What is a Common Reporting Standard and its scope – News

The CRS requires the government of each country to obtain detailed account information from its financial institutions and share it with other jurisdictions on an annual basis. In addition, the OECD has published the Implementation Guide, which contains three parts and various chapters.



The full version of CRS for automatic exchange of information was developed and published by the OECD in July 2014. — File photo

By Mahar Afzal/Compliance Corner

Published: Sun 10 Apr 2022, 5:21 PM

To combat tax evasion, G20 countries have asked the Organization for Economic Co-operation and Development (OECD) to develop a Common Reporting Standard (CSR) to automatically exchange information with other jurisdictions. The concept has been endorsed by 34 member countries and several non-OECD countries.

The full version of the CRS for automatic exchange of information was developed and published by the OECD in July 2014. The CRS requires the government of each country to obtain detailed information on the accounts of its financial institutions (FIs) and shares them with other jurisdictions on an annual basis. In addition, the OECD has published the Implementation Guide, which contains three parts and various chapters.

The UAE government has committed to and signed two agreements (the Accords), named; (i) Mutual Administrative Assistance in Tax Matters (MAC) and (ii) Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA) in April 2017. These agreements are the instruments of implementation of the NCD for the automatic exchange of information. with other jurisdictions. Later, the MAC was ratified with Federal Law no. 54 of 2018, and MCAA was approved by Federal Law No. 48 of 2018.

The Ministry of Finance (MoF) of the United Arab Emirates, as the competent authority, implemented the CRS in the United Arab Emirates, which was active and operational on January 1, 2017. To regulate the CRS, the authority of the central bank, securities and commodities, Abu Dhabi Global Market (ADGM) and Dubai International Financial Center (DIFC) have been designated as regulatory authorities, and wherever these authorities do not regulate any financial institution, the MoF is responsible for CRS regulations.

The CRS requires all reporting financial institutions (“RFIs”) to do the following:

• Identify financial accounts held by the Account Holder, who is a Reportable Person or a Passive Non-Financial Entity (NFE) controlled by the Reportable Person; and

• Report certain financial information on an annual basis to the respective regulatory body or the Ministry of Finance, as the case may be. RFIs are likely to report zero returns when they have nothing for reporting purposes.

Where more than one person holds a financial account, then each person will be considered a reportable person and, for the purpose of applying the aggregation rule, the total amount of the jointly held account will be taken into account. account when calculating the total amount held by a reportable person. person on his account.

Who reports to the FIs

For the purposes of the CRS, depository institutions such as banks, depository institutions such as mutual funds, investment entities such as hedge funds or private equity funds, and certain types of investment companies insurance are called FI. There are two types of FIs: (i) reporting FIs and (ii) non-reporting FIs. In addition to non-reporting FIs, all FIs are referred to as reporting financial institutions (RFIs), and non-reporting FIs include government entities, international organizations, central banks, various funds, exempt collective investment vehicles, FIs with a low risk of tax evasion such as local banks.

An entity that is not a financial institution is called a non-financial entity (NFE), and the NFE can be further classified into (i) active NFE and (ii) passive NFE. All NFEs, except active NFEs, referred to as passive NFEs, and active NFEs include NFEs with passive income of less than 50% of their gross income for the previous calendar year and assets held by them during of the previous year to earn passive income are less than 50%. percent of total assets. Other examples of active NFEs include publicly traded entities and their related parties, NFEs that are governmental entities, international organizations, central banks or entities wholly owned by one or more of them, etc The term passive income includes income from rent, interest, dividends, and any other income earned without extra effort.

Person to be declared

The term “Reportable Person” means any Reportable Person other than a financial institution, central bank, international organization, government entity, corporation, whose shares are regularly traded on one or more established stock exchanges, and its related entity. Whereas the term “person from a reportable jurisdiction” means an individual or entity that is resident in a reportable jurisdiction under the tax laws of that jurisdiction or the estate of a deceased who was a resident of a jurisdiction subject to declaration. If the entity is not resident for tax purposes, the jurisdiction in which its effective management is located will be considered residence for CRS purposes.

controlling person

For the purposes of the CRS, the term controlling person means any natural person who directly or indirectly controls more than 25% of the entity. Where we can identify a controlling person based on these criteria, the controlling person will be the natural person who exercises control through other means such as the board of directors or one or more persons who have substantial influence on the affairs of the company. If the controlling persons by other means cannot be identified, then the controlling person(s) will be the natural person(s) who holds the senior management position.

In light of the advice above, if you are an RFI, it is recommended that you identify the reportable person or the passive NFE controlled by the reportable person, then report it accordingly by logging into the regulator or the respective MoF portal.

Mahar Afzal is Managing Partner at Kress Cooper Management Consultants. The above is not an official but personal opinion of the author. For any questions/clarifications, please write to him at [email protected]

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