Currently, the CRS exempts from its scope all pre-existing insurance contracts owned by individuals which are effectively prohibited by law to be sold to their residents
This exemption, which serves no purpose, creates a planning opportunity loophole where residents can own insurance contracts the same way that cross-border residents can access non-UCITS despite the restriction on sales to non-residents. For example:
How the CRS exempts pre-existing insurance which is effectively prohibited by law from being sold to reporting jurisdictions
CRS page 31 Section III: Due Diligence for Pre-existing Individual Accounts
The following procedures apply for purposes of identifying Reportable Accounts among Pre-existing Individual Accounts:
Paragraph A exempts from review all Pre-existing Individual Accounts that are Cash Value Insurance Contracts and Annuity Contracts, provided that the Reporting Financial Institution is effectively prevented by law from selling such contracts to residents of a Reportable Jurisdiction.
The OECD will repeal the exemption of pre-existing individual Cash Value Insurance Contracts
This is an obvious simple loophole with no purpose. It was copied from the FATCA legislation in haste. The CRS as from next year, will be amended, bringing into scope insurance contracts where the insurer is effectively prohibited by law from selling such contracts to residents of a Reportable Jurisdiction.
This amendment is expected to be implemented in early 2017. Thus, in the scenario described in paragraph 1 above, the Cayman Island insurer will report on the Argentinian policyholder in September 2018.
Note: This is a similar amendment to the EU Savings Tax Directive amendment which originally excluded non-UCITS funds as they were not allowed to be sold across borders.