Following Cyprus’ accession to OECD’s Common Reporting Standard on 29th October 2014, in an attempt to combat tax evasion and promote transparency, the practical implementation of automatic exchange of financial information is now a reality.
Pursuant to the latest amendment to the Cyprus Collection of Taxes Law of 1978 as published in the Official Gazette of the Republic on 31st December 2015, Cyprus has incorporated the provisions of the OECD on automatic exchange of information of a financial nature, into national law thus ensuring direct enforceability as of 1st January 2016.
The CRS defines the common due diligence procedures (“KYC”) to be applied and the documents required in support of those procedures, with a view to proper client identification and reporting. More specifically the CRS defines:
- The nature of information from financial accounts that must be provided, including account balances and movements in support of transactions made and by reference to interest earned, yields from insurance contracts earned, dividends declared and price received from the sale of any type of assets,
- The various types of accounts and tax residents who are bound by the CRS,
- The procedures of KYC that must be applied and followed by financial institutions in connection with establishing the tax residency of beneficiaries of accounts.
It is worth noting that the information is required to be submitted annually and exchanged within 9 months from the end of the preceding calendar year. The first batch of information subject to exchange will take place in 2017.
In its 44-page presentation of the CRS, OECD cites US FATCA as its main influence and expected to be applied “with a view to maximising efficiency and reducing cost of financial institutions”. As reported the CRS drew extensively on the intergovernmental approach of FATCA, although deviated in certain aspects such as “the concept of taxation on the basis of citizenship”. CRS adopts a more pragmatic approach inquiring as to the permanent location of a beneficiary regardless of the beneficiary’s origin or citizenship. CRS was designed with the following success factors in mind:
- A common standard on information reporting, due diligence and exchange of information;
- A legal and operational basis for the exchange of information;
- Common or compatible technical solutions.
A year into the implementation of US FATCA in Cyprus as well as other key financial jurisdictions, it is already evident that cost reduction in connection with this reporting, is certainly not a target achieved. It remains to be seen whether the implementation of CRS will achieve cost reduction and what the implications of this additional reporting will be on financial institutions still striving to redefine themselves across the EU.
For more information on compliance with automatic exchange of information and how this will affect your Cyprus structures, feel free to speak to Stella C. Koukounis at [email protected] or George Vrikis at [email protected]