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The exchange factor

In the light of recent shocks in global politics, we have been busy reviewing changes that could impact our clients. On the agenda is the Common Reporting Standard, so let’s look at what this could mean for you in practice.

The Common Reporting Standard (CRS) is a new global reporting regime, now adopted by 100 jurisdictions, to crack down on tax evasion. Participating countries agree to exchange information on the investment income and gains of their residents. This prevents residents from avoiding tax by hiding their assets offshore.

So how does it work exactly? “Financial Institutions”, a term that here includes broader organisations than usual, gather key data on their “Account Holders”. This information is then exchanged with relevant jurisdictions, via local tax authorities.

If the new system impacts your business, now is the time to act. The CRS has already been implemented in the UK, and first reports are due on 31 May 2017. These will relate to financial accounts that were open at any time in the 2016 calendar year.

Show me an example…

Jean is a resident of Nice in France. He has an account with a Financial Institution in the UK. This Institution provides details of Jean’s account to HMRC, which then passes on his information to the French tax authority. So Jean becomes unable to hide that he has a UK account from the French government. They will know if he leaves it out of his French tax return and he may be penalised for non-compliance.

Financial Institutions that do not comply with the CRS may also be penalised in their local jurisdiction, where there will be a penalty regime in place.

How does CSR impact you?

Your next steps

I’m a UK business that provides financial services to customers…

You most likely fall under the definition of a Financial Institution. Details relating to the accounts of individuals who are resident in participating jurisdictions will need to be gathered and reported to HMRC by 31 May following the calendar year in question. For some entity clients, details of the beneficial owners will need to be reported.

You will need to review your account holders on an annual basis, particularly with a view to establishing where each one is resident for tax purposes during the year. Account holders will need to be contacted and told that their information may be disclosed to the tax authorities. 

I’m a privately owned trust or company…

If you qualify as a Financial Institution then your beneficial owners will be treated as the account holders and their details will have to be reported on an annual basis. 

If you’re not a Financial Institution, you will still have to declare your status to the Financial Institutions that you have accounts with.

Your response will depend on whether you meet the so-called “Financial Assets Test” by having both of the following attributes:

Gross income primarily attributable to investing or trading in financial assets.

Being managed or your assets being managed by a financial institution.

The first step towards compliance will be to apply this test.

I’m a charity or a not-for-profit organisation…

Some charitable organisations will be caught by these rules if they meet the Financial Assets Test, i.e. if at least 50% of their income comes from financial assets.

The UK charitable organisations most affected by these rules will be grant-making trusts making grants to non-UK resident beneficiaries, who will be reportable as account holders.

Most incorporated charities will not need to report anything but there will be some exceptions. Those that own financial assets will need to seek professional advice to determine their status.

The first step will be to determine whether you are a Financial Institution under these rules. Many of you will not be. For example, charities that receive most of their income from donations or bequests will not need to report anything. 

However, in some cases, it may be necessary to review where your income is coming from each year. The analysis may change from one year to the next if your charity owns financial assets.

If you’re unsure whether you are currently compliant with CRS, we encourage you to seek professional advice as soon as you can.

For more information or advice tailored to your circumstances, please speak to your usual Buzzacott contact or email enquiries@buzzacott.co.uk.

This article first appeared in the fourth issue of our firm-wide magazine, Beyond the Numbers. To download the full magazine, please click here

You might also be interested in… Tax planning and advice for businesses

Our corporate tax services adapt to suit clients on any scale, including fast-growth entrepreneurial businesses, intergenerational family businesses, professional practices and international groups of companies. We also work closely with our specialist not-for-profit team to provide tax compliance and advice to charities and other not-for-profit organisations.

Need worldwide tax services?

Access a whole world of know-how across 90 countries through our membership of PrimeGlobal. It’s an association made up of independent accounting firms we trust to offer the same depth of expertise you get from us in London.

If you need expatriate tax advice for employers or US tax advice in particular, our 40-strong inhouse team can help you manage cashflow, protect wealth and stay compliant.

Outsource your tax compliance

Want to be 100% sure you file the right tax information on time, every time? Tap into our in-depth knowledge to ensure you avoid penalties and stay up to speed with the latest UK tax rules.

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