OECD’s CRS: impact on Bermuda family offices

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  • Ashley Fife of Appleby

    Ashley Fife of Appleby


The common reporting standard (CRS) is the Organisation for Economic Cooperation and Development’s (OECD) model for the automatic exchange of information (AEOI) between jurisdictions worldwide.

The aim is to increase tax transparency and eliminate tax evasion globally.

This column reviews the status of the steps that the Bermuda Government is taking to implement CRS, and addresses issues that Bermuda trustees and family offices should raise with settlors, beneficiaries, protectors and other persons who have a connection with the trusts they oversee.

Until recently, the ability of a taxation authority in one jurisdiction to obtain information regarding its tax residents from financial institutions in other jurisdictions was largely dependent on the existence of a tax information exchange agreement (TIEA) between those jurisdictions. However, accessing information under TIEAs is not straightforward or guaranteed.

With AEOI agreements, the exchange of reportable information between participating jurisdictions is automatic. AEOI represents a drastic change to the approach of exchanging information relating to tax residents’ interests in overseas entities or accounts. The information reported under CRS may be used by participating jurisdictions to investigate its tax residents’ tax affairs and seek further information under a TIEA.

On October 29, 2014, along with 50 other jurisdictions, Bermuda signed a multilateral competent authority agreement (MCAA), thereby becoming a CRS “early adopter”. There are now close to 100 CRS participating jurisdictions.

Bermuda reporting financial institutions have reacted quickly to develop and implement infrastructure, policies, procedures, data safeguards and staff training for CRS. Since January 1, 2016, reporting financial institutions in Bermuda, including Bermuda licensed trustees, have been performing CRS due diligence. Bermuda licensed trustees are essentially required to report on the nature and value of deemed interests in trusts and Bermuda resident underlying entities of reportable beneficiaries, settlors, protectors and persons otherwise exercising ultimate effective control over a trust. Reports are made to Bermuda’s Ministry of Finance who will then report to relevant participating jurisdictions annually from 30 September 2017.

A second wave of more than 40 participating jurisdictions will commence exchanging information annually from September 30, 2018.

Bermuda has amended the International Cooperation (Tax Information Exchange Agreement) Act 2005 (Act) and other laws primarily to enable and require reporting financial institutions to comply with Bermuda’s AEOI agreements, including CRS. The Act provides that failing to produce information to the Minister of Finance required under an AEOI agreement is an offence punishable by a fine of up to $10,000 or up to six months imprisonment unless the person has a reasonable excuse for the non-compliance.

Bermuda adopted Annex E “local issues” to the MCAA on March 1, 2016, retaining a right to refuse to exchange information with certain participating jurisdictions in particular circumstances, confirming “nil reports” are not required and making elections regarding due diligence and reporting of “pre-existing accounts”. Presently, the Bermuda Government is required to report to participating jurisdictions that have agreed to report to the Bermuda Government.

Prior to CRS, Bermuda had entered AEOI agreements with the US regarding the Foreign Account Tax Compliance Act (FATCA) and the United Kingdom regarding the UK Crown Dependencies and Overseas Territories Agreements (CDOT). Bermuda’s licensed trustees have commenced reporting under these bilateral agreements. CRS is a multilateral agreement having wider scope, requiring reporting to numerous participating jurisdictions. Interestingly, the US has not adopted CRS.

The application of CRS to trusts is complex. CRS may treat trusts like bank accounts with account holders. However, a trust is a fiduciary relationship whereby a settlor transfers property to a trustee to hold for or towards one or more beneficiaries or purposes. Trusts may have different types of beneficiaries. Discretionary beneficiaries are not guaranteed distributions. A protector is a person who is given powers to provide directions to trustees or veto trustees’ proposed exercise of powers. Protectors’ powers vary from trust to trust. Protectors often are not entitled to distributions. Not all trusts have protectors.

The Society of Trust and Estate Practitioners continues to seek clarity from the OECD on numerous points regarding CRS. These include: the classification of private trust companies; whether protectors of certain trusts should be reported; the deemed “account balance” of protectors and settlors in a trust fund; and the information to be reported following the termination of a trust, change of protector, or death of a settlor.

Trustees and family offices should consider factors that impact on what is reported and when, including the classification of trusts and underlying entities as “financial institutions” or “non-financial entities” — and the jurisdiction in which underlying entities, custodians, beneficiaries, settlors, and protectors are resident.

The Bermuda Government is expected to shortly select a service provider to assist it to, with the guidance of KPMG:

• Develop the portal and other infrastructure to enable Bermuda reporting financial institutions to report to the Bermuda Government and for the Bermuda Government to exchange information with other participating jurisdictions; and

• Prepare regulations and guidance notes with respect to the application of Bermuda’s AEOI agreements.

It is anticipated that such regulations may clarify the application of certain aspects of CRS reporting in Bermuda, set out anti-avoidance rules and may require Bermuda reporting financial institutions to advise reportable persons of the information reported.

As an early adopter, Bermuda demonstrated its commitment to participate in international efforts to eliminate tax evasion. CRS represents an opportunity for licensed trustees and family offices to work through complex issues with trust settlors, beneficiaries and protectors in order to transition to the age of tax transparency.

Lawyer Ashley Fife is a Senior Associate with the Private Client and Trusts Practice Group at Appleby. A copy of Mr. Fife’s column can be obtained on the Appleby website at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.

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Published Oct 20, 2016 at 8:00 am (Updated Oct 19, 2016 at 8:05 pm)

OECD’s CRS: impact on Bermuda family offices

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