Common Reporting Standard: trusts, charities could be caught

The Common Reporting Standard (CRS) is a global standard put in place by the Organisation for Economic Cooperation & Development (OECD) whereby countries automatically exchange tax information. More than 100 countries have signed up, excluding the US, where the similar FATCA regime is already in place. Similarly to FATCA, the aim of the CRS is to reduce tax evasion by the use of offshore jurisdictions, through increased transparency.

The CRS has been implemented into UK law by the International Tax Compliance Regulations 2015 and the UK is one of 50 countries which have signed up as “Early Adopters”, meaning that reporting requirements have already been introduced, the deadline for reporting to HMRC for the 2016 calendar year having passed on 31 May 2017. The reported information will then be exchanged by HMRC with the other countries by 30 September 2017.

Under the CRS, “financial institutions” (FIs) need to report certain financial information to HMRC for all “reportable persons”. While charities are exempt from FATCA there is no such exemption under CRS.

There are four types of FIs for the purposes of CRS: custodial institutions; depository institutions; investment entities; and specified insurance companies. If an entity is not an FI it will be a “non-financial entity” (NFE), whether active or passive. The distinction is an important one as while FIs have reporting obligations under the CRS, NFEs do not. Notably, trusts will be FIs where more than 50% of their gross income is in the form of investment income that is under discretionary management.

“Reportable persons” are entities or individuals who are resident in a “reportable jurisdiction” – those countries who have signed up for the year in question.

Penalties are in place for non-compliance, with different jurisdictions able to operate different penalty systems.

Further information can be found in the CRS implementation handbook.