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Common Reporting Standard (CRS) - Impact on Charities

on Tuesday, 12 April 2016.

The issue of tax transparency is currently at the forefront of the news following the leak of the 'Panama Papers'

Whilst the CRS is targeted at financial institutions, it will also affect charities. Some charities may fall within the definition of 'financial institution', and even those which do not fall within the definition will receive a form from their bank, which they will need to complete.

What is the CRS?

The CRS was published by the Organisation for Economic Co-operation and Development (OECD) and has been incorporated by the European Union into an EU Directive known as the EU Directive on Administrative Cooperation (DAC). The CRS and the DAC have been given legal effect in the UK through the International Tax Compliance Regulations 2015.

The CRS is part of a range of international legislation introduced with the aim of improving tax transparency. It is based on the Foreign Account Tax Compliance Act (FATCA) introduced by the US Government, which requires non-US financial institutions to provide details to the US tax authorities of accounts held by US citizens.

The CRS means that financial institutions in the UK will be required to carry out due diligence on their UK clients and in some cases to make reports to HMRC.

How will charities be affected by the CRS?

Charities are likely to receive forms from their bank and/or investment manager that will ask them to confirm which category the charity falls into for the purposes of the CRS.

There are two main categories, namely 'financial institutions' and 'non-financial entities' (NFEs). There are in turn two sub-categories of NFEs, namely 'active NFEs' and 'passive NFEs'.

The definition of 'financial institution' is very broad, so some charities will be regarded under the CRS as financial institutions. This is likely to apply in particular to endowed charities that receive a high proportion of their income from investments where the investments are managed by professional investment managers on a discretionary basis. Charities that are regarded as financial institutions will need to consider (by applying due diligence rules specified under the CRS) whether any of the funds that they hold meet the definition of 'financial accounts' under the CRS and therefore must be reported to HMRC.

If a charity is not a financial institution for the purposes of the CRS, it will be necessary to assess whether the charity is an 'active NFE' or a 'passive NFE' as this will determine whether it is required to provide HMRC with further information in relation to its 'controlling persons' as defined in the CRS and the DAC.

What should charities be doing?

If a charity receives forms relating to the CRS for completion by their banks/investment managers, the trustees/senior employees will need to consider whether professional advice is needed regarding the category that the charity falls into and the consequential reporting obligations, so that the form can be completed and returned within the relevant deadline.

If no such forms are received, although the final reporting deadline is not until 2017,  charities that may be affected by the CRS should nonetheless start to consider the category that the charity will fall within for the purposes of the CRS and any consequential reporting requirements.

HMRC Guidance

HMRC have published draft guidance on the CRS. It is hoped that HMRC will publish supplemental guidance designed specifically for charities on the CRS.


For further information, please contact Con Alexander in our Charity Law Team on 0117 314 5214.