The Common Reporting Standard (CRS) is being introduced in 2017 and will significantly change the degree to which global financial institutions exchange sensitive financial information about their customer base. The US has notably abstained from adopting the CRS and as such, evolves into an increasingly more attractive jurisdiction for banking secrecy and asset protection.
What is the CRS?
The CRS is a reporting standard for the automatic exchange of information developed by the Organisation for Economic Co-operation and Development (OECD) as part of a coordinated global initiative to combat tax evasion. The agreement requires financial institutions in participating countries to reciprocally collect and report financial information regarding local account holders, including taxpayer identification data, account balances, asset composition, and items of annual income (such as interest, dividends, capital gains).
Who are the participants?
The first wave of countries implementing the CRS in 2017 includes most European Union members and certain jurisdictions traditionally used as offshore havens, such as the Cayman Islands, Bermuda, British Virgin Islands, Gibraltar, Luxembourg, and Malta.
A second wave of countries will implement the CRS in 2018, including those in the Asian Pacific and Middle Eastern regions, as well as Russia, Switzerland, Australia, and the remaining European Union members.
In total, over 100 countries have committed to adopting and enforcing the CRS.
What about the US?
The US has rejected the CRS on the basis that it already utilizes the Foreign Account Tax Compliance Act (FATCA), a reporting regime aimed at US persons with offshore accounts. FATCA is much narrower in scope than the CRS and imposes withholding tax where applicable financial information is not exchanged with respect to international investments held by US persons. Though the US generally reciprocates by providing similar information to foreign countries, it is not obligated to do so under the FATCA guidelines.
By resisting the CRS, the US is providing a potential shield against international financial disclosure requirements and is consequently becoming an increasingly favorable location for banking secrecy and asset protection. This has resulted in a marked upswing in the migration of accounts from offshore haven countries like the Bahamas and Switzerland to the US.