Panama is completely wrong in recognising US as a CRS Participating Jurisdiction




1.What is a CRS Participating Jurisdiction?


CRS Page 57 Par 5(d):

The term Participating Jurisdiction means a jurisdiction :

  1. with which an agreement is in place pursuant to which it will provide the information specified in Section I of the CRS, and
  2. which is identified in a published list



2. Jurisdictions, such as Panama that adopt a lenient interperetation that the USA will in future implement AEoI equivalent to the CRS must re-assess the inclusion of USA as a participating jurisdiction by no later than July 2017 and remove USA if it has not actually implemented CRS

OECD CRS Implementation Handbook page 20 par(31)

Jurisdiction could treat all jurisdictions that have publicly and at government level committed to adopt the CRS by 2018 (“Committed Jurisdictions”)2 as Participating Jurisdictions for a transition period. A possible further limitation would be to reserve this treatment to Committed Jurisdictions that have signed the Multilateral Competent Authority Agreement or an equivalent exchange instrument. This effectively presumes commitments will be delivered upon. A jurisdiction adopting this approach should make a statement that its list of Participating Jurisdictions will be re-assessed and updated no later than 1 July 2017, based on whether the listed Participating Jurisdictions have actually delivered on their commitment vis-à-vis the jurisdiction. A removal of a jurisdiction from the list of Participating Jurisdictions would then trigger an obligation on Reporting Financial Institutions to apply the ....

2 Committed Jurisdictions would be those that have committed in the context of the Global Forum process but also those non-financial centre developing countries that have expressed that commitment by signing the Multilateral Competent Authority Agreement or an equivalent exchange instrument.




3. Is FATCA IGA with reciprocal reporting an agreement to provide information in Section I of the CRS?


FATCA IGA is merely a commitment / acknowledgement / promise to reciprocate information. This is far from being an agreement in place where the USA will definitely exchange info.

Worse, the IGA's promise of exchange of information will be based on FINCENs proposed rule for enhanced customer due diligence for legal entity customers. This rule is worthless for reciprocal exchange of information as it excludes trusts, as well as any pre-existing entity, which is defined as any account opened before one year after the rule is applied. It also excludes insurers.

So in summary, FATCA IGA is not an agreement in place where the USA will definitely provide information according to Section I of the CRS.

Therefore the USA is not a Participating Jurisdiction for CRS.


4. Why would a Financial Centre want to categorise USA as a participating jurisdiction?



Luxembourg and Switzerland incorrectly categorise the USA FATCA Inter Governmental Agreement as an agreement in place where the USA will provide information specified in Section I of the CRS.

The main purpose of including the USA as a CRS Participating Jurisdiction would be to circumvent the CRS obligation on LU and CH Financial Institutions to look-through to controlling persons of USA investment entities maintaining accounts with LU and CH Financial Institutions and treat them as Passive NFEs.

As well as this being loophole, it provides a competitive advantage for LU and CH Financial Institutions for soliciting business e.g. encourage everyone to utilise a USA trust or fund to hold bank accounts in LU and CH and not be reportable, becaus ethe LU or CH bank will not look through the US trust to the controlling persons. This loophole can be extended to custodial accounts and insurance contracts.


5. Expected OECD response


Once a major financial centre such as Luxembourg or Switzerland officially publishes that the USA is considered a CRS Participating Jurisdiction and there is no comment from the OECD, other financial centres around the world will no doubt quickly follow suite using the level playing field argument.

The USA's non-reciprocal reporting is itself a significant problem for the OECD, but now an inclusion of USA as a Participating Jurisdiction will exacerbate the situation many-fold.

Both the BVI and Liechtenstein released preliminary drafts of white lists for their respective jurisdictions, naming the U.S. However, soon after the release of such preliminary white lists, both these jurisdictions reversed their position for unspecified reasons, removing the U.S. from subsequent drafts of their white lists.

The OECD will undoubtedly clarify that the USA is not a Participating Jurisdiction even though the FTCA IGAs are equivalent to the CRS. These are two very different issues.


6. Expected Competent Authority Agreement (CAA) partner response


A partner jurisdiction with a CAA in place can suspend the CAA if they are unsatisfied with the list of non-reporting FIs or Excluded Accounts. Partner countries with LU and CH will likely suspend the CAA agreement if they opine that FIs in CH and LU are abusing the recognition of the USA as a participating jurisdiction to circumvent reporting because the FIs will not have to report on US investment entities holding financial accounts in CH and LU. If no change after 12 months the partner can terminate the agreement.

It is highly unlikely CH and LU will be allowed to continue the recognition of USA as a participating jurisdiction.

7. Tax Justice Network Article on recognising USA is a loophole


Click to read TJN article.