There is still time for Australian financial institutions to prepare and be ready for the commencement of the OECD Common Reporting Standard (CRS). Before 1 July 2017, entities need to determine whether they are characterised as "Reporting Financial Institutions" under the CRS, and should ensure they have adapted their systems and updated their account documentation (terms and conditions, application forms, disclosure documents) to ensure they can meet the due diligence and reporting requirements.
What's the CRS, again?
- The CRS is a single global standard for the collection, reporting and exchange of financial account information in respect of account holders resident in more than 90 jurisdictions. Under it, financial institutions (including banks, asset managers and investment funds, for example) will collect and report to the ATO financial account information in respect of account holders who are resident for tax purposes outside of Australia. The ATO will then exchange this information with the relevant foreign tax authorities participating in the CRS. Under the CRS, the ATO will also receive from foreign tax authorities financial account information in respect of tax residents of Australia holding financial accounts in other CRS jurisdictions.
- The CRS as implemented in Australia imposes a significant compliance burden on Australian financial institutions to ensure they have adequate systems and processes in place to collect the relevant financial account information.
- The CRS commences in Australia on 1 July 2017, with the first exchange of information due in 2018. Failing to lodge in a timely manner, keep adequate records or follow prescribed due diligence procedures may result in penalties.
- Although the due diligence and reporting obligations are similar to those under the U.S Foreign Account Tax Compliance Act (FATCA) in relation to U.S. persons, there are key differences. Consequently, Australian financial institutions need to consider carefully their characterisation under the CRS, and to confirm whether and to what extent they are required to report financial account information to the ATO. They will need to update systems and account documentation (e.g. terms and conditions, application forms and disclosure documents) to ensure due diligence and reporting requirements can be met.
- On 6 April 2017, the OECD released a series of additional Frequently Asked Questions (FAQs) to clarify the application of the CRS and to ensure consistency in its implementation. The OECD also released on the same date the second edition of the Standard for Automatic Exchange of Financial Account Information in Tax Matters, which contains an updated CRS XML Scheme User Guide. The FAQs and the updated CRS XML Schema should assist in the implementation of the CRS in Australia.
- For more information on the CRS and your reporting obligations, see our earlier publications here, here and here.
- DON'T PANIC – There's still time to ensure your business is ready to comply with the CRS!
- Our team has been carefully monitoring the implementation of the CRS and have been advising on CRS compliance since its implementation. Please contact us if you would like to discuss how Australia's implementation of the CRS may affect your business.