There has been an ever increasing trend towards global compliance and inter-jurisdictional co-operation against tax evasion in recent years and the Standard for Automatic Exchange of Financial Account Information or the 'Common Reporting Standard' (CRS) is a truly cross border tax information exchange regime which cannot be ignored. The CRS is intended to provide uniformity for financial institutions resident in jurisdictions that sign a multilateral competent authority agreement (MCAA) committing to the CRS.

The Organisation for Economic Co-operation and Development (OECD) has developed the CRS over the past few years in collaboration with the G20 countries and in close co-operation with the EU. In 2014 Bermuda committed to the early adoption of CRS along with various other jurisdictions including the UK. Bermuda is one of the first countries that committed to adoption of the CRS. This means that Bermuda financial institutions (including many Bermuda funds) must be compliant with the CRS due diligence and necessary information requirements starting 1 January, 2016 for any new accounts. As an early adopter jurisdiction, Bermuda intends to participate in the first information exchange with other CRS participating jurisdictions by September 2017.

The CRS draws significantly on the Foreign Account Tax Compliance Act (US FATCA) intergovernmental approach and requires regular cross border automatic exchange of information between governments in respect of financial account information reported by financial institutions. The CRS sets out:

1. the financial information required to be reported with respect to reportable accounts including investment income;

2. the financial institutions that are required to report under the CRS;

3. reportable accounts which include accounts held by both individuals and entities (including trusts and foundations) as well as 'look through' provisions for passive entities; and

4. due diligence procedures that must be followed to identify reportable accounts.

FATCA vs the CRS

Although the CRS is similar to US FATCA, there are important differences between the two regimes. The US is currently a non-participating jurisdiction for the purposes of the CRS and the US FATCA regime will continue to run alongside the CRS. It is important to note that the CRS is broader in scope than US FATCA. However, financial institutions should be able to build on existing systems and procedures put in place to comply with US FATCA in order to maximise efficiency and minimise both the compliance burden and implementation costs involved with implementing the CRS.

Some key differences between US FATCA and the CRS are set out in the following table:

UK FATCA

UK FATCA (also known as 'CDOT') was implemented in Bermuda in accordance with the Bermuda-UK IGA signed in November 2013. As with US FATCA, there are differences between CRS and UK FATCA, for example the alternative reporting regime for certain United Kingdom reportable accounts is not applicable under the CRS.

In transitioning to the CRS, the UK has indicated that for 2016, both the UK IGA and CRS will be operational for all Overseas Territories and Crown Dependencies. This means that in order to comply with both regimes, Bermuda financial institutions will need to make relevant filings under the UK IGA in 2016/2017 while simultaneously ensuring that they comply with the requirements of the CRS. It is anticipated that UK FATCA will be phased out in 2017.

How will the CRS affect Bermuda Investment Funds?

Managers of funds resident in Bermuda (or any CRS participating jurisdictions) must be informed on the requirements of CRS. Funds and fund managers will need to re-evaluate their procedures relating to FATCA compliance in order to ensure that the requisite CRS information is also captured.

If a group of funds includes funds that are resident in different CRS-participant jurisdictions, fund managers will need to be aware of any differences in application of the CRS between the jurisdictions.

Under the CRS, pre-existing accounts and new accounts of financial institutions are treated differently. Pre-existing accounts are those in existence on 31 December 2015 and new accounts are those opened from 1 January 2016.

If an account already exists with a Bermuda financial institution (which will typically include an investment in a Bermuda fund) as of 31 December 2015 it should be subsequently reviewed and reported, if applicable. Any account opened on or after 1 January 2016 will be subject to new account opening procedures which will need to record the tax residence of the account holder or investor.

Key Dates

  • October 2014: Bermuda signed the MCAA and committed to early adoption of the CRS.
  • July 2015: Bermuda passed relevant amendments to its legislation to adopt the CRS.
  • 31 December 2015: Any accounts in existence on this date will be deemed to be pre-existing accounts.
  • 1 January 2016: Any accounts opened on or after this date will be deemed to be new accounts.
  • September 2017: The intended date for the first exchange of information between Bermuda and other jurisdictions that committed to undertake the first automatic exchange of financial account information under the CRS by September 2017.

Next Steps

Bermuda financial institutions (including many master funds, feeder funds and other investment fund vehicles) must complete preparations for new account opening procedures that must be in place by 1 January 2016 including the account holder due diligence which will be required under the CRS.

In respect of Bermuda investment funds, fund documents and subscription procedures should be reviewed in light of the CRS requirements. Fund managers should note that any open-ended or closed-end fund located in Bermuda that is in its capital-raising phase must have in place updated subscription procedures requiring investors to provide "self-certifications" in relation to due diligence, the recording of investors' tax residence and certain other information.

There are offences and associated penalties for non-compliance with the automatic exchange provisions. We would advise that all financial institutions, including funds, become compliant before 1 January 2016. It is incumbent upon the fund to ensure that its investors are properly appraised in advance of international obligations which may impact them.

Jurisdictions

The CRS is continuously being adopted by more and more countries – attached as Appendix A is the current list of countries which have subscribed to the regime as of 3 December 2015 by signing the Multilateral Competent Authority Agreement (MCAA), bringing the total number of jurisdictions to 75.

Useful Links

OECD

http://www.oecd.org/ctp/exchange-of-tax-information/

The Common Reporting Standard

http://www.oecd.org/ctp/exchange-of-tax-information/automatic-exchange-financial-account-information-common-reporting-standard.pdf

CRS Implementation Handbook

http://www.oecd.org/ctp/exchange-of-tax-information/implementation-handbook-standard-for-automatic-exchange-of-financial-information-in-tax-matters.pdf

APPENDIX A

Signatories of the Multilateral Competent Authority Agreement and Intended First Information Exchange Date (as of 3 December 2015)

1. ALBANIA September 2018

2. ANDORRA September 2018

3. ANGUILLA September 2017

4. ANTIGUA AND BARBUDA September 2018

5. ARGENTINA September 2017

6. ARUBA September 2018

7. AUSTRALIA September 2018

8. AUSTRIA September 2018

9. BARBADOS September 2017

10. BELGIUM September 2017

11. BELIZE September 2018

12. BERMUDA September 2017

13. BRITISH VIRGIN ISLANDS September 2017

14. BULGARIA September 2017

15. CANADA September 2018

16. CAYMAN ISLANDS September 2017

17. CHILE September 2018

18. COLOMBIA September 2017

19. COOK ISLANDS September 2018

20. COSTA RICA September 2018

21. CROATIA September 2017

22. CURAÇAO September 2017

23. CYPRUS September 2017

24. CZECH REPUBLIC September 2017

25. DENMARK September 2017

26. ESTONIA September 2017

27. FAROE ISLANDS September 2017

28. FINLAND September 2017

29. FRANCE September 2017

30. GERMANY September 2017

31. GHANA September 2018

32. GIBRALTAR September 2017

33. GREECE September 2017

34. GRENADA September 2018

35. GUERNSEY September 2017

36. HUNGARY September 2017

37. ICELAND September 2017

38. INDIA September 2017

39. INDONESIA September 2018

40. IRELAND September 2017

41. ISLE OF MAN September 2017

42. ITALY September 2017

43. JAPAN September 2018

44. JERSEY September 2017

45. KOREA September 2017

46. LATVIA September 2017

47. LIECHTENSTEIN September 2017

48. LITHUANIA September 2017

49. LUXEMBOURG September 2017

50. MALTA September 2017

51. MARSHALL ISLANDS September 2018

52. MAURITIUS September 2017

53. MEXICO September 2017

54. MONTSERRAT September 2017

55. NETHERLANDS September 2017

56. NEW ZEALAND September 2018

57. NIUE September 2017

58. NORWAY September 2017

59. POLAND September 2017

60. PORTUGAL September 2017

61. ROMANIA September 2017

62. SAINT LUCIA September 2018

63. SAINT VINCENT AND THE GRENADINES September 2018

64. SAMOA September 2018

65. SAN MARINO September 2017

66. SEYCHELLES September 2017

67. SINT MAARTEN September 2018

68. SLOVAK REPUBLIC September 2017

69. SLOVENIA September 2017

70. SOUTH AFRICA September 2017

71. SPAIN September 2017

72. SWEDEN September 2017

73. SWITZERLAND September 2018

74. TURKS & CAICOS ISLANDS September 2017

75. UNITED KINGDOM September 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.