Structured Finance: FATCA And The OECD Common Reporting Standard

More than 90 jurisdictions, including all 34 member countries of the Organisation for Economic Co-operation and Development ("OECD") and the G20 members, have committed to implement the Common Reporting Standard for automatic exchange of tax information ("CRS"). Building on the model created by FATCA, the CRS creates a global standard for the annual automatic exchange of financial account information between the relevant tax authorities.

The major structured product issuer jurisdictions, including the British Virgin Islands, Cayman Islands, Ireland, Luxembourg and the Netherlands, are among a group of over 50 jurisdictions known as the "Early Adopters Group" that have committed to the implementation of the CRS by the end of 2015 and the first exchanges of information in 2017. In terms of the number of potential reporting financial institutions under CRS, the membership of the Early Adopters Group is significant (e.g. financial institutions in the Cayman Islands and Ireland together account for approximately 30% of those entities registered with the IRS for US FATCA). All EU members, with the exception of Austria, are also members of the Early Adopters Group.

The OECD released the full version of the CRS on 21 July 2014. The full version includes commentaries and guidance for implementation by governments and financial institutions, a model Competent Authority Agreement, standards for harmonised technical and information technology modalities (including a standard reporting format) and requirements for secure transmission of data. Each participating jurisdiction will be required to enact domestic legislation or rules to provide for the implementation of the CRS. The Cayman Islands government has indicated that specific regulations will be issued in October 2015 in relation to implementing the CRS in the Cayman Islands. Ireland is also expected to pass relevant regulations later this year. The United States has, so far, not joined the CRS initiative given the extensive network of intergovernmental agreements it has already signed up with respect to FATCA.

CRS COMPLIANCE - FATCA PLUS

Without doubt, the introduction of the CRS will represent an increased compliance burden for financial institutions. With the existing FATCA compliance burden in mind, and with the aim of maximising efficiency and reducing costs for financial institutions, the CRS is closely modelled on the existing FATCA intergovernmental regime. The significant overlap between CRS and FATCA should permit recently introduced FATCA due diligence and reporting procedures to be leveraged. However, the universe of reportable...