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Common Reporting Standard ("CRS") how do you feel?

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Contributed by Palladium
28 December, 2016


As we enter into the brave new world of the CRS I have spoken to many practitioners who seem as bewildered as the others about how we got here and where it is leading. While the ostensible aims of the CRS are without question morally correct, which includes preventing unlawful non-payment of taxes due by private citizens, its methodology seems often flawed since it relies on human beings and their governments to implement.

The process by which information is transferred is a  first  issue  to  raise.     Depending  on  the  CRS

agreement a country has in place, either its tax authorities or its banks – and their employees – are charged with the duty of transferring the information. This allows for some flexibility as to what information is communicated, especially when left to a banks or trust provider's discretion (one potential failing), and this shortcoming is compounded by the fact that the laws are fiendishly complex and difficult to interpret. Furthermore, the burden of this information sharing is placed on trust or corporate service providers, banks, accountants and so on and they are often loathe, or not permitted, to pass on this seemingly arbitrary cost onto their clients who are being charged to have their right to privacy somewhat diminished.

Perhaps more pernicious is the use of the information by the recipient of the tax (read: financial) information in jurisdictions with reputedly corrupt or even criminal governments with a long history or involvement in rigged legal proceedings, undue taxes being levied on – or even kidnapping or worse of – wealthy (and often powerful) individuals or families.

These are a couple of oft cited grey areas which the CRS evokes in practitioners and their clients and I wonder where you the reader, think this is going.

Some argue that the core of the current Anti Money Laundering regime (the CRS' precursor?) sprung out of legislation implemented hastily after the atrocities of 9/11/2001 (eg Patriot Act in the US or Proceeds of Crime Act in the UK). What the CRS is and how it functions in its current guide probably would in the main have seemed draconian and unacceptable to private citizens in 2000; now however it has caused little outcry in mainstream media, unless we are mistaken.

This information collection drive, of course, is occurring in an era with one of the least faith placed by private citizens in their governments and the system they command and protect. Apologies for labouring the point made so regularly but look and hear what is happening with Brexit/UKIP, the rise of the far right in France, Germany, Hungary, Holland, potential break up of the EU, Brazil's political mire, and dare I mention the self-publicist extraordinaire DT and the US' consequent (presumed) trajectory. Private citizens are revolting also commercially by widespread use of disruptive technology which relies on borderless shared networks to function rather than an overbearing nation state. Note that the extent to which taxes are often – allegedly – immorally avoided by the latest app!

Are we at an inflection point where the erosion of private rights will cease after the CRS and the public will refuse to divulge more information (see later on 'Trial by media')?

Most of our clients, whether from 'developing' or 'developed' countries, complain that once a tax authority decides you are a target and have the resources (this is a key point), the tax authority exploits the continued distress and uncertainty of outcome in reaping more than the due taxes owed (whatever the original reason) – and it is difficult to foresee that the CRS will alter this modus operandi of tax assaults.

This is dare I write a commercial way of tax authorities using the knowledge available to them, however I ask you whether you think the CRS will overstep the mark in its ultimate deployment and whether the rights of individuals should be forsaken in this way?

Most importantly any constructive suggestions on a more sensitive path forward would be welcome...

Meanwhile as a final point, it's worth mentioning that tax authorities are now not the only people to which clients feel they must be accountable to.   'Trial by media' over personal tax affairs is now a genuine fear for many high profile clients.  There have been numerous cases of celebrities being named and shamed in the press about their use of (legal but some say 'immoral') tax avoidance. For example, do you recall how the memory of David Cameron's father was dragged through the mud following the Panama Paper leaks – in this case, the maligning of the arrangement was surely not fair given all due tax was properly declared and reported. Further, the information disclosure itself by the consortium of journalists resulted from a receipt of stolen property which in every country I know of is a criminal offence.

Tax has become such a publicly 'moral' issue such that no high profile client wants to be seen to complain about the CRS or be seen as "non-compliant". In essence, may they have been gagged by the media?  Many clients are happy to co-exist with the CRS system so they may be portrayed as 'clean' and 'above board'. At the other end of the spectrum, beyond fear of kidnap and murder, clients are further preoccupied that any leak from the tax authorities following implementation of CRS may lead to their financial affairs becoming headline news, irrespective of the legality and perceived morality of the 'why'.

Maybe in this enlightened age we should all just publish our tax returns?




While I agree with the spirit of the piece that this is a huge invasion of privacy, I do not see it being repealed on those grounds. If there were a successful challenge to CRS under the EU data privacy regime, I see that as more likely to result in the collapse of the EU than in the repeal of CRS.

If reporting is here to stay, then the key is to control your own destiny as much as possible. Under FATCA, register and get a GIIN. File your own reports. Decide for yourself which entities have US owners and whether a position is available that some do not. If there are US owners, determine for yourself the reportable amounts to ensure that these amounts match the amounts on all other US tax reporting. Similarly, under CRS, strive to have all entities be Financial Institutions. This may require opening multiple accounts with discretionary mandates so as to be an investment entity. While adding to administrative costs and burden, this permits each entity to file its own CRS reports. Again, this allows entities to determine who is reportable and what amounts are transmitted rather than relying on banks to make these determinations. It also permits use of the more rationally defined Account Holder rules rather than implicating the amorphous and confusing concept of Controlling Person.

taxguru2 months ago.

 

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