Automatic Exchange of Information
April 22, 2016
Jurisdictions sign the CRS (Common Reporting Standard) as well as the MCAA (Mutual Competent Authority Agreement). The documents regulate which details should be shared and which authorities are responsible for the handling.
These results are in Automatic Exchange of Information, the jurisdictions join the agreements to automatically exchange information as to the bank accounts of the signatories’ residents.
Common reporting standards were set up to standardize the way in which data should be shared. It’s important that all the parties could streamline the handling out of all the data received.
Is it related to companies, trusts, foundations?
Business ownership, trust deeds as well as foundations are not subject of AEOI, so the jurisdictions have no obligations to send information about business ownership to the other locations automatically. Company proprietorship details are only known by financial institutions. You can keep your company data out of the AEOI scope registering the legal entity in an AEOI hub, but setting the banking accounts in a non-AEOI hub.
Common Reporting Standards pay specific attention to trusts; according to it, the latter should be reportable to the locations, where they are resident. As a rule, it is the domicile of the trustee (mostly a tax haven). Nevertheless, there are also provisions to report taxable income to the dominion of the recipients’ residence.
For offshore IBC in Seychelles, Costa Rica SAs, or Marshall Islands LLCs, for example, there are no CRS provisions, which may oblige the registered Seychelles agent, the accounting or Law Company in Costa Rica reporting any data. Reporting duty is on Reporting Financial Institutions, it doesn’t comprise the types of service providers mentioned above. (For better understanding what a Reporting Financial Institution is – check CRS Section VIII: Defined Terms).
What is «reported»?
In case you open a bank account abroad in some AEOI hub, the latter will report the details about the account to the country, where the account holders reside.
You may have heard about certain thresholds and schemes whereby the account holder sets up a paper-only residence in one of the tax havens. The thresholds are intended to ease the task for the banks unable to collect details automatically and the limits will probably go away in course of the time. At present, in certain circumstances, the banks are allowed not to report on accounts which are under the limit.
What banks don’t report the low-balance accounts?
Those banks, which fail to collect the data about their clients in an appropriate manner do not report the low-balance accounts, but you are unlikely willing to deal with them.
To whom is the information reported?
The information goes to the authorities in the recipient dominion, which should be the residual location of the account holders. Still, in some doubtful cases or due to over-compliance, the banks may send data to multiple jurisdictions. In case, if you have a Norwegian passport and present Panama as a place of residence, a conscientious bank would report to both Norway and Panama. Reporting to all involved hubs is a measure taken by the banks to avoid the cases of obvious abuse of easy-going residency schemes.
Why do jurisdictions sign up for CSR, MCAA, and AEOI?
Reputation gains more and more importance in regards to financial services, so at present the reason is having a good reputation.
What about the US and FATCA?
FATCA is isolated, while the US did not sign up for AEOI, and does not have such intent. The US considers FATCA good enough; however, it doesn’t always live up to its obligations under FATCA. So the United States doesn’t follow the OECD standards while the latter lacks influence to force the USA to comply with the AEOI regulations.
Is the USA more secretive now than Switzerland, Singapore or the Cayman Islands?
Definitely, it is. Keeping the means, the USA has become extremely attractive lately to the non-resident, non-citizens of the US. The country shows political stability, being wealthy enough and able to offer sophisticated financial services.
How can I avoid AEOI or prevent it?
There are certain schemes available, they are not simple, nevertheless, it comes down to one or both of the following:
1. Move to a tax haven offshore.
2. Surrender possession of the assets.
3. Turn to on-AEOI hubs.
Move to a Tax Haven Offshore
The majority of tax havens have extremely tough immigration rules, so it’s easier said than done.
However, the citizens of the European Union are lucky enough because there are various tax havens with relatively easy or even free movement opportunities, like Malta, Switzerland or Cyprus. Nevertheless, due to the multi-jurisdictional reporting, changing the place of official residence may be not enough. However, in most cases it relieves the tax burden (especially for the non-US citizens).
Surrender Possession of the Assets
In case, if you have no assets and you aren’t the UBO of the assets, you are not in the scope for AEOI. So, settling the properties in a trust, setting up a foundation, or some kind of non-ownership arrangement may help you avoid the reporting. You can maintain control over your assets, without the ownership. Still it may cost you a lot and it’s not an easy task to realize. The decision should be reasonable and well-thought.
Turn to Non-AEOI Hubs
Before you set your eyes on Lebanon or Azerbaijan to open an account abroad, think that they may sign up the agreement in future, even though they have not done it yet. In a long run, little jurisdictions worth talking about will stay outside the AEOI. Do you really want to spend years jumping from hub to hub, changing the location to more and more reputable location with each jump? Are you ready for such a continuous cat-and-mouse game?
Keep in mind that AEOI is here and is going to stay, so it’s spreading all over the globe.