Implementation of the Common Reporting Standard (CRS) in Cyprus
Cyprus is one of the first countries amongst 51 jurisdictions committed to implement the Organisation for Economic Co-operation and Development (OECD) Common Reporting Standard by 2017. In addition, the European Directive 2014/107/EU on administrative cooperation in the field of direct taxation (DAC) is applicable, which provides for the automatic exchange of information between member states, at least once a year, regarding income from employment, pensions, company directors fees, real estate and life insurance. As a result, the Minister of Finance issued an order (no. 477/2015) οn 31.12.15, which came into force on 01.01.16 in exercise of his authority granted under The Assessment & Collection of Taxes Law 1978, as amended.
The OECD CRS is a big step towards a globally coordinated approach to disclose income earned by individuals and organizations. In an attempt to counter tax evasion, it essentially builds upon previous information-sharing legislation, such as FATCA (the US Foreign Account Tax Compliance Act).
The Common Reporting Standard (CRS) is the standard for the Automatic Exchange of Information (AEOI) developed by OECD. It is a new reporting and information-gathering requirement for financial institutions in participating countries, to help fight against tax evasion and protect the integrity of tax systems. The first exchange of information starts in September 2017 and will cover year 2016.
The CRS seeks to establish the tax residency of customers. Under the CRS, financial institutions are required to identify customers who are tax resident in foreign jurisdictions i.e. outside of the country where they hold their accounts and products, and report certain information to the national tax authority.
To prevent circumvention of the CRS, it is designed with a broad scope across 3 dimensions:
a) The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
b) The financial institutions required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
c) Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.
The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.
The main purpose of CRS
The main purpose of the CRS is to combat the offshore tax evasion and to provide minimum set of standards and framework to increase efficiency and decrease cost associated with exchange of information. Local Financial Institutions report CRS specific information to their Competent Tax Authority, which in turn exchange this information with the respective Competent Authorities of the Participating Jurisdictions with which they have an agreement in place.
Who is within the scope of CRS
The CRS regulation generally applies to any Financial Institution (FI) located in a CRS participating jurisdiction and obliges those Financial Institutions to identify tax residency of account holders. CRS applies to both natural and legal persons.
Cyprus and the CRS
All Cyprus Financial Institutions are required to identify reportable accounts based on the information collected (via a self-certification) and report them accordingly to the Cyprus Tax authority. In turn, the Cyprus Tax authority will exchange information with the tax authorities of Reportable Jurisdictions. Among other items, self-certification information includes the country(ies) of tax residence and the tax identification number(s).
• For further information please consult the OECD website at: http://www.oecd.org/ctp/exchange-of-taxinformation/automaticexchange-financial-account-information-common-reporting-standard.pdf
• An up-to-date list of the countries that have either signed or committed to adopt CRS can be found on the OECD’s site at: http://www.oecd.org/tax/transparency/AEOI-commitments.pdf