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CRS and Trusts


What is CRS?

Common Reporting Standard, CRSThe OECD’s new Common Reporting Standard mandates that financial institutions must report information to their own domestic authorities relating to account holders that are tax resident in any of the over 90 jurisdictions, that have signed agreements to implement Common Reporting Standard into domestic legislation.  

In addition to the CRS, the OECD has published the CRS Implementation Handbook and also maintains and regularly updates a list of CRS-related Frequently Asked Questions.

For the earliest adopters, which include Ireland, Mexico, and the UK, the Common Reporting Standard commenced on 1 January 2016. New Zealand, Panama and Switzerland will start to report in 2018.  The US is not a party to the CRS. 

What will be reported?

Financial institutions will need to gather information sufficient to classify and verify the Common Reporting Standard classification of each customer or investor. Then for each Reportable Account, report the following information annually to their local tax authority: 

a) The name, address, tax ID number;
b) Date and place of birth of each Reportable Person;
c) The account number;
d) The account value.

Related: Concrete Actions Needed To Advance Global Tax Transparency: OECD 

Entity Classifications

Since Financial Institutions have reporting obligations and Non-Financial Entities do not, entity classification is a crucial aspect of the Common Reporting Standard

There are 4 types of possible Financial Institution classifications:

1) Custodial Institutions

Securities or brokerage firms

2) Depository Institutions


3) Investment Entities

Type A: Trust Companies, Asset Management Firms

Type B: Trusts, Portfolio Holding Companies, Mutual Funds

4) Specified Insurance Companies

If it is not a FI, then an entity is necessarily a Non-Financial Entity (NFE). These fall into two categories:

  • Passive NFE, or
  • Active NFE
An entity is an Active NFE if less than 50% of its income is passive and less than 50% of its assets produce or are held for the production of passive income. 

As a CRS anti-avoidance rule, Type B Investment Entities residing in Non-Participating Jurisdictions must also be treated as passive NFEs.  FIs are required to “look through” passive entities to report on individuals that ultimately control these entities. 

Related: Using Big Data To Catch Tax Avoiders

Investment Entities

Under the Common Reporting Standard:

A Type A Investment Entity is an entity that primarily conducts as a business, for or on behalf of a customer, investing, administering, or managing Financial Assets or money on behalf of other persons. 

A Type B Investment Entity must meet a two-pronged Gross Income and Managed By test:

1) The Gross Income test requires that the entity’s income must be primarily attributable (more than 50%) to investing in Financial Assets.

2) The Investment Entity must be ‘managed by’ a Custodial Institution, Depository Institution, Specified Insurance Company or a Type A Investment Entity. The ‘managed by’ test requires that the managing entity invest, administer or manage Financial Assets on behalf of other persons.

Trusts as Financial Institutions

Trusts are generally Type B Investment Entities.  If a trust fails either the ‘gross income’ test or the ‘managed by’ test, then it would be treated as an NFE. 

The ‘gross income’ test would easily be met by trusts holding financial assets directly at trust level.  However, most trusts hold assets through underlying companies. 

Shares of underlying companies are considered Financial Assets under the Common Reporting Standard, so any income deriving from them would also be considered to be derived from Financial Assets for purposes of the ‘gross income’ test, even for fixed assets like real estate, art or yachts. 

The ‘managed by’ test would necessarily be met if the trustee is a professional trust company or if the trust holds Financial Assets at trust level, that are managed by a professional asset manager with discretionary authority. 

Related: The OECD Implements New Country-By-Country Reporting

Reporting by FIs

FIs that are Type B Investment Entities must report persons or entities holding Financial Accounts, including Equity and Debt Interests. 

If the shareholder is an active NFE, it would be reported to its jurisdiction of tax residence.  However, if the shareholder is a passive NFE, it would be reported, as well as its Controlling Persons, to their respective jurisdictions of tax residence. 

A Passive NFE does not have reporting obligations under the Common Reporting Standard.  Nevertheless, in almost all cases it will have financial accounts, perhaps bank accounts, with other entities, which do have CRS reporting obligations.  

Related: OECD Plans For The Automatic Tax Information Exchange Worldwide

Controlling Persons

In the case of a trust, the Controlling Persons are:

    • Any individual who is entitled to or will in the future be entitled to a 25% or greater interest in the trust property,
    • The class of individuals in whose interest the trust is set up,
    • Any individual who has control over the trust. This will include the:
  • settlor
  • protector
  • beneficiaries
  • or any individual who has the power to lend or invest the trust property or vary the trust terms 

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