The Common Reporting Standard (CRS) has real implications for expatriates and individuals with assets held overseas.
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A multijurisdictional report from the Global Mobility Services Group at Alliott Group, an international association of accounting and law firms, makes it clear that the creation of a global tax reporting network under the rules of the Common Report Standard (‘CRS’) is truly under way.
While emphasising that CRS is a game changer and that expatriates must pay attention, it does hint however that deadlines for implementation may be over ambitious in certain less developed countries and that national tax laws in some countries could make CRS rules open to interpretation.
Indeed, should all proceed according to schedule, this global push towards coordinated tax reporting compliance will involve approximately 1,300 bilateral relationships being in place by 2018.
An expatriate who is tax resident/paying taxes outside the country where he or she banks, should be aware that their bank will give their personal account information to the local tax authority, which may then be shared automatically on an annual basis with the tax authority where he or she is tax resident. Expatriates’ individual accounts as well as dividends, interest and other incomes earned outside their countries of origin (or “tax residence”) will be under investigation.
Expatriates need to regularise their affairs now
CRS is live and expatriates should not assume it won’t apply to them. Financial institutions are already busy collating information, ready for transmission around the world in Spring 2017. Expats need to come forward to normalise their affairs with tax authorities and disclose any assets held offshore – there will be significant reputational and financial risks for lack of compliance.
While those who hold significant reportable financial assets offshore in the form of foreign investments or property are the most likely group to be affected by CRS implementation, should their jurisdiction adopt it, John Nelson, managing director at Dixcart Trust Corporation in Guernsey comments:
“Offshore tax planning and wealth management have become synonymous with tax evasion in many people’s eyes and as a result have become highly politicised globally. With revelations of offshore assets (for whatever reason) the perception is of non-compliance which comes with the potential for reputational damage. People may assume that it is the high profile, big impact clients (Politically Exposed People, Commercially Exposed People and Media Exposed People) who are being targeted, but the average expatriate should not assume they will go under the radar.”
All of Alliott Group’s global mobility experts re-emphasise the need to normalise affairs early and work with advisors to remove any doubt. Australia has arrangements in place to receive information from 50 jurisdictions and send information to 41. We anticipate that further jurisdictions sending information to Australia will be added over the next 12 months. Australian expatriate workers will need to ensure they do not fail to make the proper tax declarations in Australia and the same goes for foreign tax residents living and working in our country – anyone who harbours doubts about the legitimacy of their current arrangements would be wise to have them checked by their professional advisers.
Revenue generation to address the global tax gap
Governments worldwide are continuing their search for additional tax revenue and are looking, through CRS, to address perceived tax leakage to other jurisdictions.
South Africa has a large budget deficit – however, under CRS, the South African Revenue Services (SARS) will have access to an unprecedented volume of information on South African tax residents’ offshore dealings and their offshore structures, some of whom will be expatriates. CRS will allow SARS to collect taxes more efficiently and we may see significant tax revenues generated once the first reporting period ends. We advise South African tax residents and expatriates with such structures to seek advice quickly to ensure they are compliant. This might include
CRS will allow SARS to collect taxes more efficiently and we may see significant tax revenues generated once the first reporting period ends. We advise South African tax residents and expatriates with such structures to seek advice quickly to ensure they are compliant. This might include a SVDP (Special Voluntary Disclosure Programme) application to SARS which must be submitted before 31 August 2017.
Lack of consistency and non-US participation could hamper CRS effectiveness
The report also points out specific weaknesses in CRS, notably the US not being a participant jurisdiction and individual jurisdictions being given a certain amount of leeway in their implementation of CRS rules.
Differing guidance across the world will make it difficult for financial institutions to apply a consistent approach across all jurisdictions. It should be noted that CRS contains many exemptions that may be legally exploited by account holders and financial institutions to retain privacy – whether these, or non-participation by the US, will negate the effectiveness of CRS, remains to be seen.
As to the reasons for the United States’ lack of appetite for CRS, Alliott Group members point to the existence of FATCA and the potential for banking confidentiality to be undermined.
FATCA helps the IRS to stop American citizens evade payment of US taxes whether they are living and working abroad or hold investments somewhere else outside the U.S. Whether it is fair or not, FATCA is not based on reciprocity with the IRS being the recipient, not the provider, of tax information.
On the subject of banking confidentiality, in the US banking regulation is divided between the Federal and State Government. Most States would be averse to the Federal government trying to interfere in their affairs. So whether the US will repeal FATCA and adopt CRS to help other countries close their tax gaps remains to be seen.
Open to interpretation
Alliott Group global mobility tax experts in Belgium and the Netherlands, feel that non-resident taxpayers may not be too affected by CRS. Fred Krabbendam, managing director at Borrie in Rotterdam comments:
“Dutch 30% tax ruling holders can opt to be treated as non-Dutch tax residents during their stay in the Netherlands. The results of this are that, inter alia, income (including capital gains) from Dutch but also from foreign bank and investment accounts, is excluded from Dutch Box 3 taxation. This means that Dutch and foreign bank and investment accounts do not need to be reported in the foreign expatriate’s Dutch tax return.”
There are still opportunities for (careful) tax planning
While pointing out that expatriates and high net worth individuals with assets held overseas must comply with the new CRS rules, it should be borne in mind that CRS is aimed at combatting tax evasion, not lawful tax mitigation and opportunities for tax planning are still available but need the help of a tax expert to ensure they stand up to scrutiny.
Get our free Global Mobility Services report on CRS
Download the full report The Common Reporting Standard: What Does It Mean For Expatriates? Our guide explains the basics of CRS, the type of information which will be collected and disclosed about non-residents’ accounts, when CRS comes into effect around the world, how expatriates and others can ensure compliance, and which countries have voluntary disclosure programmes available to those who are concerned about the tax position of their international assets in the current year or historically.