Other agreements facilitating the exchange of information and limiting the tax mitigations advantages
US FACTA IGA 1A on reciprocal basis - Directive on Administrative assistance (DAC) (examples of type of exchangeable information: income from real estate, ownership of real estate) which incorporates CRS and is available to developing countries through the EU commission – New Applicable Basis Erosion Profit Shifting OECD Convention - Local regulations demanding disclosure of Beneficial Ownership in case of payment of dividends, royalties, interest to non-resident companies - Beneficial Ownership Registries (BVI, Cayman…).
The standard for automatic exchange of financial Account information in Tax Matters (“CRS”) will have tremendous tax and transparency implications, “Bloombergisation” of the information:
- By having the Reporting Financial Institutions (“RFI”) (where the clients’ financial accounts are held) collecting the relevant and targeted financial accounts information (bank accounts’ balances, closure of accounts, gross proceeds from sale of financial assets, benefits from some life insurance policies used as investments wrappers…) in a calendar year or reporting period of the reportable persons, resident of the CRS participating jurisdictions, and transmitting them to the competent tax authorities of the country of fiscal residence of these persons. The RFI will use several methods to identify the reportable financial accounts, depending on the nature of the accounts, held with them (residency test, electronic record / paper search to identify specific indicium defined in the indicia list- power of attorneys, PO BOX, Care of address, retained mail, standing orders to a jurisdiction, phone numbers given to the RFI- the relationship manager and RFI ‘knowledge could also be used to track these indicia to ascertain the tax residency of the clients of the RFI. Aggregation of accounts’ balances held, directly or indirectly, by natural persons or entities will also be implemented. Clients’ self-declarations which will identify all their fiscal residences could also be required (these statements will be made under penalty of perjury). RFI are of different natures which depend on the conducted activities and / or the part of the gross passive income generated in their turnover. Therefore a Trust, a Collective Investment Vehicle, a Foundation could also be considered as RFI and thus be subject to reporting obligations affecting their account holders (Trustee, settlors, beneficiaries, protectors…. Any person exercising an ultimate effective control in case of Trust and Foundation / or holding any equity or debt interest in case of a Fund structure…).
- By risking to have the persons (natural or legal) holding financial accounts in currently non-participating jurisdictions to be subject to the CRS in a near future once the latter has been implemented in the former jurisdiction (which has already in place international legal instruments which are supporting the signature at any point in time of an agreement between the competent authorities and the implementation of a primary and secondary legislation), which for the time being could only be collecting the financial information.
- By having the RFI committed to identify the reportable (residents in the reportable participating jurisdictions) account holders (natural, legal arrangements or legal persons) and report them to all the jurisdictions where they are residents (or deemed to be residents for legally transparent persons, partnerships…). The CRS is also looking through some entities (Passive NFE: e.g. Investment entities resident in non-participating jurisdictions, Offshore companies, Trusts, Foundations, Partnerships, Stiftungs…) until it discloses through the chain of control and ownership the identity of the controlling persons (the ultimate beneficial owners called “UBO”) to ascertain whether or not they are reportable persons. To the concept of fiscally transparent entities has been added the newly created concept of legally transparent. The legal personality of the entities are disregarded and the fiscal concept of “looking through” has been transposed and implemented to the chain of ownerships and control to reach the UBO ( which for a Trust will be the trustee, the settlor, the beneficiaries even discretionary ones, the protectors and any person exercising an ultimate effective control). The holding Investments Trusts (and similar arrangements), Collective Investments Vehicles… will be directly affected either as RFI or Passive NFE depending on their classification.
- The Passive income classification of the income generated by an entity or the holding by an entity of assets which are producing / or could produce passive income will be some of the criteria activating the legal transparency mechanism.
The transparency will be reaching a higher degree by the implementation of the Basis Erosion Profit Shifting OECD Conventions which will also encompass the non-passive companies (the active ones or trading ones) ….implementing stronger anti-avoidance rules. Beneficial ownerships registries identifying the Beneficial owners of International Business Companies (so-called offshore companies) will be created in many jurisdictions (e.g. BVI) making irrelevant in many instances the use of nominees and corporate directors. Finally the application of newly amended European Union Directives (EU Saving Directive and Mutual assistance in administrative matters) will consolidate in one register the information about the ownership of real estate held in European Union making it even accessible to non EU countries ( e.g. African countries) through the European Commission directly.