Heightened FATCA and CRS Enforcement Expectations

• Classification Accuracy: Any entity operating in Ireland, whether it meets the definition of a Financial Institution or not, is required to define the tax technical basis for its classification under both regimes. This will enable the entity to apply the correct compliance requirements and accurately document its status with counterparties. Choosing to register/report under the regimes as a conservative approach means the entity is non-compliant. Only an entity that meets the definition of Financial Institution and can explain how such definition is met through documented rationale supported by a technical analysis of the regulations, should be registering and reporting. Overcompliance can lead to unnecessary costs, complexities, redundant processes, increased operational risks, a breach in data confidentiality and protection – and now, financial penalties.
• Due Diligence Accuracy: Effective governance, including practical written and implemented processes, training, internal controls as well as archiving protocols lead to sound compliance. Where governance is lacking, it is an indication that there will be gaps in compliance. Entities should review their operating model, compliance processes and ensure effective governance is in place to support and evidence compliance under the regimes.  As has been seen in other jurisdictions, Revenue is expected to release additional requirements for onboarding, reasonableness checks and due diligence – as such, renewed focus on ensuring compliance in these areas is more critical than ever. It’s imperative that companies collect and record information correctly at onboarding to avoid data issues on the reports and a costly remediation exercise. Under new AEOI regimes, namely DAC7, we are beginning to see methods such as account-freezing or withholding funds as measures to obtain the missing data required for accurate reporting. Government discussions around customer information notices for individuals reportable under CRS may expand to align with DAC7. So far, such measures have not been implemented in Ireland, but are effective in Luxembourg, for example.

• Data Accuracy: The quality of the data being submitted to Revenue is paramount as 100% accuracy is expected for all filing years. Submitting files with missing data, data that is not validated, mis-using the undocumented account category or any sort of over or under reporting is evidence of inaccurate reporting and an underlying compliance process failure which is now likely to result in penalties. Robust annual data checks need to be in place to identify and correct inaccuracies, preferably in advance of filing. Any issues identified post-filing should be proactively corrected via re-filing.
• Reporting Accuracy: Understanding when to register and report, as well as cease the requirement, mitigates risks of non-compliance. For example, obtaining a Global Intermediary Identification Number (GIIN) and failing to comply with due diligence and reporting requirements is easily evidenced. The AEOI Compliance division in Revenue has initiated a non-filer program where entities will be expected to explain such gaps in compliance or be subject to penalties.
• Nil Filing Accuracy: Entities that are filing NIL returns have not been a major focus of Revenue to date but that is now changing. Nil filers will also need to document their due diligence process, evidence decisions made to file nil and how non-reportable classifications have been derived for any financial accounts maintained.
• New FATCA Dummy TINs: The use of the updated dummy TINs for FATCA (such as the 9As) as directed by the Internal Revenue Service (IRS) is now required. FATCA dummy TINs must be used to communicate the reason behind not obtaining a required TIN. The codes will provide the IRS with deeper insight into the due diligence issues faced by filers submitting the returns. The IRS and Revenue expectation is that processes are in place to continue to monitor and follow up to receive the missing information. We expect to see more correspondence between the IRS and Revenue following the exchange in 2024 in respect of the approach for missing data from reports which is likely to lead to stricter enforcement for Financial Institutions (FIs).

What to expect next in AEOI: CARF and CRS 2.0

The Council of the European Union, announced on 17 October 2023 the adoption of the 8^th instance of the Directive of Administrative Cooperation (DAC) (known as DAC8) which includes amendments concerning AEOI, that entered into force 13 November 2023.  DAC8 is largely consistent with the OECD’s Crypto-Asset Reporting Framework (CARF) which is a global tax transparency framework that provides for AEOI on crypto-asset transactions. DAC8 illustrates the EU’s forward thinking in the transposition of CARF.  EU member states will have until 31 December 2025 to transpose the new regulations locally.  CARF relies upon the CRS, and is effectively modelled after it, and as such a similar implementation trajectory in Ireland can be expected.

Reporting obligations under CARF would largely fall on intermediaries which allow the exchange of crypto-assets into currency or other assets, facilitate reportable payments or allow for the transfer of crypto-assets.

Additionally, CARF introduces 3 proposed amendments to the CRS (referred to as CRS 2.0):

1. Changes to manage the interaction with the CARF
2. Changes to bring e-money and central bank digital currencies into scope of CRS and
3. Changes to improve compliance by organizations already in scope of CRS with a view to close loopholes unrelated to crypto-assets.

The changes are set to take effect on 1 January 2026 with first reporting and exchange in 2027.

With the expansion of AEOI,  we expect there to be a heavier  focus on TINs, with Member States developing tools to validate TIN syntax and accuracy of data submitted and received.

Many Financial Institutions will need to consider both CARF and CRS 2.0 changes across their organization.  There is likely to be substantial data uplift and procedural requirement changes to comply with increased reporting and the addition of new elements to reports.

Therefore, Financial Institutions in Ireland should be considering how they may be impacted now to allow themselves enough time to prepare for the procedural and systems changes to be implemented to facilitate the additional reporting requirements. Impact assessments will provide a smooth transition and enable planning for resources, technology development and implementation of enhanced due diligence and reporting methodologies.