The standard automatic exchange of financial account information in tax matters, known as the Common Reporting Standards (“CRS”), will implement an automatic disclosure of the identity and details of the ultimate beneficial owners to domestic local tax authorities. The Domestic tax authorities will automatically and systematically receive information about their residents who are holding, directly or indirectly through legal arrangements or entities, assets offshore without having to identify these residents, their assets, the holding financial institutions nor the countries where the financial assets are being held. It is then crucial to be in compliance with CRS.
*It will be noted that many of the well-established off-shore jurisdictions have signed up to the CRS and are therefore participating jurisdictions.
*The listings in paragraphs II and III above can vary. Please note that Kenya has recently adhered to CRS.
Non participating Countries may risk to be “blacklisted”, denied the use of Nostro Accounts or access to international cross boarding financing. The majority of African jurisdictions should sign up to CRS in 2019 and soon thereafter. The Risk will be to face Ready to report Financial Accounts information, upon entering into CRS agreements, of reportable persons who are account holders in Financial Institutions of future CRS participating jurisdictions which are already signatories to existing Double Tax Conventions, TIEA
Definition: Custodian institutions, Depository institutions, Banks, Specified Life Insurance companies, Some Trusts and Some private equity funds resident in reportable jurisdictions.
Role: The Reporting Financial Institutions will collect the financial accounts information (bank account balances, closure of accounts, benefits from some life insurance investments wrappers policies…) of their reportable account holders in a calendar year and transmit them to the tax authorities of the countries of fiscal residence of these persons, who could have more than one fiscal residence which will imply several reporting for the same person.
Resident persons (legal entities or arrangements and natural persons) in CRS Participating Countries, and,
Resident controlling natural persons, in the CRS Reportable Countries, of passive entities. This “Entities Look through Mechanism” will apply even if these entities are not resident in the CRS participating countries as long as they have financial assets held in them.
An entity is classified as a passive entity, unlike an active entity, when more than 50% of its income is a passive income or more than 50% of its assets produce or are in nature to produce passive income (e.g. cash not being invested to not produce any income).
Passive income is any investment income such as dividends, interests, royalties, cash value or Annuities insurance contracts, securities (bonds, stocks…), investments’ income, proceeds from sale of financial assets, derivatives, options, swaps...