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Must you bank in a non-CRS country to minimize business taxes?

On Behalf of | Dec 13, 2022 | Tax Law |

Historically, businesses hoping to avoid paying certain taxes or reporting specific assets might have used international operations and banking as a means of minimizing their liabilities. However, as countries around the world began adopting the Common Reporting Standard (CRS), such activity is now more likely to trigger tax penalties or criminal charges.

Financial institutions operating in one country have an obligation to provide data to tax authorities in other countries that also adhere to the CRS. Businesses that may have felt confident about their tax strategies before the rollout of the CRS may now worry about mandatory reporting that might lead to not just ongoing tax responsibilities but also even criminal charges related to tax fraud or evasion.

If you want to use international tax planning or business operations to minimize tax liabilities, does that mean you need to operate or bank in non-CRS countries?

The list of non-CRS countries keeps shrinking

Well over 100 countries around the world including several former tax havens have adopted the CRS and actively share information. There are only a handful of nations that are non-CRS and have no intention of complying with the CRS.

Countries that have not adopted the CRS include Ukraine, Guatemala, Paraguay, Georgia, the Philippines, the Dominican Republic, Macedonia, Cambodia, Paraguay and Armenia. Some of these nations, like Armenia, have become banking destinations for certain industries.

The United States uses its own system, FATCA (Foreign Account Tax Compliance Act), to obtain tax related information from other countries, and is not a member of CRS.

Advantageous tax policy is also a consideration

Trying to operate or bank in countries that are non-CRS nations may not be the most realistic or advisable approach to tax planning for your business.

If your company is headquartered in the United States, it is important to understand the difference(s) between U.S. tax law and the tax law in the non-CRS country. In particular, make sure that the income in the non-CRS country clearly relates to activities in that CRS country, and not activities that the IRS may assert relate to income that should be reported in the parent company’s U.S. income tax return.

Looking carefully at your company’s likely operations, including the overall scale of the company and the industry in which it operates, will help you more effectively plan for international financial moves that will reduce your tax risk and overall lead to financial benefits for the business. Creating a realistic plan based on current international tax and financial laws can help those trying to start or expand a business at the international level.