Understanding the Common Reporting Standard
The Common Reporting Standard (CRS) is a co-ordinated international approach to facilitate exchange of financial information globally. Over 100 countries have now signed up to CRS and agreed to supply information annually.
Bankers, trustees, brokers and others will all be obliged to make returns under the CRS. All types of investment income will be reported to the customer’s ‘home’ tax territory (including bank interest, dividends, income from annuities and other insurance products) together with account balances and proceeds from the sale of financial assets. The CRS requires financial institutions to look through nominee entities (e.g offshore companies or trusts, foundations and anstalts) and to report on the relevant ‘controlling persons’ and/or beneficial owners.
When it it happening?
CRS is live now and financial institutions are currently collecting data to pass to the jurisdictions where the customer is tax resident. The first reports will be issued by financial institutions in early adopter countries in March 2017. The late adopters will follow in March 2018.
What happens next?
On receipt of the CRS data, the UK tax authorities will open investigations and write to everyone for who they hold information. Every account holder regardless of their tax residence or domicile status will need to demonstrate that they are UK tax compliant. There will be no exceptions and everyone will have to engage with HMRC. If there is something to disclose, you must make a voluntary disclosure with the help of a specialist before it is too late to secure the best financial outcome. Otherwise new ‘failure to correct’ penalties may be charged which could far outweigh the tax itself.
Benefits of early disclosure
Voluntary disclosure of unpaid or underpaid taxes will result in lower professional costs, lower penalties and in the most serious cases allow for protection from criminal prosecution to be negotiated.
Advice for account holders
HMRC has strongly advised that anyone with investments (directly or indirectly) in overseas assets or structures should have them reviewed now to check their oversea affairs are fully UK tax compliant. If a problem is found, seek advice from a suitably qualified specialist.
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