By now I’m sure one of the banks or other financial institutions you use have asked you for confirmation of where you are tax resident, and for your tax ID number. In fact, you may have been asked for this information multiple times. So what is it all about and who knows what you have got, so to speak?
You may want to read up on the Common Reporting Standard (CRS). Developed by the OECD in 2014 to combat tax evasion, CRS involves the automatic exchange of tax and financial information globally. 83 countries have already signed up for the agreement and first reporting begins this month, September 2017.
What this means, in practical terms, is that every financial institution in these jurisdictions is required to collect information on their customers country or countries of tax residence, including their Tax ID number(s). Hence the requests you have probably already received from some or all of the institutions you have accounts with. This information will be provided to the local tax authority in the institution’s jurisdiction, who will then share the information with the country you are tax resident in.
The information exchanged will include:
- Name, address, DOB and Tax Identification number of reportable person
- Account number
- Name and ID number of financial institution
- Account balance of value at end of calendar year
So, for example, if you are from the UK and currently live and work in Japan, your country of tax residence will most likely be Japan. If you have a bank account in the UK, then the details and balance of that account will be shared with the Japan tax office. The same applies to accounts in any other participating countries. In case you are wondering, your tax ID number in Japan is the recently introduced My Number.
CRS was initially based on the USA Foreign Account Tax Compliance Act (FATCA) and therefore it’s interesting to note that the US, which is already receiving information about foreign accounts held by its citizens through FATCA, has not signed the CRS treaty.
So what does this mean for you? Well mostly it means more and more disclosure related to international financial transactions. You are already required to provide certified ID and proof of residential address in order to open accounts and move money, and now you will also need to provide your tax ID. If you have transferred money overseas recently, you may have noticed that the amount of information you have to provide is increasing, especially for larger amounts. What it also means is that, in order to catch people who are hiding money and evading taxes, people who are doing nothing wrong are steadily losing the ability to keep their financial data private. Like it or not, that is the world we are living in so plan accordingly.
Here is a useful list of participating countries, and to what degree they are implementing CRS.