Australia’s entry into the OECD Common Reporting Standard Multilateral Competent Authority Agreement means that Australian financial institutions will have to comply with FATCA-like obligations in respect of account holders resident in more than 90 jurisdictions. The obligations under the Common Reporting Standard (CRS) will be broadly based on, but not identical to, the FATCA due diligence and reporting obligations imposed on foreign financial institutions.
Common Reporting Standard
Yesterday Australia signed the OECD Common Reporting Standard Multilateral Competent Authority Agreement "to catch taxpayers using hidden offshore bank accounts to evade Australian tax".
In a media release, Federal Treasurer Joe Hockey said the Agreement, which enables the automatic exchange of common reporting standard information between countries, is "key to cracking down on those who deliberately try to avoid paying their fair share of tax".
The CRS will impose similar due diligence and reporting obligations on financial institutions to the U.S. Foreign Account Tax Compliance Act (FATCA), in respect of financial accounts owned by residents of any OECD member country that has committed to the CRS. The Australian Taxation Office will automatically receive information on investment income and balances of financial accounts held by Australians in other countries and use it to check income declared in Australian tax returns.
Differences between CRS and FATCA
The CRS is largely based on the FATCA Model 1 intergovernmental agreement. Significant differences include the following:
- the definition of “Reporting Financial Institution” is broader under the CRS than under FATCA;
- even though you do not maintain financial accounts under FATCA, you may maintain financial accounts under the CRS;
- as the CRS will require a broader range of information than FATCA, and more than 90 countries have committed to the CRS, significant changes may be required to your systems; and
- you will be required to perform due diligence on certain investment entities established in non-CRS jurisdictions and report on any relevant controlling persons.
Before the CRS can apply in Australia, the Government must pass implementing legislation to give it the force of law and overcome privacy law concerns.
Although due diligence obligations commence earlier for certain “early adopter” countries, Australia has announced it will implement the CRS from 1 January 2017 and first exchange information in 2018.
Earlier this year, Australia signed a declaration with Switzerland for the automatic sharing of CRS information. This was on a bilateral basis.
You should start your CRS preparations now.