Common Reporting Standard (CRS) avoidance – OECD adopts tax disclosure rules for advisors as an ‘anti-avoidance’ approach

As part of its BEPS (Base Erosion and Profit Shifting) initiative, the OECD/G20 adopted an action item to exchange information about foreign bank accounts (and the like), in a ‘common’ format, or standard (‘Common Resporting Standard’ or ‘CRS’).

As the CRS reporting, and automatic exchange, of information, about offshore financial accounts, becomes a reality, in over 100 jurisdictions this year, many taxpayers who held undeclared offshore financial assets, have come clean, to their tax authorities, which has already led to over 85 billion [USD??] of additional tax revenue being collected.

But to take this further, the OECD has announced changes to the ‘model disclosure rules’ to deal with avoidance of the CRS. On 9/3/18, the OECD announced it has issued new model disclosure rules, that require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place, for their clients, to avoid reporting, under the CRS, or prevent the identification of the beneficial owners of entities or trusts.

These model disclosure rules will be submitted to the G7 presidency and are part of a wider strategy of the OECD to monitor and act upon tendencies in the market that try to avoid CRS reporting and hide assets offshore. As part of this work the OECD is also addressing cases of abuse of golden visas and similar schemes to circumvent CRS reporting.

This is all very well, but the model disclosure rules will have to be enacted in local jursictions (it is not like the ‘Multi-Lateral Instrument mechanism, that can automatically make future changes – once legislated in the home jurisdiction).

Australia has enacted CRS reporting obligations in Subdiv 396-C of the TAA1, but it does not appear that it applies to non-financial instutions (like lawyers and accountants) or material other than account data (like advice or details of avoidance arrangements).

• The subdivision works from the OECD’s ‘CRS‘, which s396-110(1) defines  as “Common Reporting Standard set out in Part II.B of the Standard for Automatic Exchange of Financial Account Information in Tax Matters approved by the Council of the Organisation for Economic Co-Operation and Development on 15 July 2014” (the CRS Document).
• Where one of these entities has a ‘Reportable Account’, it must give the Commissioner a statement that contains the information required under under the CRS Document (s396-105(2)).
• These entities must determine whether they have any ‘reportable accounts’ under a ‘due diligence’ process (s396-105(3)).
• This obligation to report, to the Commissioner, applies to entities that are ‘Reporting Financial Institutions’ within the meaning of the CRS Document (s396-105(1)). It also applies to an institution that the Commissioner notifies, must act as if it were a Reportable Financial Institution (under s396-130(5)).
• This regime doesn’t apply to reporting American held accounts, as that is covered by the American equivalent regime: ‘FATCA’ (s396-115). The legislation for FATCA reporting is part of the same Division (subdivision 396-A).
• For the purposes of our regime, the CRS document is treated as modified (s396-120).
• There are ‘anti-avoidance’ provisions in s396-130, which don’t quite go as far as the anti-avoidance changes to the model disclosure rules. Under this section, the Commissioner can require an entity, that is not a Reporting Financial Institution, to act as if it were. It can also apply as if an account, that is no reportable, as if it were(if there has been avoidance activity). But for for both of these, the Commissioner must give the institution a notice.

[OECD website: media release; FJM; LTN 48/3/18; Tax Month March 2018]

Study Questions (answers available)

1. Has the OECD issued new ‘model disclosure rules’, obliging advisers to report any schemes they have put in place to assist clients avoid detection, under the CRS exchange of information system?
2. Is it true that the CRS regime hasn’t started and tax authorities do not expect to receive any additional revenue, until that occurs?
3. Will these new rules start to operate in Australia automatically?
4. Has the CRS regime been enacted as Australian law?
5. Is it in Subdiv 396-C of the TAA1?
6. Does the regime exclude accounts, already covered under the FATCA provisions, for accounts held by US citizens?
7. Do the anti-avoidance provisions in s396-130 already apply to advisers?

[answers:1.yes;2.no(alreadyCollectedAdditional85Billion);3.no(itMustBeEnacted);

4.yes;5.yes;6.yes;7.no(onlyInstitutions&Accounts)]