EY held a breakfast briefing late 2017 where a member of Revenue’s Automatic Exchange of Information team, Deirdre Free, joined us to discuss current key issues facing the FS sector under the FATCA and CRS regimes.
The following are the 5 key messages arising out of that discussion. These key messages demand an urgent focus on evaluating current compliance state and working to ensure full sustainable compliance as an ongoing business priority.
1. Audits begin Quarter 1 of 2018: Evidence of ‘Best Efforts’ & robust documentation is absolutely critical
Compliance examinations will begin in the first quarter of 2018. Revenue have stressed the need to document all decision making as well as audit trails of compliance activity in order to demonstrate that an organisation has shown best efforts to comply with FATCA and CRS legislation and guidance. One example of this is where a ‘reasonable explanation’ is sought to cure conflicting indicia. The explanation is the link between the seemingly mis-matched documentation (such as a Certificate of Incorporation) and the self-certification form. The focus of audits will extend beyond the report filed and the data included within it to also focus on the operational effectiveness of the FI in gathering, verifying and maintaining such customer data. The compliance effort associated with FATCA and CRS represents a fundamental transformation of the way in which the business operates and Revenue will expect to see appropriate appreciation of this through adequate governance structure, robust internal control policies and procedures, supplemented by necessary regular trainings.
2. How to address cross border workers and dual tax residence
Revenue are working on guidance to address the specific issue of cross border workers and their tax residency as this has been identified as a big issue for Irish FIs in particular with possible Irish and UK dual tax residents. Revenue have indicated an intention to issue two new FAQs addressing this issue. One FAQ to address persons resident in Ireland but working in Northern Ireland, with another FAQ addressing the reverse of this scenario. These FAQs are designed to act as a resource for financial institutions and account holders in situations where they are facing difficulty determining appropriate tax residency.
3. US TIN reporting
For FATCA, the current position from the IRS is that all US reportable accounts must be returned with a US TIN from 2020. This was extended to 2020 this year due to the difficulty faced by financial institutions in obtaining US TINs. Revenue have indicated that they will evaluate the matter again closer to 2020 to see if it is still an issue which requires further appropriate action. Revenue are currently in discussions with the IRS as to their technical expectations in relation to the TIN placeholder and how they expect these accounts to be recorded and reported in the meantime.
4. Beneficial Ownership Database use by tax authority to compliment FATCA and CRS compliance assessment
There will be two registers established for the Beneficial Ownership Database: a corporate register hosted by the CRO and a separate register for trusts hosted by Revenue. Once these registers are established Revenue will have access to the information held in both registers. There has been some delays in implementing the trust register due to issues around which trusts should be captured and who should have access to the information. This is expected to be addressed in early 2018. Revenue expect to leverage information captured in both registers to add a further dimension to the data available to them as a result of AEOI regimes and the move toward greater tax transparency.
5. YE 2017 Reporting updates: Revenue’s Participating Jurisdiction list & undocumented entities
Revenue had previously indicated that they would finalise the list of Participating Jurisdictions by the end of 2017. However subsequently Revenue have indicated that the list will not be published until as late as possible in 2018. If there is a particular type of investment entity (generally a fund) that is located in a non-participating jurisdiction, the financial institution is required to look through that entity and identify and report the controlling persons where appropriate. Revenue’s aim is to ensure the list is as complete as possible so as to not unnecessarily burden financial institutions carrying out due diligence procedures.
The above is a brief snapshot of some of the main issues facing financial services clients right now. EY are actively involved in compliance health evaluation, audit readiness and preparation with a number of clients. Please reach out should you wish to discuss your approach.