Malta: AEoI In Tax Matters – The CRS
AUTOMATIC EXCHANGE OF INFORMATION IN TAX MATTERS – THE COMMON REPORTING STANDARD
Introduction
The Common Reporting Standard (CRS) is a tool which facilitates the automatic exchange of information at a global level. The fight against tax evasion in cross border transactions has become a priority for Government around the globe.
The model CRS drafted by the OECD in 2014, is designed to facilitate the automatic exchange of financial information between Governments using standard due diligence and reporting methods. It sets out the types of financial institutions (FI) which need to comply with CRS, the accounts which need to be reviewed, the due diligence procedures which need to be performed so as to identify those accounts which are reportable and the account information which needs to be reported.
Apart from the CRS, the OECD has also published a model Competent Authority Agreement (CAA) which Governments can conclude bilaterally or multilaterally to be able to exchange information automatically. The CAAs have no direct legal force, so countries will have to implement CRS into their local legislation.
Implementation
Around 100 jurisdictions have already committed to implement CRS, with more than half being ‘early adopters’. Early adopters will be required to implement CRS as from 1st January 2016 with the first reporting and exchange of information taking place in 2017. The other jurisdictions will implement the CRS with effect from 1st January 2017 or 1st January 2018, where reporting will begin in 2018 and 2019 respectively
What is a financial institution in terms of the CRS?
A financial institution includes an entity that:
a. Accepts deposits in the ordinary course of business or similar business;
b. Holds, as a substantial portion of its business, financial assets for the account of others;
c. Is engaged (or holds itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, notional principal contracts, insurance or annuity contracts or any interest (including a futures or forward contract or option) in such securities, partnership interest, commodity, notional principal contract, insurance contract or annuity contract;
d. Is an insurance company (or the holding company of an insurance company) that issues or is obligated to make certain payments with respect to a financial account.
Practical considerations to be made by FIs
FIs will be required to implement significant new processes and procedures to identify, record and monitor on an ongoing basis details of their customers. The OECD’s commentary to the CRS sets out the minimum information which must be collected. For individuals, this includes the name, address, date of birth, tax residence/residencies and tax identification number (TIN) for each country of residence. For entities, this includes name, address, tax residence/residencies and TIN(s), CRS entity classification and details of controlling persons for passive entities.
FIs must also carry out a review of pre-existing accounts open as at close of business on 31st December 2015 (for early adopters). This is required to be done by 31st December 2016 for pre-existing high value individual accounts (those having a balance exceeding 1 million USD as at 31st December 2015), and by 31st December 2017 for all remaining pre-existing accounts. Accounts must also be monitored on an ongoing basis for changes in circumstances.
The Maltese scenario
Maltese FIs will as from 2016, be required to start reporting accounts on an annual basis to the Maltese Inland Revenue Department. This will for the time being only be applicable to account holders who are residents in other EU member states. The Maltese Inland Revenue Department will then exchange information with the tax authorities in which the account holders are tax resident.
Malta may in the future sign CRS agreements with other non EU member states. It is expected that the Maltese Inland Revenue Department will issue guidelines and rules to assist FIs in their compliance with CRS.
Conclusion
It is expected that the CRS will bring about a lot of benefits to tax authorities around the world as it will provide them with regular and timely reporting of information on tax residents who hold accounts with financial institutions in other jurisdictions. This will be a major tool in their fight against cross border tax evasion.
