2015 promises to be an eventful year in the world of global tax transparency. In accordance with the provisions of the U.S. Foreign Account Tax Compliance Act (FATCA), financial institutions continue to face significant due diligence challenges in terms of pre-existing account remediation on behalf of their account population by June 30, 2016 and information reporting on behalf of payments to U.S. taxpayers by June 30, 2015. A further challenge awaits financial institutions in the next initiative in global tax transparency - the Common Reporting Standard (CRS) - which comes into effect in January 2016 and is a global initiative compared to the U.S. centric FATCA. Brown Brothers Harriman has developed solutions to meet the provisions of FATCA and is currently developing solutions for the CRS. We would like to use this opportunity to inform you about the requirements and associated challenges of the CRS.

Where are we today?

The CRS is an Organization of Economic Co-operation & Development (OECD) lead initiative targeted at tax evasion. Since October 2014, over 90 jurisdictions have signaled their intention to adopt it (see Appendix for the list of jurisdictions) with 61 of these jurisdictions formally committing to a common implementation timeline. The regime will oblige Reporting Financial Institutions (RFIs) to implement account due diligence and reporting procedures, much of which will build on the requirements of the existing FATCA Model 1 Intergovernmental Agreements (IGAs). The crux of the regime will require RFIs to identify the tax residencies of all of their account holders and to report client and account information to the RFIs local tax authority. The first go-live date for the CRS is January 2016 for account due diligence obligations, with the first set of reports due in 2017*.

How did we get here?

The counteraction of tax evasion carries with it economic, political and moral motive and is moving up the agenda of governments globally. The globalization of the world’s financial system has meant that it has become ever easier for people to invest outside of their country of residence, which in turn has challenged the integrity of tax systems.

Following the financial crisis of 2008 and a series of data leaks, global leaders have been pushing for a regime to harmonize international tax cooperation through information sharing and the task of developing this regime was taken on by the OECD. The introduction of the FATCA IGAs and the Convention on Mutual Administrative Assistance in Tax Matters has provided an operational and legal platform for jurisdictions to share information. The OECD has built on this to develop the CRS – the global standard of automatic exchange in tax information.

61 jurisdictions formalized their commitment to the CRS by signing a Multilateral Competent Authority Agreement and, on the back of this, many more jurisdictions have expressed commitment to adopting the CRS. This has therefore taken the anticipated number of jurisdictions in scope of the regime beyond 100. Among this list are the major global financial centers with the U.S. being the most notable exclusion, although as a member of the G20 their future participation is expected.

Like FATCA, the burden of executing the requirements of the CRS will fall onto RFIs – a criterion of a financial institution in jurisdictions that have adopted the CRS and a criterion that is likely to encompass a large number of banks, insurers and asset managers. It is likely that the immediate future of tax information exchange for these financial institutions will be dominated by two regimes: CRS and FATCA.

What is expected from RFIs?

Unlike FATCA, which has three points of emphasis, the CRS has two main points: Account due diligence and reporting.

  1. Account due diligence: earliest effective date for new accounts is January 1, 2016 and pre-existing accounts to be remediated by December 31, 2017*
  2. Reporting: earliest effective dates in 2017*

As the CRS will be enforced locally, jurisdictions will have to devise their own mechanisms to police compliance. This is likely to take the form of penalties but it is possible that jurisdictions may choose to impose a withholding tax.

Account due diligence:

Like FATCA there will be a series of account due diligence requirements – new account due diligence and pre-existing account due diligence, the latter having two components: high value individual accounts (aggregate over $1mm) and all other pre-existing accounts. A key difference is, unlike FATCA, where accounts with a $50,000 or less balance could be excluded, under CRS, no individual de minimis thresholds apply. 

Under the CRS, RFIs will be required to obtain a Self-Certification statement from account holders certifying, amongst other data points, their tax residencies. The Self-Certification statement is an account opening document introduced through FATCA Intergovernmental Agreements and is likely to be expanded under the CRS, becoming a key part of investor onboarding documentation.

Account holders who are certain passive non-financial entities (passive NFEs) will have further documentation requirements, as controlling persons of these entities may need to complete a Self-Certification statement. The definition of a passive NFE is broader than the corresponding definition under FATCA, and this may pose challenges to RFIs documenting clients between the two standards.

* Dates quoted are for early adopters. Late adopters will have a similar timeline but one year on – so January 1, 2017 and December 31, 2018 respectively, with first reporting dates in 2018.

The pre-existing account due diligence process is likely to leverage on existing AML / KYC information that already exists on file for account holders. Where there are gaps in existing AML / KYC data then account holders may need to be contacted for further information and possibly required to complete a Self –Certification statement.

The end game of the due diligence requirements is to determine if the account is reportable. A reportable account includes account holders, or controlling persons of a passive NFE, tax resident in another CRS participating jurisdiction. This is therefore expected to result in a significant number of reportable accounts.


The CRS reports will need to be submitted to the RFIs local tax authority and will be closely aligned to the FATCA reporting required under a Model 1 IGA, where an XML schema provides the facility for financial institutions to report. Local tax authorities in CRS participating jurisdictions will work together to exchange information bilaterally about tax residents of their particular jurisdiction.

The data to be reported under the CRS is similar to the requirements of FATCA where account holder details including account balances are to be reported. Examples of key differences from FATCA to note are:

  • Tax residency - being the key data point of the CRS, tax residencies of a reportable person are to be reported. Furthermore, tax identification numbers and, where local law permits, date and place of birth are reportable.
  • Volume - FATCA focuses on the reporting of U.S. persons whereas the scope of reporting under the CRS is much broader, as tax residents of other participating CRS jurisdictions are all reported. This is likely to significantly increase the volume of account holder data being reported under the CRS.

What are the challenges for RFIs?

Financial institutions face a number of operational challenges from the CRS. These challenges largely come as a consequence of the scale of this regime, with RFIs having to perform due diligence on all clients and reporting to a slightly lesser extent. Therefore, the future of client onboarding is that such tax transparency regimes will become a normative part of this activity, sitting alongside existing regulations such as AML / KYC. The challenges posed from this can be viewed through three lenses:  compliance, customer service and cost.


  • The next few years will pose challenges to RFIs who will have the burden of implementing, managing and transitioning between multiple tax information exchange regimes. The foremost examples of this are FATCA and the U.K. Crown Dependencies & Overseas Territories Act which both have deadlines running into 2016/17 which coincide with CRS go-live dates, with the latter being absorbed by the CRS.


  • Effective gathering of the required CRS information from clients will be critical for ensuring compliance and management of the associated costs of executing the regime. RFIs will be challenged to gather information from clients for a variety of client onboarding regulations and facilitating the client facing process effectively will help to ensure that accurate information is collected first time whilst achieving an appropriate client experience.


  • Collecting, validating and storing additional data points and documentation for the CRS will require RFIs to commit resources to implementing and executing the required standards. Leveraging experience from FATCA implementation and existing FATCA, AML / KYC processes will be important for creating a cost effective, compliant client onboarding and CRS operation.

How can BBH assist?

Brown Brothers Harriman (BBH) has developed solutions to address key aspects of the FATCA provisions of account identification, withholding and reporting. We are progressing with our CRS project, so far identifying a material impact for BBH and our clients across our Custody, Transfer Agency and Trust Services businesses. As the project moves through 2015 we will be exploring opportunities to work with our clients on servicing the provisions of the CRS and will be looking to discuss this with you in due course. We remain committed to sharing our insights and views on both FATCA and the CRS and welcome the opportunity to discuss further with you the CRS and our service offerings around FATCA.

For more information, please contact your BBH Relationship Manager or Global Tax Services Group:

Christopher Craddock  tel: +44 20 7614 2493 email: christopher.craddock@bbh.com
Glen Lovelock tel: +41 44 227 18 76 email: glen.lovelock@bbh.com
Orinne McCloskey  tel: +1 617 772 1313email: orinne.mccloskey@bbh.com
Fred Chin  tel: +852 3756 1765 

email: fred.chin@bbh.com

Appendix: Automatic Exchange of Information: Status of Commitments (as of July 2015)


1 The United States has indicated that it will be undertaking automatic information exchanges pursuant to FATCA from 2015 and has entered into intergovernmental agreements (IGAs) with other jurisdictions to do so. The Model 1A IGAs entered into by the United States acknowledge the need for the United States to achieve equivalent levels of reciprocal automatic information exchange with partner jurisdictions. They also include a political commitment to pursue the adoption of regulations and to advocate and support relevant legislation to achieve such equivalent levels of reciprocal automatic exchange.       

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