iConsult Legal

common reporting standards and the uncommon reporting solution

t h e s o l u t i o n

the problem

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”the OECD Common Reporting Standard (CRS) is more than just tax ‘enforcement’. It is the misdirection of the people to an illusory demon, it is the sharing of ’Big Data’ between governments on private citizens, the

first stage in a governmental ‘block chain’ of the money supply, the reporting of the same account, the same income ,on multiple persons, in multiple jurisdictions, to multiple charges with no franking. There are non ‘first world’ consequences when privacy is life and death, not avoiding tax. Professional compliant fiduciaries are choosing to withdraw service, leaving families without trusted advisors, to manage complex dynastic structures without the navigator who helped plot the course”

the rules of the game

CRS frameworkWhat is the

CRS?

• Common due diligence and reporting standard for automatic exchange of financial account info

• Effective 1 January 2018• Effective 1 January 2017 for early adopters (e.g. India, Dubai, the UK)

CRS applies where?

ReportableFinancial

Institution

Reportable Account

Reportable Persons

Reportable Information

• Custodial institutions• Depository institutions• Investment entities• Certain insurance companies (i.e. where excluded

from reporting because low risk of use in tax evasion)

• Individual account holders• Controller of account holder (if account

holder is a passive or investment entity)

• Individuals• Passive entities * (including opaque entities,

trusts, foundations)• Look through passive entities to identify

controlling persons

*not passive where: active NFE or passive investment entity that is a non-Participating Jurisdiction Financial Institution

limited deMinimus exemptions

CRS – what’s reported?

• for account holders/controlling persons that are reportable persons with respect to multiple participating countries . . .

• the entire account balance or value the entire amount of income or gross proceeds “shall” be reported to each participating country.

• CRS requires financial institutions to look through shell companies, trusts or similar arrangements, including taxable entities to cover situations where a taxpayer seeks to hide the principal but is willing to pay tax on the income

• no similar rule under FATCA or any IGA

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the U.S. and CRS - equal before the law?

• Treasury and the IRS believe they don’t have the regulatory authority to require U.S. financial institutions to collect all the information required under both FATCA and the CRS.

• persuading Congress to make the necessary changes to U.S. law doesn’t seem like a viable solution in the current political environment

• banking lobby seemingly opposed, no benefit for U.S. banks • only U.S. Senate can ratify a “treaty” – requiring 67% - extremely unlikely

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US outbound reporting

• FATCA IGAs require outbound reporting to home country of account holder when either: i) the account holder is a natural person and has a depository (e.g., savings account) generating

at least $10 of interest; orii) in the case of a financial account other than a depository account, its “holder” is resident in the

counterparty country. • Since a “holder” includes a person holding equity or debt interests in a “financial institution”

investment entity, owners of U.S.-based FIs are to be disclosed by the U.S. under FATCA• Outbound reporting for “U.S. financial institutions” (“USFIs”) when all three conditions exist:

i) IGA;ii) Managed by professionals – either a retail trust company or discretionary asset manager; andiii) Holds predominantly financial assets

• Trusts are non-financial entities (“NFE”) when not USFIs • Therefore avoid reporting as USFI, by ensuring structure is a “non-financial entity”, including

a passive NFE

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U.S. estate tax

• non-U.S. persons are subject to U.S. estate tax with respect to “U.S.-situs” assets that they own at death

• barring treaty protection, $60,000 is exempt with balance taxed up to 40% of gross value (not “gain”)

• shares in U.S. corporations are considered “U.S. situs” assets – e.g. 600 shares of Apple

• trust in which the settlor is a beneficiary is generally considered owned by the settlor at death. Thus assets in trust are subject to estate tax at 40%.

• a U.S. law provisioned trust in which the settlor is interested will expose the settlor to U.S. estate tax even if the trust is a “foreign person” due to rights of non-U.S. parties

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the solution

• no capital gains tax for non-resident aliens, foreign trusts or entities on U.S. investments (excluding U.S. real estate and U.S. trade / business

• relative confidentiality and security of bank & tax information • treaty network• generally taxable in the U.S. only on U.S. source dividend income. • most other income (capital gains, interest) is exempt • a foreign trust will not cause non-U.S. beneficiaries/settlor to pay U.S. tax on capital gains

or most interest payments even though earned or distributed

Pence Realty Holdings LLC

Perpetual Purpose Trust(Wyoming)

Perpetual Private Trust Company

(Wyoming)

Obama Family Settlement(Wyoming)

Trump LLC

Kip Keno Settlement(Switzerland)

Non US CSP

Non US CSP

Non US CSP

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common reporting standard – the solution conclusion

• no reporting under CRS as U.S. is not a signatory

• banking lobby in U.S. recognizes costs of implementation and competitive advantage to being non-signatory.

• under FATCA, reporting only for “U.S. financial institutions” (“USFIs”) when all pre-conditions exist

• trusts are non-financial entities when not USFIs, tax neutral, private, and easy to establishAllows non-U.S. service providers to continue

relationships with their clients while addressing privacy needs of familiescontact us at mathew@iconsultlp.com or ian@itrust.hk for further

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