LEGAL VIEWPOINT: The Common Reporting Standard (CRS) from OECD Vs. Tax Evaders by Dr AbdelGadir Warsama Ghalib, Legal Counsel, Bahrain

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Dr AbdelGadir Warsama Ghalib, Legal Counsel

All countries adopt clear tax policies and issued many laws and regulations to ensure proper implementation of such policies to benefit national economies. In this respect, there are tough stringent laws to protect tax-payers and, likewise, to punish tax evaders (non-payers).

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Most people, from nationalistic view point, pay tax on voluntarily regular basis. However, irrespective of this good trend, there are some tax evaders who inadvertently run away with tax due monies. The situation to run away and keep money abroad, makes it important to look for international arrangements to assist in tax collection from all tax-payers everywhere.

The Organization for Economic Cooperation and Development (OECD)developed the Common Reporting Regulation (CRS), which is a global reporting standard for the Automatic Exchange of Information (AEOI). The main purpose for this reporting methodology is to enable tax authorities in each country to collect necessary information if their tax-payers keep or (hide) taxable money abroad. The CRS system was welcomed and adopted, so far, by more than 100 countries including almost all Gulf Countries. This support, no doubt, encourages proper implementation of tax collection and boosts transparency at the global level to combat tax evasion and similar financial international crimes.

The CRS provides that, financial institutions shall report to their local tax authorities\ regulators any financial assets they are holding on behalf of foreign tax-payers. Thereafter, the local tax authorities\ regulators shall exchange such information with the respective foreign tax authority or otherwise. No doubt, the outcome of such global cooperation will close the doors and work against the unilateral wish of tax evaders. Achievement of such genuine goal, however, requires strong united stand supported by all countries without any exception. One unified stand and unified approach, otherwise in case of any leakage, the good intention will be defeated.

As explained, many countries stood firmly and confirmed their concurrence to CRS. In Bahrain, for example, the Central Bank of Bahrain issued directives to all licensed financial institutions to abide by the new CRS guidelines and to implement them. In this respect, financial institutions are required to provide CBB with necessary information about tax evaders and thereafter to exchange the collected info as required by CRS.

The CBB directive provides that, Bahrain has chosen the (wider approach) reporting standard wherein all financial institutions are required to perform customer due diligence procedures on all accounts held by account holders for tax purposes. This is clear instruction from CBB to go along and comply strictly as directed.

CRS reminds us of FATCA, where US authorities are to have info about US citizens holding money abroad otherwise tough penalties will apply. We have all done extensive work regarding FATCA, which is almost in place now. Adherence to CRS & FATCA, no doubt, minimizes tax evasion. However, on the other hand, this puts additional burden on financial institutions as they are required to update their IT systems and programs, accounting records, accounts terms and procedures, legal opinions, logistical and legal back-up, up-to-date-training & know how…, etc.

Tax evasion is a crime that needs tough stand and unfortunately many rich ran away with tax money that could be unitized for the betterment of all. “Panama leaks” and “Tax heavens” records, have uncovered the hidden mal-intention of big sharks “big-pockets” and drastic steps are required otherwise others will follow suit and the Treasury will be empty…

Financial institutions shall, as usual, be carefully vigilant, closely cooperative and utmost professional in complying the current local and international laws\ regulations or agreements\ conventions to combat all financial crimes being money laundering or terrorism financing or tax evasion or otherwise. Streamlining and cleansing the financial sector is of paramount importance and a priority national duty. Let’s go for it, collectively as one hand in one heart standing firmly against criminals and fraudsters.

All financial institutions shall be prepared to comply and apply CRS, as and when required, otherwise incumbent penalties will be applicable. Don’t take the risk and take the lead in this legal legitimate walk to curb financial crimes.