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No More Secrets: A Guide To The Common Reporting Standard

By Lowtax Editorial
07 January, 2016

Automatic exchange of information for tax law enforcement purposes started first in Europe with the EU Savings Tax Directive, went international with the US Foreign Accounts Tax Compliance Act, and, from 2017, will go global with the recently-agreed Common Reporting Standard, the subject of this feature.

Introduction To The Common Reporting Standard (CRS)

The Common Reporting Standard (CRS) provides for annual automatic exchange between governments of financial account information. The Standard sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

In a sense, the CRS is not a "new" initiative started from a blank canvas. Many of the systems that will enable information to the sent and received under the Standard are already in place under existing information exchange protocols. All the CRS really does is standardize these mechanisms via an internationally-agreed multilateral competent authority agreement. What is new is that governments around the world have accepted the need for such information to be exchanged automatically, rather than on request.

Background To The CRS

Against a backdrop of rising public anger about tax avoidance and evasion, stoked by media reports about the tax planning techniques used by wealthy individuals and corporations, the G20 finance ministers endorsed automatic exchange as the new tax transparency standard on April 19, 2013. In June that year, the G8 welcomed the OECD Secretary General report "A step change in tax transparency" which set out the concrete steps that needed to be undertaken to put a global model of automatic exchange in practice. The G20 leaders then committed to automatic exchange of information as the new global standard in September 2013.

On February 23, 2014, the G20 Finance Ministers endorsed the Common Reporting Standard for automatic exchange of tax information, now contained in Part II of the full version of the Standard.  In May 2014, the OECD Declaration on Automatic Exchange of Information in Tax Matters was endorsed by all 34 member countries along with several non-member countries. More than 65 jurisdictions publicly committed to implementation, with more than 40 having committed to a specific and ambitious timetable leading to the first automatic information exchanges in 2017 (known as "early adopters").

The OECD released the full version of the Standard for Automatic Exchange of Financial Account Information in Tax Matters on July 21, 2014. This calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis. The Standard was approved by the OECD Council on July 15, 2014.

On September 22, 2014, the Global Forum on Transparency and Exchange of Information for Tax Purposes delivered a Roadmap to the G20 Development Working Group which is for developing country participation in the new OECD Standard on the automatic exchange of financial account information. This Roadmap is part of the efforts to curb multinational tax avoidance and offshore tax evasion in developing countries.

On October 29, 2014, 51 jurisdictions, 39 of which were represented at ministerial level, signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Subsequent signatures of the agreement, including a signing ceremony on the margins of the OECD Ministerial meeting of June 2015, brings the total number of jurisdictions to 61 (see below). This agreement specifies the details of what information will be exchanged and when, as set out in the Standard.

Why Is There A Need For Such A Standard?

According to the OECD, today's globalized, almost borderless, world of finance makes it a lot easier for people who want to hide their money abroad in order to evade tax. "Vast amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply with tax obligations in their home jurisdiction," the OECD observes. "Countries have a shared interest in maintaining the integrity of their tax systems. Cooperation between tax administrations is critical in the fight against tax evasion and in protecting the integrity of tax systems. A key aspect of that cooperation is exchange of information."

Another advantage of having a common global reporting standard is that international information exchange systems will be standardized, lowing administrative costs for all concerned. At present, there are numerous procedures in place for tax authorities to exchange information with each other. These include bilateral double taxation avoidance agreements, regional initiatives like the European Savings Tax Directive, and international agreements such as the OECD Multilateral Convention. "A proliferation of different and inconsistent models would potentially impose significant costs on both government and business to collect the necessary information and operate the different models," the OECD states.

From Exchange of Information On Request To "Automatic" EoI

Countries that have signed up to the CRS will exchange information "automatically" with one another. This represents something of a step change in international tax enforcement. Traditionally, information about an individual or business has been sent from one tax authority to another on request, based on evidence that tax fraud or some other crime has taken place. The EU could be said to have led the way on automatic information exchange under its Savings Tax Directive. However, the United States Foreign Account Tax Compliance Act (FATCA) was the real game-changer in international tax compliance, in that it became the first global automatic exchange of information program, and the inspiration behind the CRS.

In summary, "automatic" exchange of information will entail the systematic and periodic transmission of "bulk" taxpayer information by the source country of income to the country of residence of the taxpayer concerning various categories of income or asset information.  The information exchanged is normally collected in the source country on a routine basis, generally through reporting of the payments by financial institutions and other payers.

Basis Of Information Exchange

While there are technical similarities between the CRS and FATCA, there are some key differences, mainly that US-specific rules have been removed from the Common Reporting Standard. For instance, FATCA is based on US citizenship, a concept fundamental to the US tax system, whereas the CRS is based on residence. Also, unlike FATCA, the CRS does not provide for thresholds for pre-existing individual accounts, but it includes a residence address test building on the EU savings directive. Additionally, the CRS has special rules dealing with certain investment entities where they are based in jurisdictions that do not participate in automatic exchange under the standard.

Information To Be Exchanged

The financial information to be reported with respect to reportable accounts includes interest, dividends, account balance, income from certain insurance products, sales proceeds from financial assets and other income generated with respect to assets held in the account or payments made with respect to the account.

Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement that financial institutions "look through" passive entities to report on the relevant controlling persons.

The financial institutions covered by the standard include custodial institutions, depository institutions, investment entities and specified insurance companies, unless they present a low risk of being used for evading tax and are excluded from reporting.


The OECD assures us that the standard contains specific rules on the confidentiality of the information exchanged and that the underlying international legal exchange instruments already contain safeguards in this regard. Where these standards are not met (whether in law or in practice), countries will not exchange information automatically.

Time will tell how watertight the system is in practice, however.

Financial Institutions Add Up The Costs

After the billions of dollars spent by financial institutions on preparing for FATCA, the CRS is expected to represent another bureaucratic and financial headache for financial services providers. Presumably, after FATCA, many FIs will now have some of the systems in place to report the necessary information to their local tax authority under the CRS.

Simon Leach, financial services tax partner at PwC, observed after the CRS was released by the OECD last year: "Automatic exchange of information is crucial in the continuous fight against tax evasion but the new regime will mean significant costs for financial institutions as they have to modify and build systems to meet their obligations."

"Though based on FATCA, the CRS does vary in certain areas and this will also present challenges for organizations as they continue to implement these measures to promote tax transparency. Until this further detail emerges around implementation, and the impact of the differences between the two models is understood, financial institutions will face continued uncertainty as they seek to ensure they are in compliance with these regimes."

However, this isn't a simple matter of cost. Fearing the legal consequences of not meeting the FATCA requirements to the letter, many banks and other FIs have simply stopped providing services to US clients. The full consequences of the CRS have yet to be played out, but could we reach a point where some FIs refuse to do business with foreign clients altogether, if the administrative and legal costs of doing so are too high? That remains to be seen.

Signatories To The Standard

By December 21, 2015, a total of 78 countries and territories had signed the CRS MCAA, including:

Albania, Andorra, Anguilla, Antigua and Barbuda, Argentina, Aruba, Australia, Austria, Barbados, Belgium, Belize, Bermuda, British Virgin Islands, Bulgaria, Canada, Cayman Islands, Chile, Colombia, China, Colombia, Cook Islands, Costa Rica, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Ghana, Gibraltar, Greece, Greenland, Grenada, Guernsey, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Italy, Japan, Jersey, Korea (South), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, Netherlands, New Zealand, Niue, Norway, Poland, Portugal, Romania, St. Lucia, St. Vincent and the Grenadines, Samoa, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turks and Caicos Islands, and the United Kingdom.


It is envisaged that the first automatic information exchanges under the CRS will begin in 2017. However, the OECD itself admits that the current timetable is "ambitious" because many countries, especially in the developing world, do not currently have the administrative and technical mechanisms in place to meet the standard, nor the resources to build them. Therefore, with the assistance of the rich countries, it will probably take several more years before the CRS is a truly global information exchange network.


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