Dion Global’s Colin Camp asks: What next for Fatca compliance?

Colin Camp, managing director of Products & Strategy at Dion Global Solutions, which specialises in business process automation, says those seeking solutions to Fatca should not forget the OECD’s Common Reporting Standard.

In the course of their Foreign Account Tax Compliance Act (Fatca) compliance projects, financial institutions are now beginning to examine their options for facing the next wave of Fatca-style legislation as mandated by the G8 and G20.

Today, for most governments, tax avoidance is a major concern. The reluctance of countries to work together and share information is a thing of the past. It is the financial community who will be burdened with the task of providing a cross-border information reporting platform, allowing the policing and scrutiny of their clients’ profiles and tax relevant information and transactions.

Currently there are over 3,000 tax treaties internationally, many of which include information sharing provisions, resulting in a mixed bag of bilateral standards. Fatca has certainly been a game changer and some would say has opened the door for the OECD to release the ‘Common Reporting Standard’ (CRS) expected in February 2014.

The G8 and G20 recently charged the OECD with developing the CRS, the primary goal of which is to facilitate automatic tax information exchanges between non-US countries. In short, the CRS is intended to be a standardised, cost-effective model for the bilateral automatic exchange of tax information. This includes creating common due diligence procedures. The transparency created by the CRS is meant to be yet another deterrent to taxpayers’ use of offshore financial accounts, held directly or indirectly, to avoid domestic tax liabilities.

The CRS is expected to build upon the Fatca regime and will be based on intergovernmental agreements (IGAs) entered into between the US and its partner countries to implement Fatca. It may also include similar detailed due diligence procedures with respect to both new and pre-existing accounts. The CRS model will serve as a starting point for participating countries to negotiate IGAs similar to the US Fatca IGAs that the US is pursuing. In effect, the CRS will support the creation of Fatca-like programs with a number of jurisdictions already set to pursue IGAs with each other.

According to the OECD, this legislation should require financial institutions located in a participating jurisdiction (of which there are approximately 40 currently) to collect information beginning in 2015 and report it to the jurisdictional tax authority beginning in 2016. So what does this mean for financial institutions already facing the burden of implementing a Fatca compliance program?
The scope of the CRS will likely diverge from Fatca in a number of ways including:

• New and pre-existing account information. Currently, Fatca compliance includes a review for US indicia. While CRS will most likely be similar, the ownership information required to be reviewed is expected to increase exponentially for both new and existing account due diligence. This is to account for each CRS IGA, In addition, it is expected that the minimal thresholds will not be included in the CRS. As a result, data from all accounts will need to be reviewed.

• Withholding. While the CRS is not expected to include withholding provisions, jurisdictions becoming subject to CRS reporting may adopt local enforcement legislation as a means to improve compliance

• Reporting. The CRS is expected to have a similar reporting approach to Fatca, although it is not yet known how much divergence there will be. Some observers anticipate that certain jurisdictions may require financial institutions to provide information about their residents over and above the information required under the CRS.

Therefore, it is also important that any Fatca compliance technologies implemented today have flexible customer classification methods. It is also key that that technology provides rule-driven reporting and case remediation that can adapt to changing directives. Flexibility is not only important when it comes to reacting to future developments, but to minimise the impact compliance will have on existing systems. To achieve success around Fatca, it is critical that organisations select a solution that is not only able to slot alongside existing systems and processes, but can also leverage the capabilities of existing core technologies. All this, while generating significantly fewer implementation challenges.

In summary, today’s compliance solution must support tomorrow’s unknowns to avoid a situation where multiple systems must be deployed, or systems must be ripped out and replaced early in their life-cycle.


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