"At present 93 countries will implement CRS over a two year period commencing 1 January 2016."
"A large number of entities administered by Bedell Trust Company and its subsidiaries and affiliates fell into the classification of Active or Passive NFFEs."
"Bedell Trust Company and its subsidiaries and affiliates are actively working on an impact assessment of which this early notification to clients and relevant trust beneficiaries forms part."

The Common Reporting Standard ("CRS") Update for Bedell Trust Clients

11 Nov 2015

The CRS initiative follows on the heels of US FATCA and, for Crown Dependencies, such as Jersey and Guernsey, UK FATCA.  Although UK FATCA will be in force for exchanging information in 2016 for the Crown Dependencies it is anticipated that it will subsequently fall away and that UK FATCA regime will become part of CRS. It is unclear at present over what period and how UK FATCA reporting will be transitioned to CRS reporting.

WHAT IS CRS?
CRS is the result of the drive by the G20 nations to develop a global standard for the automatic exchange of financial account information following the approach taken to implement US FATCA.  A Financial Institution in participating jurisdictions (see list below) will be required to report certain financial information on relevant clients to its local tax authority which will, in turn, exchange this information with any jurisdictions where the relevant client is known to be tax resident.

WHO IT AFFECTS?
At present 93 countries (see list below) will implement CRS over a two year period commencing 1 January 2016, in order to comply with the automatic exchange of information required by the Competent Authority Agreements (CAAs).  Apart from Singapore, all Ocorian jurisdictions have signed up to be early adopters of CRS and are, therefore, expected to start to gather relevant information from 1 January 2016, and report in 2017.  Singapore is expected to adopt CRS with effect from 1 January 2017, and report in 2018.

LIST OF COUNTRIES SIGNED AND COMMITTED:

[please refer to pdf document for table]
 

WHAT ARE BEDELL TRUST COMPANY AND ITS SUBSIDIARIES AND AFFILIATES DOING?
When US FATCA was introduced, Ocorian attempted to anticipate the CRS requirements and therefore implemented processes that could be followed when implementing CRS. It had always been anticipated that CRS would follow the definitions and framework of US FATCA reporting and this has, largely, proved to be the case.  

The OECD has now issued an implementation guide to jurisdictions and most recently the UK HMRC has released its draft CRS guidance. To date there has been no further guidance released by competent authorities in the other jurisdictions in which Ocorian operates (Jersey, Guernsey, Ireland, Mauritius or Singapore) and in respect of each of those jurisdictions, Ocorian is monitoring and waiting for the local guidance notes from each jurisdiction.  It will also be a requirement that each jurisdiction signs up to a CAA based on the model CAA provided by the OECD in order to implement the exchange of information. These agreements are based on the FATCA model 1 inter-governmental agreement but as with such inter-governmental agreements CAAs will need to be adopted under domestic legislation before coming into force.  No jurisdictions have yet passed the relevant legislation to adopt CAAs.

Jurisdictions have the flexibility, when adopting CAAs to sign either:

  • a multi-lateral agreement meaning a number of jurisdictions can jointly agree to exchange information;
  • a bi-lateral agreement meaning that jurisdictions negotiate and agree an exchange of information just between those two jurisdictions; or
  • a non-reciprocal agreement meaning one jurisdiction will receive information from another jurisdiction but will not be obliged to report information in return.

Until local guidance notes are introduced on a jurisdiction by jurisdiction basis and relevant CAAs are given force of law in each jurisdiction by subordinate legislation, it is impossible to be certain how CRS will be implemented and what form the reporting by Financial Institutions ("FI" using FATCA terminology) may take. What can, however, be said with a degree of certainty is as follows:

CLASSIFICATION
CRS definitions and terminology largely follow that under US FATCA meaning that CAAs are likely to use the same terminology such as FI being a reporting entity and Active and Passive NFFEs (non-reporting foreign financial entities). In practice under US FATCA classifications, a large number of entities administered by Ocorian and its subsidiaries and affiliates fell into the classification of Active or Passive NFFEs (or Sponsored Financial Institutions) and thus did not need to register and report in their own name. However, where the entities were trusts or investment funds, Ocorian or one of its subsidiaries or affiliates was usually the reporting FI on a sponsored/sponsoring entity basis.

We fully expect the same classifications to apply once CRS has been implemented and thus, as all entities administered by Ocorian and its subsidiaries and affiliates have already had to be classified for the purpose of US FATCA, we believe that this exercise for CRS will largely have already been done, assuming the same classifications apply as mentioned above. There will, of course, have to be a review undertaken of all existing classifications to check for any variations for CRS purposes.

VERIFICATION
Under US FATCA, Ocorian and its subsidiaries and affiliates have to verify the identity of and obtain up to date passports, proof of a residential address and US tax payer identification numbers (TINs) for all those clients, including beneficiaries of trusts, having US connections ("Indicia" being the terminology used under US FATCA).

Ocorian in Jersey has now started this verification exercise in respect of clients including beneficiaries of trusts who have UK connections (UK tax residence) and who will thus be reportable under UK FATCA in 2016.  For this purpose we will be writing to all clients and any trust beneficiaries who have received distributions within the past 24 months (since 1 January 2014) and who we believe to be UK tax resident in order to obtain up to date information for verification purposes including, where appropriate, their UK tax reference numbers. This information will be needed in connection with UK FATCA reporting which is anticipated to take place in June/July 2016.

Further verification of all clients and trust beneficiaries will be required going forward, probably commencing in first quarter 2016, so as to have information, including relevant tax payer identification number for clients and trust beneficiaries in all jurisdictions which have signed up to or committed to implement CRS reporting in either 2017 or 2018 (see lists above).

REPORTING
For early adopter countries which have signed and/or committed to implement CRS reporting in 2017 (which means that such reporting will apply in respect of FI account balances as at 31 December 2016, and in respect of relevant trust distributions made during 2016) it is expected that reporting of information to local tax authorities in such early adopter jurisdictions will take place in June/July 2017, and exchange of information take place in September 2017.

For those countries which have committed (but not yet signed) to adopt CRS in 2018, relevant dates are expected to be one year further on although there is no certainty at this stage as to whether these dates will apply in respect of "second wave" jurisdictions.

KEY DIFFERENCES BETWEEN CRS AND US FATCA

  • Reportable Persons who are the relevant Account Holders in respect of FIs are defined with reference to their tax residency rather than their citizenship and tax residency.  One consequence of this is that there may be multiple reporting in the event that the reportable person is tax resident in more than one country.
  • There is no de minimis threshold for pre-existing individual account holders under CRS although there is a de minimis threshold of US$250,000 applying to existing entity accounts.
  • There is no provision for a specific compliance and monitoring regime overseen by a Responsible Officer within each FI although it is likely that the US FATCA standard will be adopted in practice for monitoring and compliance.
  • No withholding tax - CRS does not include provision for withholding tax to apply to institutions which do not have the relevant information in order to ascertain the tax residency of the reportable person in respect of an account held by such an FI.  It is, however, anticipated that domestic legislation may impose some penalty or withholding tax requirement on FIs who do not hold the relevant information for reporting purposes.

COSTS
It is inevitable that although significant costs have already been incurred in undertaking classification for US FATCA purposes, there will be significant additional costs for all entities administered by Ocorian and its subsidiaries and affiliates to ensure that the existing classifications are appropriate under CRS and that verification and reporting in accordance with anticipated CRS standards (once adopted under local legislation) is capable of being met. Ocorian and its subsidiaries and affiliates are actively working on an impact assessment of which this early notification to clients and relevant trust beneficiaries forms part.

We will be writing in individual cases to clients and relevant trust beneficiaries in respect of UK FATCA and in respect of other early adopter jurisdictions where CRS reporting is expected to commence in 2017 in the first quarter of 2016.

Key contacts