Many people in Cyprus who hold a bank account in the UK may have received, or will soon get, a letter from their bank asking them to self-certify their tax status. This may come as a surprise to some, whilst others will regard such a request with suspicion. However, this is now a necessary compliance procedure for the citizen of any country which has signed up to CRS – the Common Reporting Standard.
CRS is a standard for the automatic exchange, on a global level, of information about tax and financial holdings, developed in 2014 by the OECD (Organisation for Economic Cooperation and Development). Modelled on the US FATCA (Foreign Account Tax Compliance Act) legislation, the main purpose of CRS is to combat tax evasion.
As of August 2017, 102 countries have signed up to the standard, with 49 jurisdictions undertaking the first exchange in 2017, and the remaining 43 committing to 2018. In addition, the USA is undertaking automatic information exchange under the FATCA legislation.
While CRS has been criticised in some quarters for leaving open too many loopholes, the exclusion of a number of developing countries from its provisions, and for promoting, rather than preventing the use of tax havens, its introduction can be seen as a major step forward in the global fight against tax evasion.
The information to be exchanged is governed by a very detailed standard but, in essence, the following will be shared with respect to accounts held in Jurisdiction A by a tax payer resident in Jurisdiction B, and vice versa.
- The name, address, Tax Identification Number (T.I.C. in the case of Cyprus), place and date of birth of each Reportable Person;
- Account Number;
- Name and identifying number of the reporting financial institution; and
- Account balance or value as at the end of the relevant calendar period, or at the date of closure (in the event the account was closed).
The OECD has left it up to each jurisdiction to determine what accounts are reportable under the standard. However, to all intents and purposes, you can assume that if you hold an account in a bank or financial institution in another participating country within CRS, then its existence and value will be reported and shared with the relevant authorities in the country in which you are tax resident.
It also means that if you open a new bank account, invest in new financial products or change your personal circumstances in some way, then you will need to report certain details about yourself under the self-certification process.
Financial institutions are legally required to determine the tax residency status of all their customers, even if they are tax resident in the same country in which they hold their account (although typically in such cases details do not have to be reported to tax authorities for CRS purposes). The legislation applies to both personal and business customers, with sole traders treated as individuals for reporting ease.
Of course. individuals may be concerned about data privacy and security, given major cyber attacks and information leaks in recent years. Banks and other financial institutions will, naturally, assure their customers about their codes of secrecy and data protection protocols, but, cynics will point out, too often these have been breached in the past to offer complete peace of mind. Nevertheless, CRS reporting is here to stay.
Even if you choose to ignore the request for self-certification, the bank or financial institution concerned will use the information they already hold about you to try and establish your tax resident status. As this could have unfortunate consequences of the wrong information being shared with the wrong authorities, it is better to confront the situation upfront and self-certify yourself.
For many, even those not involved in tax evasion, CRS can be regarded as an unwelcome intrusion into areas they regard as private, namely details concerning their bank accounts and financial holdings. Nevertheless, CRS can be regarded as the next step on the road to global transparency with regard to tax and financial affairs. As such, if not welcomed, it needs to be at least accepted.