The idea of the scheme would be to commit financial institutions in participating countries to collect financial account information of non-residents and to report that information to the national tax authority. That authority would then be required to send this information to their counterparts in that individual’s country of residence.
The areas of concern include:
- How to ‘look through’ (in trusts, for example) to the ultimate controlling entity
- Frequent cases where individuals change their tax residence
- The compliance costs to smaller Australian financial institutions which are not currently part of the US Foreign Account Tax Compliance Act (FATCA) regime, which is now operational in Australia and on which the OECD standard is based
- The fact that this scheme is based on calendar year while the Australian tax year starts on 1 July . The interaction of these two regimes will increase compliance costs
- Australia uses Tax File Numbers, and is not part of the proposed global tax identifier regime
- Financial institutions may lack all the information necessary for the standards to work, such as birth dates and places of all individuals
- The lack of any materiality criteria in the CRS, which could lead to significant compliance costs where revenue loss is not material
- The concerns of confidentiality of taxpayer information – how can it be guaranteed this information is used wholly for tax purposes?
Jenny Clarke, KPMG Financial Services Tax partner, said: “As host of the G20 this year, Australia has committed itself to spearheading the OECD tax agenda, so the CRS will no doubt be established here but we do have concerns about the implementation of such a standard, and the compliance costs involved, particularly for smaller financial institutions. The fact that Australia operates on a different tax file number identification system to many of the countries who will be taking part in the CRS is problematic. And the danger of potential leakage of information is a concern. While the OECD’s aim is worthy, there are a lot of practical issues to be worked through on this.”
Read the Treasury paper, released on June 19.