In the global financial ecosystem, tax evasion is a critical issue that most nations grapple with. Imposing tax is a primary source of government revenue, funding critical sectors like education, healthcare, and infrastructure. Thus, the Common Reporting Standard (CRS), an information standard for the Automatic Exchange of Information (AEOI) regarding banking and investment income, was developed to combat tax evasion. This article delves into the concept, relevance, and need for increasing the scope of CRS.
India’s Push for an Expanded CRS Scope
The G20 grouping is presently witnessing India’s persistent efforts to extend the CRS’s reach. The proposal distinctly emphasizes including Non-Financial Assets, such as real estate properties, in the AEOI among Organisation for Economic Cooperation and Development (OECD) countries. Presently, India exchanges financial details with 108 jurisdictions, receiving information and forwarding it to 79 other jurisdictions automatically. By integrating non-residential financial account data with the residing country’s tax authorities, the AEOI decreases the likelihood of tax evasion.
Understanding the Common Reporting Standard (CRS)
The CRS emerged from a G20 request and received approval from the OECD Council on July 15, 2014. It demands jurisdictions to acquire information from their financial institutions and exchange it with other jurisdictions on an annual basis. The CRS outlines the financial account data to be exchanged, the financial institutions obligated to report, the different types of accounts and taxpayers involved, and the common due diligence procedures for financial institutions to follow.
Currently, the OECD’s AEOI framework facilitates the sharing of financial account details among signatory countries to combat tax evasion. In August 2022, the OECD passed the Crypto-Asset Reporting Framework (CARF), providing a standardized method for reporting tax information on crypto-asset transactions intending to exchange such information automatically.
The Need for Expanding the AEIO Scope
Broadening the AEOI scope is crucial for not just curbing tax evasion, but also enforcing other non-tax laws. The risk of tax evasion isn’t just confined to Financial Assets – Non-Financial Assets like real estate and properties are also potential avenues. Consequently, an expansion of CRS from financial to non-financial accounts is vital.
According to the OECD’s Tax Transparency report, an estimated loss of Euro 25 billion in revenue was noted for Asian nations in 2016 owing to unchecked tax evasion and illicit financial flows amidst a geopolitical and debt crisis. The report quoted a study stating that 4% of Asia’s financial wealth (Euro 1.2 trillion) was held offshore in 2016, causing a potential annual revenue loss of Euro 25 billion for the region.
Efforts to Address Tax Evasion
To manage these monetary concerns, global and Indian guidelines have been enacted. Global measures include the Base Erosion and Profit Shifting (BEPS), OECD’s Inclusive Framework’s Statement, and Double Taxation Avoidance Agreements (DTAAs). India has implemented The Fugitive Economic Offenders Act (2018), The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (2015), and the Prevention of Money Laundering Act (2002).
The Way Forward
Increasing the exchange of both financial and non-financial information can lead to substantial benefits for tax collection and non-tax law enforcing efforts. The G20’s dedication to prioritize these initiatives can enhance transparency and accountability in global financial systems, benefitting all individuals and nations. Active cross-border collaboration to improve information sharing mechanisms while addressing any privacy concerns is thus essential for constructing a fairer and more sustainable global economy.
The source of this information is TH.