Cyprus will as of January 1, 2016 have a new tool in its arsenal to identify monies hidden abroad as the island will begin implementing the Common Reporting Standard (CRS), the Institute of Certified Public Accountants said.
The CRS is formally referred to as the Standard for Automatic Exchange of Financial Account Information. It is an information standard for the automatic exchange of information (AEoI), developed in the context of the Organisation for Economic Co-operation and Development (OECD).
The legal basis for exchange of data is the Convention on Mutual Administrative Assistance in Tax Matters and the idea is based on the US Foreign Account Tax Compliance Act (FATCA) but more expansive.
Speaking to the Cyprus News Agency, a member of the board of the accountants association, Marios Skandalis estimates that the implementation of the standard would be positive for Cyprus as it would help eliminate any shady practices in the financial sector, which would aid in attracting ‘healthier’ business to the island.
“Such a development can only have positive result in the Cypriot economy and the services sector,” he said.
“On this basis, Cyprus as a financial services centre will attract ‘healthy’ investors and certainly any business that may not have been fully transparent will gradually withdraw from the Cypriot market,” he added.
The CRS has been signed by 93 countries which have agreed to participate in the programme, with 58 of them – including Cyprus – early adopters that will begin implementation on January 1, 2016.
Although based on FATCA , the US system only shares information when it comes to accounts in excess of $50,000, the CRS has no such minimum.
“The volume of required reports… compared with FATCA, will be significantly higher,” said Skandalis.
In essence, under this scheme, the tax authorities that have signed the standard must obtain the information from their financial institutions and exchange that information automatically with the partner countries on an annual basis.
Skandlis said it would cover different types of investment income, including interest and dividends but would also provide for cases where people try to hide funds or assets to avoid paying taxes. It will also limit opportunities for people to hide such assets or cash through shell companies and cover not only banks but also other financial institutions including use of brokers, investment firms and certain insurance companies.
“The more countries that join the more transparency there will be worldwide,” said Skandalis.
“The elimination of tax evasion is high on the agenda of most governments, including the Cypriot government, which wants to limit the loss of tax revenue instead of implementing unpopular austerity measures.”
Skandalis said the CRS would eliminate the need for such things as the ‘Lagarde list’. The so-called ‘Lagarde’ list is a registry of Cyprus-based depositors at the Swiss branch of HSBC bank, delivered by the French finance ministry to the Cypriot authorities in August.It includes 490 cases, both Cypriot individuals and legal entities who have accounts in Switzerland. The finance minister has said that on the instructions of the Tax Commissioner, detailed checks of the raw data are already underway, and noted that the procedure could provide an indication of the possible revenues to public coffers from unpaid taxes.