As the dust settles on the first full year of FATCA reporting in relation to both US and UK clients, you might expect financial institutions such as Peregrine to move on to more rewarding work, at least taking a break from the burden of dealing with the automatic tax information exchange assignments that have taken up so much time and resources over the last few years. In practice, there is no time to rest on our laurels as the next challenge is already looming large on the horizon in the form of the Common Reporting Standard (“CRS”).
FATCA was an initiative started by the USA with the aim of gathering information about the financial accounts of US tax payers held with financial institutions outside of the USA. The US legislation was widely adopted by countries around the world with the effect of forcing financial institutions to automatically provide the US Government with information about their US account holders. For the Isle of Man (as well as all other British Crown Dependencies and Overseas Territories) the US rules were quickly followed by an obligation to provide information about UK resident account holders to the UK authorities.
With the introduction of CRS the automatic exchange of information between tax authorities around the world will be extended to incorporate 55 countries committed to undertaking the first exchanges by 2017, and an additional 46 will join the system in 2018. It is worth emphasising what a fundamental change this will bring. By 2018 at least 101 countries will be automatically exchanging information about the financial assets of non-residents holding assets in overseas financial institutions.
To give an example of the extent of the commitment, it is expected that by 2018 the Albanian government will automatically be informed about any financial assets or investments held by its residents with financial institutions in 100 countries around the world from Anguilla to Vanuatu. 98 other countries starting with letters between A and V will undertake similar direct reporting of financial information. The reporting will be multi-lateral and it is expected that financial information will flow in each direction between 101 countries on an annual basis.
In most cases this not only involves the reporting of assets held in the personal names of individuals, but it will also include assets held in Trusts, Companies, Foundations and other structures, which is the reason it has such relevance for clients of Peregrine.
It is not entirely clear how tax authorities around the world will use this huge volume of information, but a number of countries (such as the UK and South Africa) have already introduced tax amnesties or voluntary disclosure facilities to provide residents with a “final opportunity” to disclose previously unreported offshore income and/or holdings on relatively favourable terms. The implication being that should they become aware of such matters via information received through CRS, the tax charges and penalties imposed will be much more severe.
We will continue to keep our clients and contacts informed as CRS develops to ensure they are aware of what is happening in the Isle of Man, but we must also advise that if clients have any concerns about the implications of CRS, they must contact their local tax advisors where they are resident to establish whether any action needs to be taken prior to the first automatic sharing of information under CRS in 2017.
Through the international networks and alliances with which Peregrine is involved, we have developed professional contacts around the world with the expertise to assist in such matters, and we would be delighted to make any introductions or recommendations that may be required.
Much more information about CRS is available on the OECD website and should you wish to discuss any issues with Peregrine, you can contact Stuart Foster or Nick Kelly who have been the directors most closely involved with FATCA and CRS in this office.
Peregrine Corporate Services is licensed by the Isle of Man Financial Services Authority.