AUTOMATIC EXCHANGE OF TAX INFORMATION – AN UPDATE
We reported in our Q1 2016 newsletter that a new global tax reporting system was being introduced by the OECD that would affect investors with cross-border investment holdings. This development, better known as the Automatic Exchange of Financial Account Information or the Common Reporting Standard, is now in full swing with reporting to tax authorities imminent. Brendan Africa provides an update on some frequently asked questions:
What is the purpose of all of this?
In general terms, the purpose is to assist OECD member countries in combatting tax evasion through monitoring of offshore financial accounts. The system requires the reporting of financial information where an account is held outside of an investor’s tax residence jurisdiction. This information is subsequently shared with the investor’s home tax authority for further compliance assessment against governing tax laws.
In the case of an account held by a passive non-financial entity (such as a trust) that is controlled by one or more controlling persons outside of their tax residence jurisdiction, the information is reportable to the home tax authority of the relevant controlling person(s).
How do I know if I’m reportable?
Investors with investment accounts in offshore jurisdictions relative to their primary domicile for tax purposes should consider themselves reportable. For example, South African tax resident investors with Guernsey or Singapore investment accounts will be reportable, as will UK tax residents investing in South Africa. An important distinction is that reporting is based on tax residence, not ordinary residence. An investor that ordinarily resides in South Africa, for example, and invests in South Africa but is deemed to be a tax resident of another country (the UK for e.g.) will be reportable to such other country.
Does this mean I need to register for tax?
Investors who are not registered for tax in their home jurisdictions are not compelled to register. Reporting is based on tax residency indicators, not tax registration. Local tax authorities will use this information to assess the completeness of tax declarations and may, as a result, engage with unregistered tax residents.
What about joint account holders?
The OECD recently issued guidance which confirms that joint account holders, whether passive or active, are regarded as account holders and hence would be reportable if they met the tax residency test. Financial institutions like Foord are compelled to report joint account holders in the same way as primary account holders, with the full account value attributed to each joint holder. We reiterate that this process is not a compulsion for passive joint account holders to register for tax.
When will reporting take place?
South African reporting takes place on 31 May 2017 for investment accounts as at 28 February 2017, while Guernsey reporting will take place on 30 June 2017 for investment accounts as at 31 December 2016. There are some phasing-in exceptions to this that will result in some lower-risk accounts only becoming reportable in the next year. Investors can however expect full reporting from 2018, and annually thereafter. Singapore-based financial institutions will only commence reporting in 2018 – investors in this jurisdiction can expect communication from us later this year.
What do I need to do?
Affected investors in applicable jurisdictions would have received correspondence from Foord or its appointed service providers alerting them to the reporting requirements, and in most cases requesting self-certifications to be completed to confirm the investor’s tax information. It is important that investors comply with these instructions. The law requires that we obtain these certifications, notwithstanding the fact that it also provides an opportunity for us to confirm the accuracy and completeness of our static data and thereby minimise the risk of incorrect reporting. Foord will be compelled to report from its database on the deadline dates aforementioned, regardless of whether self-certifications were received or not. Investors with inconclusive tax information will be required to be reported to all participating jurisdictions – it is therefore imperative that you respond to any requests for information from us.
The information set out in this article is merely a brief summary of Foord’s understanding of aspects of the requirements, and is not intended as advice to any investor. Investors seeking further clarity on the applicability of the requirements to their own accounts should consult their tax advisors accordingly.