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Offshore banking is losing anonymity as a new tax reporting system gains momentum

July 3, 2020

The Organization for Economic Cooperation and Development or The OECD reported Tuesday how automatic reporting in 2019 helped uncover $ 11 trillion in overseas accounts.

The result came when the Common Reporting Standard, or CRSentered its third year of operation since its launch in 2017.

Unlike many previous iterations of international tax reporting standards According to the CRS, countries have to automatically report activities on accounts of foreign citizens in their respective home countries. This solves the problems that arise from the requirement-based exchange of information, which requires active suspicion and an investigation by the country of origin.

Offshore banking is losing anonymity as a new tax reporting system gains momentumOffshore banking is losing anonymity as a new tax reporting system gains momentum

This measure is supported by more than 100 countries around the world that are trying to reduce tax evasion through bank accounts abroad and arbitration. It should be noted that the 2017 standard was adopted by popular offshore destinations such as the Cayman Islands, Seychelles and many others.

Since the launch of CRS in 2017, the number of assets under investigation has increased almost tenfold from $ 1.2 trillion. The OECD said that growth was mainly due to Other countries have joined the system, and more information has been transmitted.

OECD report

Source: OECD report

The organization also discovered this in November 2019 Between 2008 and 2019, deposits in foreign-owned accounts decreased 24%, or $ 410,000 million.

Will cryptocurrencies be the replacement?

The anonymous and decentralized nature of cryptocurrencies can help close the gap that traditional banking abroad has left.

So, Tax authorities around the world are beginning to fight potential evasion routes through the use of cryptocurrencies. and the IRS includes specific questions related to digital assets in a draft of Tax return for 2019.

The UK tax authorities also started preparations, signaling their intention to use blockchain tracking software in January 2020.

As has often been shown, generic blockchains like Bitcoin and Ethereum are not anonymous and can be easily tracked. However, even the relative transparency of the blockchain still leads authorities to pre-CRS investigation methods that require active suspicion.

While Data protection solutions can exponentially complicate cryptocurrency tracking. Their volatility makes it difficult to sell them as a convenient business for valuable assets, legally or otherwise.

Stable coins can fix volatility issues, but centralized iterations like Tether and USDC have built-in freeze mechanisms that can be used for compliance purposes. Decentralized stable coins, on the other hand, have unknown technical risks.

Cryptocurrencies can intervene to fill the shoes of the offshore banking business. But the mass adoption may not have arrived yet.

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