Tue, Aug 16, 2016
What is the Common Reporting Standard (“CRS”)1?
The CRS was developed by the Organization for Economic Co-operation and Development to facilitate exchange on a global scale of information relating to tax matters to fight tax evasion. The CRS describes how a participating jurisdiction will provide tax-related information to, as well as receive from, other participating jurisdictions.
The CRS is part of a recent trend of inter-governmental agreements (“IGAs”) for jurisdictions to enforce tax regulations through mutually sharing tax-related information. IGAs have been signed by various countries and the United States (“U.S.”) to facilitate the U.S.’ implementation of the Foreign Account Tax Compliance Act (“FATCA”) and between the United Kingdom and each of the Crown Dependencies and Overseas Territories. The CRS further extends the regime on a global scale.
The exchange of tax-related information pursuant to IGAs is generally known as Automatic Exchange of Information (“AEOI”). More than 100 jurisdictions, including Dubai, Hong Kong, Luxembourg and Switzerland, have endorsed the CRS and will implement AEOI pursuant to the CRS in either 2017 or 2018.
The CRS describes what account information will be exchanged, the financial institutions (“FIs”) required to report (“Reporting FIs”), the different types of accounts and taxpayers covered, as well as the customer due diligence procedures to be followed by FIs in identifying accounts that will need to be reported (“Reportable Accounts”).
CRS builds on existing systems and processes conceived in FATCA. Pursuant to both CRS and FATCA:
However, there are various key differences between CRS and FATCA such as:
Under CRS, the following are the required due diligence procedures by Reporting FIs:
Belonging to individuals:
Belonging to entities9:
Belonging to individuals and entities
After identifying the Reportable Accounts, each Reporting FI must report the Reportable Information to the local tax authority of the participating jurisdiction, which would forward the Reportable Information to other participating jurisdictions where the Reportable Person is a tax resident.
Singapore has committed to implement the CRS from 1 Jan 2017, with the AEOI between Singapore and other participating jurisdictions to be implemented by 2018. The Singapore Ministry of Finance (“MOF”) consulted publicly10 in March 2016 on amendments to the Income Tax Act to facilitate Singapore’s adoption of the CRS. On 11 July 2016, MOF, the Monetary Authority of Singapore (“MAS”) and Inland Revenue Authority of Singapore (“IRAS”) publicly consulted11 on proposed regulations (“Draft Regulations”) for Singapore’s standard of AEOI.
The Draft Regulations clarify how certain terms used in CRS apply in Singapore and specify what are CRS-permitted modifications to the due diligence requirements of Singapore-based reporting FIs (“Reporting SGFIs”). For instance, such Reporting SGFIs can appoint agents to perform due diligence and reporting obligations. They can also opt to use new account due diligence procedures for pre-existing accounts or use due diligence procedures applicable to accounts with balances over US$1M for accounts with balances of or less than US$1M.
Subject to some exclusions, the Draft Regulations impose reporting obligations on the following Reporting SGFIs:
Under the Draft Regulations, a Singapore FI (“SGFI”) should assess whether it is a Reporting SGFI and if yes, register as a Reporting SGFI with the Comptroller12 of IRAS, or a person authorized by the Comptroller, no later than 31 March 2018. An application for registration must be submitted electronically, unless the Comptroller permits it to be submitted in another method. A Reporting SGFI must prepare and submit to the Comptroller of IRAS, or a person authorized by the Comptroller, a return setting out the requisite information in relation to every Reportable Account maintained with it at any time during the relevant calendar year. This return is to be submitted before 31 May of the year following the calendar year to which the return relates to. The first return submission deadline for Reporting SGFIs is 31 May 2018 for Reportable Accounts maintained during the calendar year of 2017.
The ambit of Reporting SGFIs is wide, and likely to include banks, finance companies, certain capital markets services license holders13, licensed trust companies, registered fund management companies, certain collective investment schemes and licensed insurers located in Singapore.
Ahead of the 31 May 2018 deadline to submit a return for calendar year 2017:
Sources
1Following is the link to CRS: http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/standard-for-automatic-exchange-of-financial-account-information-in-tax-matters/common-reporting-standard_9789264216525-5-en#.V5HDy01PrDc#page1
2Aside from the above noted implementation date for CRS, a Participating Jurisdiction is allowed to choose a later implementation date.
3A withholdable payment means a payment of U.S. source income that is fixed or determinable, annual or periodical income or the gross proceeds from the disposal of property that produces U.S. source interest or dividend income.
4The term “NFE” means any entity that is not a FI as defined under CRS. For a NFE, the determination of whether the NFE is a passive NFE depends on not falling within the criteria set out in CRS to be considered as an active NFE. This assessment can be made on the basis of available information. If the assessment whether the NFE is active or passive cannot be made, a self-certification may be required.
5Controlling Persons mean the natural persons who exercise control over an entity. The term “Controlling Persons” must be interpreted in a manner consistent with the Financial Action Task Force Recommendations.
6Indicators used to determine the tax jurisdiction of an account. They are the following:
- Identification of the account holder as a resident of other participating jurisdiction;
- Current mailing or residence address (including a post office box) in another participating jurisdiction;-
- One or more telephone numbers in another Participating Jurisdiction and no telephone number in the jurisdiction of the Reporting FI;-
- Standing instructions (other than with respect to a depository account) to transfer funds to an account maintained in another Participating Jurisdiction;
- Currently effective power of attorney or signatory authority granted to a person with an address in another Participating Jurisdiction; or
- A “hold mail” instruction or “in-care-of” address in another participating jurisdiction if the Reporting FI does not have any other address on file for the account holder
7A self-certification is a signed statement containing required CRS information to establish the tax residency of the account holder.
8A Reportable Person is a tax resident of another Participating Jurisdiction other than those specifically excluded as such under CRS.
9An entity means a legal person or a legal arrangement such as a corporation, partnership, trust or foundation.
10For more details, see http://www.mof.gov.sg/Public-Consultation/Public-Consultation-Closed/2016/Public-Consultation-on-Draft-Income-Tax-Amendment-No-2-Bill-2016
11For more details, see http://www.mof.gov.sg/Public-Consultation/Public-Consultation-Open/Public-Consultation-on-Proposed-Regulations-on-The-Standard-for-Automatic-Exchange-of-Financial-Account-Information-in-Tax-Matters
12“Comptroller” means the Comptroller of Income Tax appointed under section 3(1) of the Income Tax Act of Singapore.
13Reporting SGFIs include capital markets services license holders authorized to carry out the following regulated activities:
- Dealing in securities;
- Trading in futures contracts;
- Leveraged foreign exchange trading;
- Fund management;
- Real estate investment trust management;
- Providing custodial services for securities.
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