If you are an expat and thought the US Foreign Account Tax Compliance Act (FATCA) was a disaster then just wait until the next international tax reporting network gets a grip on your finances.
FATCA demands hundreds of banks and firms in more than 200 financial centres must report to the Internal Revenue Service (IRS) every year.
The IRS wants to know about any offshore account or investments controlled by US taxpayers and is offering the same data about expats in the US to their home governments in return.
However, financial experts are claiming FATCA is a minor issue compared with the Organisation of Economic Cooperation and Development’s (OECD) common reporting standard (CRS).
Automatic information swapping
The CRS already has more than 100 countries signed up and each has pledged to automatically tell all about the financial affairs of any foreigners holding bank accounts or investments within their borders to their home tax authority.
That means rather than financial information of Americans flowing into the IRS in return for snippets about foreign expats in the States, at least 100 tax authorities worldwide will collect and feed financial information to each other.
CRS includes the US, UK, all European Union countries and all members of the OECD plus dozens more around the world.
Banks and other financial institutions are embarking on a huge software upgrade that will lead to them identifying the tax residency of every client within the next two years.
Boost for tax authorities
At the same time, the UK is introducing a similar automatic tax reporting network between Crown Dependencies or Territories (CDoT) branded as former tax havens, such as the Cayman Islands, British Virgin Islands, the Isle of Man, Gibraltar and Channel Islands.
Peter Grant, director at accountants KPMG, said: ‘More than 24,000 UK financial institutions are FATCA registered and will need to be compliant before May 31 next year.
“They will also have to report under the UK CDoT, starting in 2017 for 2016 information.
“Then CRS will click in with 100 countries expected to sign up. This will significantly increase the financial information available about offshore holdings to the IRS, HM Revenue & Customs (HMRC) and other tax authorities.”