What is the common reporting standard (CRS)?
The Common Reporting Standard (CRS) is essentially a tax transparency initiative, developed as a response to the G20 request and approved by the OECD Council in 2014. It came into force on 1 January 2016, with the first reporting periods falling in 2017. Under CRS, jurisdictions are required to obtain information from their financial institutions and annually exchange that information with other participating jurisdictions. As of 1 August 2017, there were 101 participating jurisdictions.
What is set out in the regulation?
The regulation sets out details of the financial account information which needs to be exchanged and the financial institutions required to report. It also determines the different types of accounts and taxpayers covered, as well as common due diligence procedures which need to be followed by these financial institutions.
What challenges have fund managers encountered during its implementation?
The biggest challenge and, indeed, irony is the absence of a common reporting framework, as each jurisdiction determines its own reporting requirements. For example, Luxembourg requires full details of the person submitting the information, whereas Guernsey and Jersey require only registration numbers. Cayman and Bermuda stand alone in asking for institutions to submit CRS returns per reportable jurisdiction the entity has.
The list of reportable jurisdictions varies from country to country too, depending on the agreements in place between participating countries. For instance, the UK requires reporting on Austrian account holders, yet Jersey or Guernsey doesn’t. Each jurisdiction will also impose their own reporting date, which complicates matters even further, particularly given that fund structures often comprise entities across multiple jurisdictions. Some of those jurisdictions even have different deadlines for CRS and FATCA.
Tell us about some of your experiences in dealing with the different jurisdictions?
We support fund managers with their regulatory reporting requirements, so our experience covers jurisdictions typically used in fund structuring. A common theme across those jurisdictions was the very different reporting portal interface, process, requirements and rules in place. To give you a couple of examples, some portals, such as Jersey, required very little information in order to register a reporting entity, whereas Cayman required authorisation letters from the director of the entity to be filed with the tax authorities before the entity could be registered. The usability of the portals also varied by jurisdiction, with some more user friendly than others – no names mentioned!
The inconsistency also extended to dealings with the tax authorities. Some responded to queries in a couple of hours, others in a couple of weeks. Some strictly enforced deadlines, others were more flexible.
What can fund managers do to prepare themselves for the next round of reporting?
First and foremost, they need to be as proactive as possible. This means monitoring the list of participating countries for each jurisdiction and registering in advance with the portals when they become available.
Each jurisdiction’s requirements also need to be carefully examined at the outset, with any initial queries and questions raised at the earliest opportunity. This will enable any necessary system or process enhancements to be introduced and the right external advisors engaged in a timely fashion.
And, last but not least, learn from past experiences – evaluating what has worked well and what hasn’t worked so well and not being afraid to change the way you do things. Flexibility and adaptability are key.
This feature article appears in the September edition of Funds Europe – View the full publication here.