From the start of this month, the 56 “early adopter” countries (including the United Kingdom, Germany, France and Liechtenstein) have – or should have – collected data on accounts so that, from the start of 2017, they can exchange information automatically when other states' tax authorities ask for it. A second wave of countries will start collecting data in 2017 so as to be ready to swap data in 2018 - the ultimate deadline. Switzerland, the world’s largest offshore centre, is in the second group and CRS, which requires a change in all its' participants' laws, is thought to represent the death-knell of Swiss bank secrecy law. Singapore and Hong Kong are also both in the second group.

GATCA, the global FATCA

The CRS is, in some ways, a sort of “global FATCA,” to use the abbreviation for the US Foreign Account Taxation Compliance Act 2010 and is sometimes known as GATCA for that reason. The American legislation, enacted in 2010 and taking effect in stages, established the idea of extra-territoriality in tax compliance, with Uncle Sam chasing after expat Americans to discover whether they had been cheating him, and requiring thousands of non-US financial firms such as banks to fret about complying with laws written in Washington DC. With CRS now taking effect, however, it is no longer just America that is flexing its international muscles over tax. Everyone, it seems, wants to join the hunt for revenues and possibly to grab a chunk of the $11 trillion of assets held offshore (source: Boston Consulting Group, 2015 report).

So what do tax specialists make of the situation so far? Marnin Michaels, a Zurich-based partner at the global law firm of Baker & McKenzie, told this author that CRS is highly ambitious: “In many respects, CRS is the single most co-ordinated and unified approach to combating tax evasion ever seen on the planet. While the goals are commendable and understandably lofty, given the scope of the issue, CRS raises quite a number of concerns and challenges.

“What is clear is that CRS will have ramifications above and beyond the goal of ensuring that taxpayers report their income. It will affect every element of the banking system, from taxation to cross-border regulation. It is possible that the information being shared will lead to litigation, even if the taxpayer is compliant, because that information may be exchanged in a form that is not related to the way that the income is taxed in his jurisdiction of residence.”

The law of unintended consequences

Michaels also referred to the law that legislators frequently overlook: the Law of Unintended Consequences. He thought that an exchange of information could have unexpected effects, a view shared by Richard Cassell, partner at the offshore law firm of Withers.

"I don't think people have recognised the additional categories of information that will need to be reported,” he said. Cassell argued that the industry has yet to realise that CRS is not merely a global version of the FATCA rules. The definition of 'financial institution' in FATCA, for example - which can cover anything from a major bank such as Barclays or Deutsche Bank to a small trust in the Cayman Islands – does not always translate exactly into the 'financial institution' as defined by CRS and financial institutions cannot sponsor other companies under CRS. Trusts, for example, should be treated as financial institutions, he said: "They should do their own reporting because they know where the money comes from."

There is some ambiguity under CRS as to what counts as a non-financial entity; in most cases, an active NFE from lawyers I speak to, for example, in Miami and Panama where they are dealing with Latin American clients.” He said such clients are concerned not about tax but financial privacy and issues such as kidnap risk, adding that “those concerns are quite real.”

Another concern is about uncertainty over what is meant by residency for a person – it is not always clear. He said: “The scope for misinformation could be great. Lots of clients will want to seek clarification about their offshore assets…they won’t want to be fending off constant queries from HMRC.”

He said that from the start of this year, CRS already overrides any protection privacy normally afforded to persons connected to UK-resident non-domiciles regarding their assets held in British Overseas Territories/Crown Territories such as the British Virgin Islands, the Caymans, the Isle of Man, Guernsey, Jersey, Gibraltar and Bermuda.

As at December last year, according to the Organisation for Economic Co-operation and Development, the following nations were 'early adopters': Anguilla, Argentina, Barbados, Belgium, Bermuda, the British Virgin Islands, Bulgaria, the Cayman Islands, Columbia, Croatia, Curacao, Cyprus, the Czech Republic, Denmark, Dominica, Estonia, the Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, the Isle of Man, Italy, Jersey, South Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovakia, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, the Turks and Caicos Islands, and the UK.

The jurisdictions undertaking exchanges by 2018 are: Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, the Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, the Cook Islands, Costa Rica, Ghana, Grenada, Hong Kong, Indonesia, Israel, Japan, Kuwait, the Marshall Islands, Macao, Malaysia, Monaco, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, the United Arab Emirates, and Uruguay.