OECD CRS Implementation Handbook
  • 3 April 2018 * US Supreme Court declines to listen to case from 6th circuit court of appeals court unsuccesful effort to repeal FATCA
  • 13 March 2018 * EU Council amends Mutual Assistance and Cooperation Directive (DAC) to EU Council amending DACM include OECD MDR for addressing CRS avoidance arrangements and offshore structures (see pg. 38).
  • 10 March 2018 * OECD releases final Mandatory Disclosure Rules
  • 9 March 2018 * OECD MDR PDF document FAQ on Mandatory Disclosure Rules.

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