After many years of discussion, a new international standard on the Automatic Exchange of Information (AEOI) was implemented.
Its purpose is to reduce the possibility of tax evasion by non-resident bank account holders who deposit or receive funds into accounts with financial institutions outside of their country of residence.
Known as the Common Reporting Standard (CRS), it was set up to discover formerly undetected tax evasion. It was designed to help governments to recover tax revenue lost to non-compliant taxpayers, and increase tax transparency.
The information which is to be reported by September 2017 is:
- the name, address, taxpayer identification number and date and place of birth of each reportable person.
- the account number.
- the name and identifying number of the reporting financial institution.
- the account balance or value as of the end of 2016 or, if the account was closed during such year or period, the closure of the account.
The first set of information is to be shared between:
Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom.
In my view, it is imperative for recruitment agencies to get a handle on which contractors are being paid in which countries, who is carrying out the payments and if ALL of the income earned is declared in the country of work (where applicable).
If you don’t have the information at this stage – it would be very prudent to get this information quickly and identify if your contractors are liable to face any issues.
If you have finances deposited in an offshore jurisdiction, now would be a prudent time to declare any funds deposited or stored offshore. If there has been undeclared income received, it would be wise to think about declaring that income to the tax authorities in your country of residence in the coming months. Before doing so, I would advise that you speak to your accountant, intermediary or financial advisor to obtain guidance on doing so.
In summary, international income taxation and international reporting is changing. It would be better for individuals to declare an I owe you (IOU) to the relevant authorities early, than receive a you owe us (UOU) from the authorities instead – the additional penalties may be much worse !