When both the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standards (CRS) came into effect, collectively referred to as AEOI, the understanding across industry was that the format in which the physical reports would be delivered would be standardized in order to reduce the administrative burden.
What many members of industry have since found, especially those members who perform reporting across multiple jurisdictions, is that reporting is in fact not wholly standardized. There are various minor ‘nuances’ across jurisdictions, which can be onerous to keep track of.
Differences between FATCA/CRS reporting
Similarly, there are some differences between FATCA and CRS when reporting annually. Some examples of these include:
- Reporting Protectors is mandatory for CRS but not for FATCA. For FATCA, Protectors are only reported in the year in which they receive a benefit. For CRS, Protectors are reported irrespective of whether they receive a benefit or not.
- Reporting of account balances immediately prior to the closure of an account is mandatory for FATCA, but not for CRS. Nil balance reporting is required for CRS when an account closes during the course of the reporting year.
- The reporting of the tax numbers is mandatory when reporting US persons under FATCA, while the tax number field is not yet mandatory for CRS.
Examples of the nuances between jurisdictions include:
- Specific to Jersey, date of birth and city of residence are mandatory data elements when submitting AEOI returns. Jersey also requires the closure reporting of deceased persons in the year that they pass, while this is not explicitly required by the legislation. Jersey is currently the only jurisdiction that compares account holders as well as the financial institution making submissions year on year. Where financial institutions or account holders are omitted in subsequent years, then Jersey will request reasons for the omissions.
- Cayman Islands, Guernsey and St Kitts and Nevis all request additional compliance assurance that the legislation is being adhered to as part of annual submissions. Both Cayman Islands and St Kitts and Nevis request confirmation that AML procedures have been adhered to. St Kitts in particular, requests assurance that staff are being trained frequently with reference to both AML and AEOI, going so far as to request the frequency and dates of said training.
- The UK and South Africa allow for a consolidated FATCA and CRS submissions.
- Guernsey, Jersey and Isle of Man allow for consolidated CRS submissions, that is, many Financial Institutions with many reportable jurisdictions may be submitted in one file.
- Isle of Man allows for only one CRS and one FATCA submission per year, while most other jurisdictions allow for multiple files.
- The BVI, Cayman Islands, Bahamas, Panama and St Kitts and Nevis all require reports to be split – one reportable jurisdiction per financial institution.
- South Africa and New Zealand are the only two jurisdictions in which JTC operates which do not adhere to the calendar year as the reporting period. South Africa’s year end for reporting is the end of February, while New Zealand reporting period ends 31 March.
- Some jurisdictions require mandatory nil returns where Financial Institutions have no reportable accounts. These include the BVI, Cayman Islands, Guernsey, Mauritius, Panama and Switzerland. Jersey will require nil return submissions from 2022.
- Not all jurisdictions exchange information with those who have signed up to CRS. The BVI, Bahamas, Cayman Islands, Isle of Man, Panama, St Kitts and Nevis and Switzerland only accept reports on those jurisdictions with which they have concluded bilateral exchange agreements. Both Guernsey and Jersey require submitting reports on all jurisdictions that have signed up for CRS. It is very important that only relevant exchange jurisdictions are reported, as over reporting could incur GDPR penalties.
Is there an easier way?
Even though the regulations came into effect more than five years ago, they are ever-evolving. The aim of AEOI has always been to catch those taxpayers who have evaded tax in their home country. AEOI reporting submitted by financial institutions provides much needed additional information to vet taxpayers’ annual income tax declarations.
Due to OECD peer reviews, various revenue authorities have been encouraged to implement additional measures to ensure that they meet the required standard of reporting. This often translates to stricter in-country regulations for financial institutions to adhere to.
We have seen an increase in requests for additional information as a result of the information reported. It is anticipated that the audit queries from revenue authorities will increase in the latter part of 2021 as various revenue authorities gear up for auditing financial institutions’ policies and procedures.
Financial Institutions need to ensure that they are ready for these additional requests, both systematically as well as from a staff perspective.
Given the complexities involved and the constant evolution of AEOI reporting, many financial institutions are starting to outsource this work to teams that specialise. This carries a number of cost and practical benefits to the financial institutions and gives them and their clients peace of mind that everything is in order.