New Year’s Day2016 is an important date in the calendar for taxpayers with offshore bank accounts and investments.
The date is when the international tax landscape changes forever as a new era of compliance and co-operation between almost 100 countries starts.
Global FATCA or the Common Reporting Standard (CRS) starts around the world and basically extends the US Foreign Account Tax Compliance Act (FATCA) worldwide.
FATCA has been in place for a decade but has only recently started to automatically swap tax and financial data between the Internal Revenue Service (IRS) and foreign tax authorities.
The idea is non-US financial institutions managing accounts or investments that are controlled by US taxpayers report the details to the IRS.
Global FATCA starts
In return, the IRS sends the same information from US financial institutions to other tax authorities that are part of the network.
The CRS is a truly global FATCA, with all the major financial centres in the world as members and all of them automatically swapping tax data with other countries.
CRS goes live on January 1, 2016.
From then, financial firms must start identifying where their customers are tax resident ready for when reporting for the 2016-17 tax year starts in May 2017.
This leaves taxpayers with a window of three months to put their financial affairs in order if they have not declared offshore earnings or gains as details of the accounts from April 2016 will be disclosed to their home tax authority.
Taxpayers will know when their financial firms are readying to make a CRS report because they should receive a self-certification form confirming their personal details and asking where they are resident for tax.
No hiding place
The financial institution will also ask for documents as proof of residence.
That is all taxpayers have to do to become part of global FATCA – confirm their personal details.
The rest is carried out by the financial institutions and tax authorities.
The financial institution sends tax data to their national tax authority. This is forwarded to the taxpayer’s home tax authority and information about earnings and investments is cross-checked against submitted tax returns.
If they do not match, the taxpayer can expect to have to answer some questions.
It’s no good moving money now to avoid detection, because part of the CRS agreement is that financial institutions must report this as well in the lead up to full disclosure.