In recent years governments across the globe have become increasingly aware of the level of unreported wealth individuals are holding in off shore accounts.
Introduction of the Common Reporting Standard
In an effort to increase tax revenue and counter evasion, the Organisation for Economic Co-operation and Development (OECD), an organisation committed to improving global cross border tax compliance, developed the Common Reporting Standard (CRS) in summer 2014 to enable governments to have access to information on citizens’ wealth worldwide.
Building upon other information sharing legislation such as the FATCA (the US Foreign Account Tax Compliance Act), and the European Union (EU) Savings Directive, the CRS will require the exchange of bank account details between nearly 100 countries with the ultimate goal of creating greater transparency across borders, and a single globalised reporting standard.
Countries uniting to combat tax evasion
Essentially a global FATCA, under CRS, financial institutions in partnering countries will have additional responsibilities to report interest, dividends, account balances, income from certain insurance products and sale proceeds from financial assets of their customers to their home country.
The CRS is expected to come into effect in stages from January 2016. So far 97 countries have signalled their intention to adopt the legislation, however according to a survey conducted by KPMG, only around 58 have formally committed to be early adopters from January 2016. Due to this delay, it is predicted CRS may not begin in earnest until 2017 or 2018.
CRS to increase tax revenue
Once deployed the CRS is expected to greatly increase participating countries tax revenue, although according to a recent review by the Financial Times, many countries are already benefitting as thousands of tax payers come forward voluntarily to disclose information of their assets in advance of the introduction of CRS next year. In the UK alone it has been reported that just under £1.1bn has already been raised from 5,819 voluntary disclosures.
While the new legislation has on the whole been welcomed potential loopholes such as the exclusion of safe deposit boxes have been noted, and there has been criticism that the costs of implementing the regime will prevent developing countries from participating. The new measures also do not seem to be lessening the growth of private wealth offshore which the Financial Times reported grow by 7 per cent in 2014.
UK government pledges commitment to counter tax evasion
The UK has however pledged its full support and as part of the summer 2015 budget the Chancellor George Osbourne committed over £800m in additional funding over the next five years to tackle tax evasion and non-compliance as part of a drive to raise £7.2bn in revenue.
If you have any questions on what the new CMS legislation may mean for you, or you would like advise on your taxes more generally, please get in touch with us.