There has been much discussion about the Common Reporting Standard since the OECD announced the implementation plan in 2014. It may seem that there is a great hue and cry over what appears to be a simple plan to share information to catch tax evaders, but the implications can be more far reaching.

Ultimately, this is about taxes, and with the CRS, there is a risk that some investors, who have certain types of offshore holdings, may find themselves, or their investments, unexpectedly exposed to taxes and all the liabilities that go along with it.

What is “reportable” under the CRS?

Previously, we discussed self-certification as a method to determine the status of accounts and account holders. But what are the criteria that will decide what gets reported to which jurisdiction?

According to the OECD’s version of a self-certification form, a reportable person is “an individual who is tax resident in a Reportable Jurisdiction under the tax laws of that jurisdiction. Dual resident individuals may rely on the tiebreaker rules contained in tax conventions (if applicable) to solve cases of double residence for purposes of determining their residence for tax purposes.” So, simply, a person who is a tax resident of a country participating in the CRS.

Further, the same form defines a reportable account as “an account held by one or more Reportable Persons or by a Passive NFE with one or more Controlling Persons that is a Reportable Person.” It starts simple, then gets a little complicated. For example, a “Passive NFE” is a type of non-financial entity, but how this is determined needs some scrutiny.

Where are the issues?

Regarding individuals, the OECD does indicate that there are situations where a person may find themselves considered an unexpected tax resident in another jurisdiction and defers to tax treaties and local regulations for final determination. So, persons resident outside their home country or with investments considered domiciled outside their home country may need to review their portfolios.

Reportable accounts are more complex, as could be deduced by the additional defined terms “Passive NFE” and “Controlling Persons”. Basically, any account (including certain trusts and funds), that are held or controlled by a reportable person may be required to report. This will be covered in more detail separately.

Are you sure of your status?

“To be honest, most investors shouldn’t have much to worry about, unless they are very protective of their privacy issues. But everyone should revisit their holdings just to make sure,” admits Richard Cayne, “since there are situations where certain funds that appear to have the same ‘home’ as you can be considered as reportable under the CRS.”

As emphasized with each article in this series, the CRS can be complicated. To play it safe, you should at least check with an expert to confirm your status and obligations.