Common Reporting Standard: a View From Chile, Peru and Colombia

The Common Reporting Standard (CRS) seeks to implement a system that facilitates the tax information exchange between Organization for Economic Co-operation and Development (OECD) countries which will accede to it. Although it is an anti-fraud and anti-tax evasion tool like the Foreign Account Tax Compliance Act (FATCA), the CRS is a multilateral system that is not limited to bilateral information reporting with the U.S.

The CRS was created by the OECD with the support of the EU and G-20 countries and came into force in January 2016. As a result, the financial entities of the acceding countries must collect information from their clients and share it with the tax authorities and other jurisdictions, with one main objective: mutual administrative assistance in tax matters through information exchange, which may be upon request, spontaneous, or automatic, as well as through simultaneous tax audits or tax audits abroad.

Chile

Chile became a full member of the OECD in 2010. Since that time, it has amended much of its legislation to embrace the OECD’s various criteria and recommendations, including important tax reforms, closely adopting OECD transfer pricing regulations, general anti-avoidance rules, controlled foreign company rules and others.

In that spirit, Chile was among the first countries that agreed to the “Recommendation of the Council on the Standard for Automatic Exchange of Financial Account Information in Tax Matters.” This Recommendation established the CRS that includes the regulations by which the parties must both request local financial institutions to complete the report on financial accounts, as well as the Convention on Mutual Administrative Assistance in Tax Matters (MAAT), for the annual automatic exchange of information between the competent authorities.

Chile signed the Convention on MAAT in October 2013. In November 2016, the Convention was approved by the Chilean Congress and became enforceable. To adapt local legislation accordingly, various amendments were made (Law No. 21.047 of 2017) especially to the Chilean Tax Code (including new Article 62 ter), in order to be able to fully implement the CRS and meet international commitments.

Further, in 2017, Supreme Decree No. 418 was issued by the Ministry of Economy and entered into force. The Supreme Decree contains Regulations for local financial institutions to fulfill CRS obligations. The Regulations set the obligations for qualified financial institutions to identify financial accounts related to individuals with foreign tax residency. Among other obligations, such institutions must obtain the full name, address, place and date of birth, jurisdiction or jurisdictions of tax residency and tax ID of the holders of financial accounts (or controllers) who have foreign tax residency.

These Regulations were agreed in a joint effort between the private sector (Association of Banks and Financial Institutions, Association of Mutual Funds, insurance companies, main auditing companies, etc) and the public sector (Internal Revenue Service (IRS), Chilean Anti-laundering Office, Superintendency of Pensions, etc.). Additionally, all reporting obligations and automatic exchange obligations were set for performing the first exchange of information in 2018.

Finally, in 2018, the Chilean IRS issued Resolution No. 48, setting an obligation for all financial institutions to file an affidavit up to June 30 of every year, including information on financial accounts opened as of July 2017 through December 2017, information on preexisting accounts of high value in the name of individuals, and preexisting accounts that up to June 30 have been identified as accounts related to persons with foreign tax residency. Going forward, future affidavits must contain the corresponding information regarding the previous calendar year.

Peru

Peru is not a full member of the OECD; however, it signed the Convention on MAAT on October 25, 2017.

In 2017, Legislative Decree 1315 entered into force, which incorporated Automatic Exchange of Information (AEOI) in Peruvian legislation. In addition, by Legislative Decree 1434 (2018), Law 26702, “General Law for the Financial and Insurance System,” was modified in order to establish that entities of the financial system provide the tax administration with information on the passive operations with their clients, referring to balances and/or accumulated amounts, averages or higher amounts of a certain period and the returns generated, including the identification data of the clients.

In this context, Peru ratified the MAAT, which entered into force in September 2018. In November 2018, Peru issued Supreme Decree 256-2018-EF, which set out the regulations for implementing AEOI according to the CRS. Supreme Decree 256-2018-EF pointed out the information that financial institutions must report to the Peruvian tax authority for automatic exchange under international agreements signed by Peru. The reference amount as balance and/or accumulated amount, average or highest amount, must exceed $1 million (high-value account).

In terms of financial information reported by Peruvian banks or other entities to the tax authority, Superintendency Resolution 120-2020/SUNAT established that, due to the Covid-19 pandemic, information regarding 2018 and 2019 (high-value accounts) was to be sent in August 2020. With regard to 2018 (low-value accounts) and 2020 (high- and low-value accounts), financial information should be reported by May 2021 according to the general calendar.

In this regard, and based on the information published by the OECD, Peru should exchange information for the first time in December 2020.

With regard to resident taxpayers, it is under debate what will be the probative value of the information provided by foreign tax administrations in the context of a local tax audit. The Peruvian Tax Court has ruled that the report itself sent by a foreign tax administration is not enough and that Peruvian tax authorities must verify such information (RTF No. 3483-8-2013); however, there are other pronouncements of the judiciary that seem contrary to this understanding (Casacion No. 3576-2009).

In general, the rights of the taxpayers in the context of the exchange of information (not only “automatic” but also other types of exchange) is something that unfortunately is not clear in the Peruvian scenario. The CRS in Peru has already been implemented since 2020, financial entities have reported information to Peruvian tax authorities and the first exchange of information with other countries was to be carried out in late 2020; however, several questions remain unanswered regarding taxpayers’ status within this new and critical context.

In terms of recommendations, individuals or companies must keep documentation on income, either local or foreign source, with the purpose of being capable of explaining the origin of the amounts located in banking or financial institutions. This documentation will refer not only to accounting information, but also to contracts, services performed, investments and other specific assets owned by the taxpayer.

Colombia

The CRS adoption in the Colombian legal system took place on July 16, 2013, as Colombia was one of the early adopters, approving the Convention on MAAT through Law 1661 of 2013.

However, the implementation of CRS regulations in Colombia began years later, following the standards and guidelines established by Resolution 119 of 2015, which regulated the provisions of Law 1661 of 2013 and developed the CRS Multilateral Competent Authority Agreement signed on October 29, 2014 by the Colombian Tax and Customs Authority (DIAN).

In Resolution 119 it was recognized that in order to achieve correct implementation of information exchange it is necessary that Colombian financial institutions adopt a due diligence procedure that would allow them to identify, obtain and provide under certain deadlines and technical specifications the information required by the DIAN.

Therefore, Resolution 119 introduced relevant definitions such as “non-reportable financial institution” and “reportable financial institution.” Likewise, in Article 8 of the Resolution (modified by Resolution 31 of 2017), the procedures for submission of information through electronic computing services were established.

On July 17, 2020, the DIAN published Resolution 078 of 2020, which establishes the content, technical characteristics and deadlines for submission of information to be provided by the reportable financial institutions during 2020 and subsequent taxable years. Resolution 078, which is issued in accordance with the provisions of the Standard for the Automatic Exchange of Financial Account Information in Tax Matters, came into force on January 1, 2021, repealing Resolution 119 of 2015, as well as its respective annexes and amending resolutions.

Resolution 078 of 2020 is therefore now the norm that regulates the Convention on MAAT application in Colombia, establishing, among other points, the definitions of: non-reportable financial institution; reportable financial institution; financial account; reportable account; custody institution; depository institution.

In accordance with Article 6 of Resolution 078, the information report shall be made no later than the first working day of June of each taxable year and the corrections that the DIAN may require on the reported information must be made within 30 calendar days following the notification of the correction request.

In addition, Article 8 of the Resolution establishes the duty of financial institutions to keep reportable information, preserving the documents for at least five years, counted from January 1 of the following year in which the information report must be submitted. Failure to comply with this reporting duty, or complying with it in an untimely or incomplete manner, may result in the imposition of the penalty prescribed in Article 651 of the Colombian Tax Statute, which may be up to $544.6 million Colombian peso ($146,000).

Finally, it is worth mentioning that with the issuance of Resolution 078 of 2020, new annexes were introduced in this regard, forming an integral part of the Regulation:

• Annex I—Due diligence obligations for the identification of reportable accounts;
• Annex II—Technical Annex, which establishes the conditions under which reports must be made according to the CRS scheme.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Santiago Arbouin is a Partner with CMS Rodríguez-Azuero, Colombia; Rolando Cevasco is a Partner and Carlos Chirinos is an Associate Lawyer with CMS Grau, Peru; Diego Garcia is a Partner with CMS Carey & Allende, Chile

The authors may be contacted at: santiago.arbouin@cms-ra.com; rolando.cevasco@cms-grau.com; carlos.chirinos@cms-grau.com; diego.garcia@cms-ca.com