Customer Tax Transparency is not only affecting the ongoing operations of your business. It is also affecting your clients, counterparties, and investors.
The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) should be embedded in everyday business procedures for many of the financial institutions.
Institutions are becoming more aware of the expectations of the competent authorities when it comes to compliance under the Automatic Exchange of Information (AEoI) regime. Consequently, a number of urgent areas to consider have emerged:
The international nature of these rules, and the process of participating jurisdiction peer reviews, is placing pressure on the tax authorities. They must rigorously uphold their agreement to enforce robust compliance. This extends beyond timely filing right down into the effectiveness of the procedures undertaken on a daily basis and the internal controls that are in place.
Compliance notices and tax audits are beginning to take place in Ireland and many other jurisdictions. Financial institutions and service providers must seek to identify key areas of risks within their organisations. The focus should be on building an effective operational model in order to minimise the ongoing cost of compliance, without creating a knock-on impact on their core internal AEOI framework.
In 2018, the Organisation for Economic Cooperation and Development (OECD) published the second version of its CRS Implementation Handbook. It highlighted that government focus will now be turning to enforcement measures. The OECD emphasized effective implementation, including requirements by governments to prevent circumvention of the CRS. The Handbook refers to the Model Mandatory Disclosure Rules (‘MMDR’) which identify certain hallmarks that could cause a transaction or an arrangement to be reportable as CRS Avoidance Arrangements and/or Opaque Offshore Structures.
On 25 May 2018, the European Union Commission published its Mandatory Disclosure Rules, which came into effect a month from publication on 25 June. While there is overlap with the OECD MMDR Hallmarks in Hallmark D of the EU Directive, there are still questions about whether two separate regimes will emerge to accommodate the differences. Additional tax transparency reporting requirements by 2020 are expected as a result.
The evolution of the tax transparency environment globally continues to take shape. Financial institutions and service providers need to remain keenly focused on compliance in this area. In order to achieve complete, lasting and efficient compliance that stands up to the expectations of government, it is critical to ensure:
We are working with our clients to develop an operational model that utilises technology, minimises cost and delivers cross border support by subject matter experts that are located across EMEIA and globally. Get in touch.
