Exchange of Information

COMMON REPORTING STANDARD FOR AUTOMATIC EXCHANGE OF INFORMATION

Introduction

The Common Reporting Standard (CRS) for Automatic Exchange of Information was introduced in an effort to combat tax evasion and tax avoidance. In total 96 countries (participating jurisdictions) signed so far the CRS with introduction of the CRS as from 1st of January 2017 for 55 countries covering the year 2016 and as from 1st of January 2018 for 41 countries covering the year 2017.

These countries will be exchanging information between them for taxpayers having accounts in other countries which signed the CRS i.e. a participating jurisdiction will be automatically exchanging information for a taxpayer of other participating jurisdiction.

The information regarding taxpayers of the other participating jurisdiction will be given by the Financial Institutions of the relevant participating jurisdiction. Financial institutions include a custodial institution that holds assets for the account of others, a depository institution that accepts deposits i.e. banks and an investment entity that trades and handles portfolio on behalf of its clients.

Reportable person

A reportable person is a taxpayer resident in a participating jurisdiction and it includes an individual, an entity (company, partnership, funds, foundations) or any other similar legal arrangements but excluding public companies, financial institutions and any government entity. There is obligation to look through for passive entities and report on controlling persons who are resident in other participating jurisdiction. A controlling person is defined as the natural person who controls directly or indirectly on the entity at least 25% of the voting rights or exercise control by holding the position of senior managing official.

Reportable Account

The Financial Institutions will report the following accounts in relation to the reportable person:

1. Interest earned during the year.
2. Dividends credited to the account.
3. Accounts closed balances.
4. Any sale proceeds from disposal of financial assets. 5. Other income credited from financial assets.
6. Income from certain insurance products.

Active Non-Financial Entity

This is the entity that actively operates on trade or business and satisfies the following criteria:
1. More than 50% of prior year’s gross income generates from trading activities and more than 50% of the assets held in prior year produce active income.
2. The shares of the entity are traded on a stock exchange or related to an entity regularly traded on a stock exchange.
3. If the Company is a holding company or provides financing to one or more subsidiaries then the subsidiaries should engage in trade or business that is active.

Pre-Existing Accounts and New Accounts

Pre-existing accounts are those accounts that exist as at 31 December 2015.
New accounts are those accounts which are open as from 1st of January 2016 and onwards.

Due Diligence for pre-existing high value individual accounts of more than US$1.000.000 will need to be completed by 31 December 2016 and for low value pre-existing individual accounts by 31 December 2017.
Due Diligence for pre-existing entity accounts for more than US$250.000 will need to be completed by 31 December 2017. Pre-existing entity accounts of less than US$250.000 are excluded.

Full due diligence will need to be carried out for new accounts opened from 1st of January 2016 and are all reportable for both individuals and entities with no exceptions.

Timing for exchange of information

The first exchange of information will be carried out by the end of September 2017 and will include the new accounts and pre-existing individual high value accounts.
The second exchange of information by the end of September 2018 will include also the pre- existing individual low value accounts and pre-existing entity accounts.

Information to be exchanged

The information to be exchanged will include for every account holder the following details:

Name, address, jurisdiction(s) of residence, Tax Identification Number (TIN), date and place of birth for individuals, account number, financial institution maintaining the account, and financial information like closing balance, interest, dividends, sale proceeds from disposal of any financial asset etc.

This information will be exchanged by the competent authority of each participating jurisdiction in which the Financial Institutions should register.

Cyprus Reporting Requirements

The Minister of Finance issued a decree on 31 December 2015 with which he incorporated the CRS into the domestic legislation with date of entry into force since 1st of January 2016. This means that the first exchange of information should be executed by the Cyprus authorities by 30th of September 2017 in relation to the year 2016 information.

The automatic exchange of information does not mean that information cannot be exchanged with non-participating jurisdictions in the CRS since exchange of information can be also given upon request or spontaneous.

Conclusion

The situation is changing globally and countries are trying to safeguard their tax base and are taking measures to combat tax evasion and tax avoidance. It has also nowadays become important for an entity to have substance in the country in which it operates in order to avoid being challenged for dual tax residency.

CPV Audit is ready to assist with any questions you may have on the CRS system and to explain you any implications by the introduction of the CRS system.

Antonis Chrysanthou FCCA, ADIT

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