Global tax is set to face the biggest shake up ever that will affect every saver and investor with accounts in any of the world’s major financial centres.
Financial firms and governments are readying to start the Common Reporting Standard (CRS) from January 1, 2016.
CRS is a souped up version of the US Foreign Account Tax Compliance Act (FATCA).
Instead of financial institutions worldwide identifying US taxpayers and reporting their financial affairs to the Internal Revenue Service (IRS), financial institutions will need to identify clients who are taxpayers of any other CRS network country.
Then, each year, their financial information will automatically be reported to the client’s home state tax authority.
How the Common Reporting Standard will work
Run under the auspices of the Organisation of Economic Cooperation and Development (OECD), around 100 countries have signed up to CRS – which includes every major financial centre worldwide.
The measure will cost financial institutions hundreds of millions of pounds to implement, and many are already busy updating their internal systems and client terms and conditions of service to allow them to comply with CRS.
However, CRS has one major difference from FATCA – the network has no power to levy a withholding tax on non-participating financial institutions.
CRS will slowly phase in around the world.
So-called ‘early adapter’ nations will start automatic reporting from January 1, 2016. These countries include Britain, Ireland, Luxembourg, Jersey, Guernsey, the Cayman Islands and the British Virgin Islands.
When does the Common Reporting Standard start?
Reporting for the 2016-17 tax year is expected to start in September 2017.
Other financial centres, such as Hong Kong and Singapore will not join CRS until January 2017.
Accounts coming under automatic reporting include those directly held by overseas taxpayers or those held for their benefit or controlled by them through other entities, such as companies or trusts.
CRS has the same aim as the US FATCA law – to identify overseas accounts and investments held by taxpayers and to compare the details reported on their tax returns with those filed by financial institutions.
Any discrepancies are likely to trigger tax investigations.