CRS (Common Reporting Standards) / AEOI (Automatic Exchange of Information)
CRS (Common Reporting Standards) has and will continue to have significant and wide-reaching implications (more than 152 countries have committed to it already) in relation to tax and banking transparency by implementing an automatic disclosure of the identity of the ultimate beneficial owners and beneficiaries of offshore companies/bank accounts / Trusts / Foundations to your local taxing authority, without them having to demand the information to the tax authorities of the countries where the offshore company / Trust / Foundation/ Bank account’s financial assets are held.
“CRS will therefore have serious and wide ranging implication for all off-shore structures which hold bank accounts.”
1. WHAT ARE THE PRINCIPLES?
CRS (Common Reporting System) has and will continue to have significant and wide-reaching implications (more than 152 countries have committed to it already) in relation to tax and banking transparency by implementing an automatic disclosure of the identity of the ultimate beneficial owners and beneficiaries of offshore companies/bank accounts / Trusts / Foundations to your local taxing authority, without them having to demand the information to the tax authorities of the countries where the offshore company / Trust / Foundation/ Bank account’s financial assets are held.
The local tax authorities are receiving and shall receive information about their residents who are holding, directly or indirectly, assets abroad without having to identify these residents, their assets, the holding financial institutions nor the countries where the assets are held.
The local tax authorities are receiving and shall receive information about their residents who are holding, directly or indirectly, assets abroad without having to identify these residents, their assets, the holding financial institutions nor the countries where the assets are held.
2. THE ADDITIONAL DISCLOSURE CONVENTIONS
Finally, the application of newly amended European Union Directives (EU Saving Directive and Mutual assistance in administrative matters) will consolidate in one register and make available the information about the owners of real estate held in the territory of the European Union. This information will be made available to non-European countries (e.g. African countries) through the recourse to the European Commission directly ( e.g. to avoid the tax authority of one African Country to question every single European country whether one of its residents holds immovable property in any of these countries).
3. THE MECHANISM: OVERVIEW OF THE REPORTING
4. THE AUTOMATIC EXCHANGE PARTNERS
5. THE REPORTABLE PERSONS are resident persons (legal entities, arrangements and natural persons) in CRS Participating Countries and controlling natural persons of passive entities residing in CRS Reportable Countries. This “Entities Look through Mechanism” will apply even if these entities are not resident in the CRS participating countries as long as they have financial assets held in them.
6. IDENTIFICATION OF THE FISCAL RESIDENCE: the identification could be done manually or electronically through a list of indicia amongst which: utility bills, residency permit, retained mail procedure, standing orders to participating jurisdiction, phone numbers are given to the reporting financial institutions, the knowledge accumulated through the last 5 years by the reporting financial institutions about the account holder’s tax residence status, an account holder’s self-certification by which the account holder will be confirming his tax residence (s) (a person could have more than one fiscal residence, an exhaustive list of all the tax residencies of the person must be provided under penalty of perjury). It will also be achieved through the Bank Relationship Manager who will have a duty to report any indicium in this respect.
7. DEFINITION OF PASSIVE ENTITY & PASSIVE INCOME: An entity is classified as a passive entity, unlike an active entity, when more than 50% of its income is a passive income or more than 50% of its assets produce or are in nature to produce passive income (e.g. cash not being invested to not produce any income). Passive income is any investment income such as dividends, interests, royalties, cash value or Annuities insurance contracts, securities (bonds, stocks…), investments’ income, proceeds from the sale of financial assets, derivatives, options, swaps…
8. EXAMPLES OF REPORTABLE PERSONS: In the case of a Trust/ Foundation/Stiftung/ Partnership or any similar arrangements: the trustee, the settlor (even if “hidden” behind an entity), the beneficiaries (including discretionary beneficiaries plus those “hidden” behind an entity), the protectors and any person exercising any ultimate effective control will be considered as equity or account holders. In the case of Private Equity Funds classified as a financial institution: any person holding any debt or equity interests in it. In the case of legal entities: any controlling person or beneficial owner. Any person who exercises ultimate effective control through direct or indirect chains of control and ownership, any other means (debt financing, convertible bonds, convertible debts, different class of shares) or holding in last recourse senior position within the legal entity.
If you wish to discuss the CRS/ AEOI: Automatic Exchange of Financial Account Information, or any other legal entity, feel free to contact us.
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