On March 9, 2018, the OECD issued a press release on its issuance of new model disclosure rules (Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures) that will require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the OECD/G20 Common Reporting Standard (CRS), or to prevent the identification of beneficial owners of entities or trusts. The design of the model rules incorporates the best practice recommendations in the BEPS Action 12 final report.
Taxpayers that held undeclared financial assets offshore have reported this information to their tax authorities as a result of CRS reporting requirements and the automatic exchange of offshore financial accounts, leading to over €85 billion in additional tax revenue. Nevertheless, there are taxpayers who, with the assistance of advisors and financial intermediaries, continue to dodge their reporting obligations under the CRS. The new rules target these persons and their advisers, by introducing an obligation on intermediaries to disclose the schemes that circumvent CRS reporting. The new rules also require reporting of structures that hide beneficial owners of offshore assets, companies and trusts.
On March 9, Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said “Time is up for tax evaders and their advisors that still want to game the rules and continue to hide assets offshore. With the automatic exchange of CRS information becoming a global reality this year, it is the right moment to get hold of those taxpayers and advisors that attempt to undermine the reporting on offshore assets and that try to play the new global tax transparency framework. The mandatory disclosure rules will be a powerful tool to detect taxpayers that continue to refuse to be compliant with their obligations to declare their assets and income to their tax authorities.”
Under the model disclosure rules, a CRS avoidance arrangement is any arrangement that is designed to circumvent, or has the effect of circumventing, CRS legislation, including through:
- Use of an account, product or investment that is not, or appears not to be, a financial account (FA), but has features that are substantially similar to a FA.
- Transfer of a FA, or money and/or financial assets held in a FA, to a financial institution (FI) that is not a reporting financial institution (RFI) or to a jurisdiction that does not exchange CRS information with the reportable taxpayer’s jurisdiction(s) of tax residence.
- Conversion or transfer of a FA, or money and/or financial assets held in a FA, to a FA that is not a reportable account.
- Conversion of a FI into a FI that is not a RFI or into a FI that is resident in a jurisdiction that does not exchange CRS information with the reportable taxpayer’s jurisdiction(s) of tax residence.
- Undermining or exploiting weaknesses in the due diligence procedures used by FIs to correctly identify an account holder and/or controlling person, or the account holder’s and/or controlling person’s jurisdiction(s) of tax residence.
- Allowing, or appearing to allow: (i) an entity to qualify as an active non-financial entity (NFE); (ii) an investment to be made through an entity without triggering a reporting obligation under CRS legislation; or (iii) a person to avoid classification as a controlling person.
- Classifying a payment made for the benefit of an account holder or controlling person as a payment that is not reportable under CRS legislation.
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