OECD - CRS Mandatory disclosure rules incorporated into local law in Guernsey
Guernsey is one of the first jurisdiction transpose OECD Mandatory disclosure rules on CRS avoidance arrangement into law
The States of Guernsey Revenue Services on 11th March 2020, released the
The Regulations incorporates the OECD (2018) Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures (“Mandatory Disclosure Rules”) into local law and supplement the Common Reporting Standard on the Automatic Exchange of Financial Account Information in Tax Matters ("the CRS") approved by the Council of the OECD and published by the OECD on the 15th July 2014 .
What is a CRS avoidance arrangements?
The Regulations defines CRS avoidance arrangements as “any arrangement which it is reasonable to conclude, is designed to circumvent or is marketed as, or has the effect of, circumventing the CRS Regulations”.
CRS Avoidance arrangements includes (non-exhaustive list)
the use of accounts, products or investments that is not, or purports not to be, a Financial Account, but has components that are substantially similar to those of a Financial Account;
the classification of payments made for the benefit of an accountholder/beneficial owner or controlling person as a payment that is not reportable under the CRS regulation
the transfer a Financial Account, or the monies or Financial Assets held in a Financial Account to aFinancial Institution that is not a Reporting Financial Institution; or a Financial Institutions located in a non-reportable CRS Jurisdiction and thus not exchange financial account information; or
procedures designed or has the effect of undermining the due diligence procedures to correctly identify an Account holder and/or Controlling Person or all the jurisdictions of tax residence of an Account Holder and/or a Controlling Person
The Regulations requires intermediaries (financial institutions (FI’s), financial service provider (FSP’s)) to disclose such arrangements “within a 30 days period make the CRS avoidance arrangement or opaque offshore structure available for implementation or, provided relevant services in respect of such services or structure” (Regulations – Page 8, Paragraph 4)
The regulations are retrospectively
CRS Avoidance arrangements “implemented on or after 29th October 2014 but before the date of the commencement of the Regulations shall disclosed within a period of 180 days beginning on the date of commencement of the regulations” (Regulations – Page 8, Paragraph 10. (1)).
The Regulations exclude such pre-existing arrangements from disclosure “where the promotor has documentation to demonstrate that the aggregate balance or value of the financial account subject to the CRS avoidance arrangement immediately prior to its implementation was less than US $1,000,00”. (Regulations – Page 8, Paragraph 10 (4)).
It is unambiguous that the new regulations impacts the existing Compliance Frameworks and Polices, AML/KYC and Client Due diligence Processes, Product offering, operations and reporting procedures.
FI's and FSP's needs to
investigate into their current businesses to identify arrangements implemented or transactions performed on or after 29 October 2014 arrangement and to
strengthen already existing compliance frameworks, policies AML/KYC procedures and transaction monitoring systems to identify transfers of accounts or financial assets
which can be interpreted as CRS avoidance arrangement.
The authors observation
The Mandatory disclosure rules are another cornerstone to increase international tax transparency and to combat tax evasion through the use of offshore accounts.
It can be expected that other CRS participating jurisdictions follows rather sooner than later Guernsey’s approach and implement the Mandatory disclosure rules to stay compliant within the international community.
FI's and FSP's located in Financial Centers outside the European Union (e.g Hong Kong, Singapore) should consider to have appropriate resources available to launch projects allowing them to implement adequate measures to fulfil the Mandatory disclosure agreements rather sooner than later.
Even it seems that this topic is not very high ranked on the current political agenda.
But the history has shown, that financial centre outside the EU can come quickly into the focus of the EU's anti-tax-avoidance package and the governments might introduce measures on a short notice.
About the Author
Marco is a certified Banker, qualified MBA (finance and accounting) and qualified LLM (international business and tax law) offering 30+ years of working experiences within Commercial Banking Institutions, Private Banking Institutes, Wealth Management Organisations and Financial Service Provider located in Europe and the APAC Region.
Marco's practical experience spans from the introduction of investment compliance frameworks and policies supporting the monitoring of investment restriction and guidelines up-to the design and implementation of compliance frameworks, policies and technology solutions to meet local tax requirements and AML/KYC, Customer due diligence (CDD) obligations under AEoI, CRS, DAC6, FATCA and the QI Regime.