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CRS: the danger to directors


Common Reporting Standards - CRS veszélyeiThe rules of the Common Reporting Standards employed in regard to the automatic exchange of information are still not clear. Although the domestic tax authorities of individual countries are due to receive the first reports on October 1st, 2017, it is still far from clear exactly what will be reported and to whom. Practices continue to vary from bank to bank, and the first year will certainly not be sufficient to define precise methods. We could say that every beginning is difficult.

One thing, however, is clear from the contents of the reports: in regard to company accounts, the place of management of the company, and where the director is tax resident will play a central role. If a report is sent to these countries, then the local tax authority will be in possession of details of the given country’s tax residents who manage a foreign company. Or more precisely, companies, as reports will arrive from many countries.

Place of management is an important question in just about every country with a modern tax system. In the majority of cases, the place of management also generates “premises” in the given country, and most tax systems allow for the taxation of income connected to premises. The OECD directive is clear: income should be taxed where the company has its real place of management, and not merely where it was registered. Although most European countries currently still treat the country of registration as the main place of taxation, from the common law point of view, the real place of management of a company is an important factor in the question of taxation.