18 September 2019 - Article
As discussed in our earlier briefings, the Common Reporting Standard (CRS) is designed to combat international tax evasion by allowing countries to swap information on each other's tax payers. This is achieved by requiring banks and other 'Financial Institutions' to collect data on 'Account Holders' and report some of it to HMRC annually for onward global exchange.
Surprisingly for some, charities can be 'Financial Institutions' and so caught in the reporting web. The key consequence for those charities is having to collect information on their charitable grantees and report on some of them. Reporting charities will also need to collect information from their settlor(s), if living, and may need to report it.
The guidance for charities went live online on Friday 3 June and is available here.
The guidance is short and links in to HMRC's general guidance on the Automatic Exchange of Information in several places. It explains the due diligence and reporting requirements in very brief terms and charities may find it lacking in detail, particularly where the more general guidance may be difficult to apply to the circumstances of charities.
There are no substantive changes from our earlier briefing to flag, but charities reviewing the guidance might find the following clarifications useful:
- Reporting – A reporting charity must report to HMRC on its 'Account Holders' – for a charity this will be any of its charitable grantees who are tax resident in a 'reportable jurisdiction' and have in fact received a grant in the reporting year, and may include the settlor(s) if living.
- Due Diligence – HMRC have indicated that the manner in which self-certification of tax residence is obtained by a reporting charity is flexible. Including additional queries in an existing grant application form is acceptable. It is also worth clarifying that not all jurisdictions issue Tax Identification Numbers, so a charity needs to ask for this number, but may not receive one.
- UK grantees – Though not emphasised in the guidance, the UK is not a 'reportable jurisdiction', so grants made to individuals and entities that are tax resident in the UK require only limited due diligence but will not require reporting to HMRC. For UK registered charity grantees, due diligence can simply comprise confirming the charity's registered number.
We are working with sector bodies as part of an HMRC working group on charities and the CRS and shall be letting HMRC have comments and suggestions on the guidance with a view to making it clearer and more helpful. If you have any comments or suggestions you would like to feed in to HMRC, please let us know.
HMRC is holding an informational event for charities on CRS on 29 June 2016. If you are interested in attending, please contact firstname.lastname@example.org.
For questions on CRS contact Alana Petraske, Special Counsel – email@example.com or 0207 597 6257.