Analysis of Common Reporting Standard Loopholes
 FIs have until 14th January 2019 to investigate all residencies of pre-existing account holders who have presented a high-risk residence by investment jurisdiction a Reporting Financial Institution has relied on the residence address test described in subparagraph B(1) and there is a change in circumstances that causes the Reporting Financial Institution to know or have reason to know that the original Documentary Evidence (or other documentation as described in paragraph 10 above) is incorrect or unreliable, the Reporting Financial Institution must, by the later of the last day of the relevant calendar year or other appropriate reporting period, 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. |
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Website updated 29 October 2018 |
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OECD removes 4 black listed jurisdictions from high-risk RbI / CbI list because they have committed to automatic exchange of applicants with applicant's source country. I. see no reason to remove these countries because the exchange of such info does not mitigate the abuse of RbI to avoid CRS one iota. We await explanation from OECD on their reasoning.
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. |
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Investment Entity failing income test: If a collective investment has not earned anything since inception, will the fund qualify as an Investment Entity or is it a Passive NFE becauyse it fails the income test? |
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| Interest as Active Income: Is interest earned by a microfinance business passive income or active income. |
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| Ignoring OECD closure of loopholes via FAQ: OECD closes a CRS loophole via FAQ updates, e.g. segregated savings plans, irrevocable insurance. Can domestic law non reporting FI ignore this if the jurisdiction where FI is based does not refer to the FAQ and Implementation Handbook as being legislation to follow. |
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| Holding FIs as Active NFE: As corporate trustee, can we categorize our trust as an Active NFEs if the trust holds subsidiaries engaged in business. |
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| Entity with dual tax residency: How do we treat entity account holders which have dual residencies due to place of incorporation and different place of effective management. Where is such entity located as an investment entity. |
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| Fake residency: How will OECD oblige FIs to determine genuine tax residence of individuals, to address their concerns on abuse of residence by investment (RbI) by black listed jurisdiction such as UAE, Malta, St. Kitts, etc. Will utility bills from RbI black-listed jurisdictions no longer be used for due diligence. |
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| Intangible assets in balance sheet:, can an NFE load their balance sheet with intangible assets, such as IP, to pass the asset test as an Active NFE type [A] business, assuming they earn non-financial income such as commissions. |
| Halt look-through of nominee: Can a non-participating nominee change its-self into a non reportable custodial institution |
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| Halt reporting on controlling persons: Is it possible to not report on reportable controlling persons of a Passive NFE by simple restructuring |
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| Listing: Is a public company on Malta exchange an Active NFE or a non-reportable person or both |
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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. |
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 |
List of members of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. |
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 |
CRS Guidance by Jurisdictionas per OECD AEoI Exchange Portal. Not yet updated by OECD |
Tax Identification Number rules and formats by Jurisdiction as per OECD AEoI Exchange Portal. |
List of jurisdictions participating in the Convention of Mutual Administrative Asssitance in tax matters. |
List of high risk residence and citizenship schemes by jurisdiction |
EU list of tax havens to be black or grey listed. |
CRS Status Message XML Schema |
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Newsworthy Updates |
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