The global private client wealth management industry is gearing up for the Common Reporting Standard, the first stage of which got under way two weeks ago. Legal experts and others working in the field warn that the roll-out of CRS in coming years will prove far from smooth.

From the start of January, the 56 “early adopter” countries (such as the UK, Germany, France and Liechtenstein) have – or should have – collected data on accounts so that, from the start of 2017, such nations can automatically exchange information when sought; a second wave of countries start collecting data from 2017 so as to be ready to swap data from 2018. (Switzerland, the world’s largest offshore center, is in the second group, a fact seen as sounding the international death-knell of Swiss bank secrecy law. Singapore and Hong Kong are also both in the second group.)

The CRS is, in some ways, a sort of “global FATCA” – to use the acronym of the US Foreign Account Taxation Compliance Act. The US legislation, enacted in 2010 and taking effect in stages, established the idea of extra-territoriality in tax compliance, with Uncle Sam chasing after expat US persons for possible tax cheating, and requiring thousands of non-US financial firms such as banks to fret about complying with laws written in Washington DC. With CRS now taking shape, however, it is no longer just the US that is seen as flexing its international tax muscles. Everyone, it seems, wants in the game in the hunt for revenues, and to possibly grab a chunk of the $11 trillion of assets held offshore (source: Boston Consulting Group, 2015 report).

So what do industry professionals make of the situation so far? According to Marnin Michaels, Zurich-based partner at Baker & McKenzie, the global law firm, CRS is highly ambitious. “In many respects, CRS is the single most coordinated and unified approach to combating tax evasion ever seen on the planet. While the goals are commendable and understandably lofty, given the scope of the issue, CRS raises quite a number of concerns and challenges,” he told this publication.

“What is clear is that CRS will have ramifications above and beyond the goal of ensuring that taxpayers report their income. It will affect every element of the banking system, from taxation to cross-border regulation. It is possible that the information shared will lead to litigation, even if the taxpayer is compliant, because the information may be exchanged in a form that is not related to the way that the income is taxed in the residence jurisdiction,” he said.

Michaels also referred to the law that legislators frequently overlook: the Law of Unintended Consequences. Exchanging information could have unexpected effects, a view shared by Richard Cassell, a partner at Withers, the law firm.

"I don't think people have recognized the additional categories of information that will need to be reported,” he said. Cassell argued that the industry hasn’t realized that CRS is in fact not just a global version of the FATCA rules. The definition of "financial institution" under FATCA, for example - which can cover anything from a major bank such as Barclays or Deutsche through to a small trust in the Cayman Islands - doesn't always exactly translate into the "financial institution" as defined by CRS and financial institutions cannot sponsor other companies under CRS. Trusts, for example, should be treated as financial institutions, he said: "They should do their own reporting because they know where the money comes from."

There is some ambiguity under CRS as to what counts as a non-financial entity; in most cases, an active NFE from lawyers I speak to, for example, in Miami and Panama where they are dealing with Latin American clients.” He said such clients are concerned not about tax but financial privacy and issues such as kidnap risk. “Those concerns are quite real,” Morley said.

Another concern is about uncertainty over what is meant by residency for a person – it is not always clear. “The scope for misinformation could be great,” he said. “Lots of clients will want to seek clarification about their offshore assets…they won’t want to be fending off constant queries from HMRC.”

He said that from the start of this year, CRS already overrides privacy protections afforded to persons connected to UK resident non-domiciles regarding their assets held in British Overseas Territories/Crown Territories such as BVI, Caymans, Isle of Man, Guernsey, Jersey, Gibraltar and Bermuda.

As at December last year, the following nations were “early adopters” (source: OECD): Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Columbia, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, South Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, the UK.

The jurisdictions undertaking exchanges by 2018 are: Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, the Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Ghana, Grenada, Hong Kong, Indonesia, Israel, Japan, Kuwait, Marshall Islands, Macao, Malaysia, Monaco, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay.