CRS came into effect in 2016 for a large group of early adopter jurisdictions, with the first reports due in May this year.
A second wave of countries will officially join the global transparency initiative in 2017 taking the total number of participating nations to more than 100.
“A lot more companies could have reporting obligations under CRS even though they are exempt under the US Foreign Account Tax Compliance Act (Fatca),” Wilkinson told International Adviser.
Whereas Fatca only applied to US taxpayers, CRS casts a wider net and impacts significantly more people and institutions.
"Some firms that have been comfortable that they didn’t have to do anything under Fatca might now have to do something because of CRS."
Wilkinson said: “Under the Fatca rules, there is a category of financial institution that is ‘deemed compliant’. Financial institutions in this category are generally exempt from having to file reports.
“But there is no such category under CRS,” he warned.
As a result, some entities may now be required to file CRS returns to make sure they are compliant.
In the UK, CRS/Fatca returns do not have to be filed when they would be ’nil returns’, Wilkinson explained.
This means that some financial institutions will avoid the need to file CRS returns, although they will still be required to carry out a certain level of due diligence in respect of their account holders.
In some other participating jurisdictions, however, there is a possibility that firms and entities previously exempt under Fatca will need to register with their local tax authority and provide annual reports, even if there are no reportable accounts.
The local rules in each relevant participating jurisdiction will have to be consulted to determine whether there is a filing requirement.
“There wouldn’t necessarily be a heavy compliance burden as a result of CRS,” Wilkinson said. “But some firms that have been comfortable that they didn’t have to do anything under Fatca might now have to do something because of CRS, even if it is just filing a nil return.”
Owner documented and sponsored financial institutions
Another element of Fatca that doesn’t exist under CRS is the concept of an ‘owner documented’ financial institution, whereby some financial institutions, effectively delegate their Fatca reporting to the firm managing their assets.
Where the asset manager agrees to take on this responsibility on behalf of its clients, the Fatca compliance burden for some investment entities, such as small family trusts, can be significantly reduced.
“There is no such feature under CRS,” Wilkinson said. “That’s another case where a business may be comfortable with their obligations under Fatca where they just provide information to their asset manager, but have not yet realised their own direct reporting obligations under CRS.”