CRS Reporting & Human Rights Concerns: Updated Guidance in the UK
Steve Sokić, Managing Director, Corporate & Private Client
For those not familiar with "CRS", it is the Common Reporting Standard (CRS), developed in response to a G20 request and approved by the OECD in 2014, which calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Over 100 jurisdictions have committed to CRS (with the USA being one notable exception) with 55 'going live' in 2016.
The stated purpose of CRS was/is to help detect and deter tax evasion - difficult to argue that objective. However, critics of CRS have long argued that it represents a fundamental breach of human rights (e.g. contrary to "respect for private & family life" under Article 8 of the European Convention of Human Rights, see Link) and is indeed unnecessary in the fight against tax evasion given the existence of other more balanced mechanisms like bilateral tax information exchange agreements ("TIEAs") promoted by the same OECD & adopted by most countries around the world (see Link) as well as various anti-money laundering laws and regulations globally.
On that note, rather extra-ordinary new guidance has recently been issued by the UK tax authorities (the HMRC, in late January 2017, see Link) in regard to CRS reporting, namely in limiting CRS reporting in respect of certain foreign donors to UK charities that reside in unstable countries where the provision of such data to such countries by the UK may compromise such donors' human rights.
Although CRS provides that safeguards should be put in place to ensure such information can only be used for the purpose for which it has been supplied (i.e. for the prevention of tax evasion), many around the world have voiced concerns that the information may be used by authorities in some countries (i.e. that are "fantastically corrupt" as former UK Prime Minister Mr David Cameron once put it and/or run by otherwise repressive regimes) for other illicit purposes which might endanger those about whom reports are made.
One must remember that CRS does not provide for any exception, limitation or restriction to the collection and exchange of information, so if an entity (charity, individual or other entity) fits the reporting definitions, the rules require automatic exchange of information which is independent of any actual risk of tax evasion.
This new, potentially significant, guidance by the HMRC (a first by any CRS jurisdiction) recognises that in some cases, the activities or background of an individual about whom a report must be submitted to HMRC may mean that supplying this data to the other jurisdiction may place them at risk (e.g.risk of extortion, kidnapping etc, see a related LinkedIn Post entitled "The Global Kidnapping Epidemic"). It sets out the process by which the charity can notify the HMRC of its concerns about the human rights of a donor, and the process by which such data is excluded from the CRS transmissions to the other relevant jurisdiction.
Having said all that, the next & perhaps more important question is, using the same human rights argument, should there not be a similar mechanism/ exception in the UK to restrict CRS reporting in respect of all foreign individuals living in such unstable countries? Presumably those people also have similar human rights risk to those of donors to UK charities? If that happens, then will other jurisdictions follow the UK lead? Time will tell....
P.S. I'd be remiss if I didn't at least make brief mention of Mr Filippo Noseda's (of the law firm of Withers Worldwide) insightful commentary on this subject, including his plea for a suitable candidate for a court case in the European Court of Human Rights - see Link here).
Author: Steve Sokic, Global Head of Private Client at SANNE.