CRS: Exchange of Fiscal and Financial Information between Countries

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SRM BUSINESS CONSULTING LIMITED

Anil.Surmeli@srmconsulting.com

Capital or money is constantly moving around the world with the influence of various factors. Low tax rates, high interest rates, confidentiality of information and security are important elements that determine both the circulation of money and the direction of its flow.

As a result of a substantial increase in the importance of tax revenues, countries are pushed to prevent tax losses caused by this money flow. Especially following the economic crisis emerging from the USA in 2001, many steps have been taken regarding this issue.

In this regard, there are two crucial agreements in force to which many countries put signature. The first one, FATCA (Foreign Account Tax Compliance Act) is prepared by the USA and signed by all the countries. Through this agreement, the USA can monitor all the income and income resources of its citizens all over the world. The other agreement is the “Mutual Administrative Charity Agreement on Tax Issues”, prepared by the OECD, and it involves both EU and OECD countries. Turkey has signed both agreements.

In particular, I will try to provide you with some information about the implementation of a part of the OECD agreement, known as the Automatic Exchange of Information (AEOI) or the Common Reporting Standard (CRS). I find it important for Turkish residents who hold assets abroad.

The CRS system, in essence, is based on the principle that each member state collects information from its banks and financial institutions and forwards it to the finance systems of the other member states. The number of countries involved in the CRS system has reached 106 as of the date of this writing. Turkey has also been a party to this regulation since 2017 and is among the countries that will share information for the first time in 2018. This implementation devised in 2014 will share information for the first time in September 2017, whereas it will be in September 2018 for other member countries including Turkey. (Please see the detailed list of the member states at the end of the article.) The recent forms that banks require from account holders (your country of residence, in which country or countries you are taxed, your tax numbers and other addresses, etc.) are actually used for the establishment of an information-sharing infrastructure.

In fact, the "Agreements for the Prevention of Double Taxation", which were already in force among the states, enabled this sharing. However, on the grounds that the previous implementation was deemed inadequate as it allowed the sharing of information only on-demand or in exceptional cases, the CRS system has been put into practice. CRS requires that all information be periodically and regularly shared without being demanded.

Thus, the financial account information belonging to individuals and companies residing in Turkey and located in member foreign countries will be shared with Turkish tax authorities via banks or financial institutions regularly once a year. Likewise, Turkey will share this information with Financial Administrations of other countries.

I would like to point out something important here: Information sharing shall be carried out on the basis of residence rather than citizenship. For instance, UK bank asset information of a Turkish citizen residing in the Netherlands will be shared by the UK with the Dutch Finance Authorities. No notification shall be made to Turkey. The mutually shared information is as follows:

  • Name and Address Information
  • Country (or countries) with Tax Residence
  • Tax number
  • Place and Date of Birth
  • Account number
  • Account Balance / Value
  • Received payments / transactions

This agreement signed by OECD countries is not limited to Information Sharing only. Some co-operation has been achieved in the following fields as well: Simultaneous tax checks between countries, tax reviews abroad, collection and notification.

Consequently, states are introducing multilateral agreements in order to fight effectively against money and capital flows causing tax losses. Many global law and finance institutions are waging legal battles against these declarations implemented by countries. Main areas of dispute are firstly the problems arising from the fact that these declarations will be made on the basis of statements from banks and financial institutions, and secondly how the shared financial account information of individuals and companies can be securely stored in every country in compliance with privacy principles. On the other hand, I think we will encounter more misapplications in the implementation of intergovernmental Double Taxation Prevention Agreements, and more problems with financial authorities, especially for the income generated by small and medium-sized enterprises through various activities in different countries. The disappearance of borders in the business world, especially in Information Technology field, makes it difficult for states to control their own taxes.

I do not know to what extent it is possible to avoid this through tax treaties and information exchange, but I am of the opinion that imminent spreading of tax justice to all sectors and countries can prevent many tax losses and unfair competition.

You can also get detailed information on the subject directly from the source. http://www.oecd.org/tax/automatic-exchange/

Countries that will fulfil their reporting responsibilities in 2017:

Anguilla Finland Lithuania South Korea
United Kingdom France Luxembourg Spain
Barbados Germany Malta Sweden
Belgium Gibraltar Seychelles Trinidad & Tobago
Bermuda Greece Mexico Turks & Caicos
Virgin Islands Greenland Montserrat Niue
Bulgaria Guernsey Netherlands
Cayman Islands Hungary Norway
Colombia Iceland Poland
Argentina India Portugal
Croatia Ireland Romania
Curacao Isle of Man San Marino
Southern Cyprus Italy Faroe Islands
Czech Republic Jersey Slovakia
Denmark Latvia Slovenia
Estonia Liechtenstein South Africa

Countries that will fulfil their reporting responsibilities in 2018:

Turkey Uruguay Russia Switzerland
Australia Ghana Qatar Antigua
Bahamas Aruba Saudi Arabia UAE
Bahrain Hong Kong Dominica Samoa
Brazil Indonesia Lebanon Sint Maarten
Albania Israel Monaco Vanuatu
Austria Japan Singapore
Andorra Macao St. Kitts
Canada Brunei St. Lucia
Chile Kuwait St. Vincent
China Cook Islands Costa Rica
Curacao Isle of Man San Marino
Malaysia Marshall Islands Granada
New Zealand Mauritius Belize
Panama Nauru