What is the Common Reporting Standard?
Common Reporting Standard or CRS was conceived by the anti privacy tax zealots at the OECD.
CRS seeks to eliminate what is left of privacy in our financial dealings. It is an agreement initially signed by all the OECD member countries plus Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa. All the signatory countries have agreed to share bank account information with the home tax authority of account holders in their countries.
For example if you have are a resident of the United Kingdom and you have an offshore account in Monaco the bank in Monaco will send the balance of your once secret account to the UK tax authorities.
Bank accounts in Switzerland haven’t been secret for years now but with CRS if you’re a German resident hiding your money in Zurich the Swiss bank will send your bank balance once a year to the German authorities.
This is a scandalous invasion of privacy and it’s getting worse every year as new countries are persuaded to sign up to the scheme. The United States has it’s own scheme called FACTA which obliges banks in almost every country to send information on US account holders to the US authorities.
There are still a few countries where you can open bank accounts that will not snoop on your account for your home tax authority but the list is getting shorter every year.
Some countries, such as Hong Kong, are signed up to CRS but have opted not to receive any information. If you are a resident of Hong Kong and you have a bank account in Switzerland, Hong Kong doesn’t want to know anything about it. However if you’re Italian with a secret account in Hong Kong, the bank in Hong Kong will send your details to the Italian tax authorities.
It is surprising how many people are still unaware of CRS more than 2 years after it’s implementation. I suspect some people will be scratching their heads wondering why the tax man is contacting them about an account they thought was secret.
There are a number of strategies to avoid CRS and keep your affairs secret. These strategies include:
Having a Tax Residency in a Country that does not tax foreign income such as the Hong Kong example.
Opening an account in a country that is not part of CRS. There are still more than 50 countries that are not part of CRS.
Using an Offshore Company (This must be structured carefully and requires some planning)
Using a Trust or Foundation so that you are not the beneficial owner of the account.
As you can see life is not as simple as it was 20 years ago for those seeking financial privacy. It requires ever more careful planning to make sure that your affairs remain private.
The good news is that there are a number of creative strategies that can achieve that goal. Do not make an offshore plan or open an offshore bank account without considering the implications of CRS.