Automatic Exchange of Information (AEOI) Updates: August 15-26, 2016

Overview

Automatic Exchange of Information (AEOI) legislation and technical updates are top concerns for foreign financial institutions. The Sovos Compliance Research Team continually monitors new regulations and updates from around the world and publishes them in our tool, Sovos Taxport Compass. Contact us today to start your subscription and have access to all the latest Tax Information Reporting updates, including AEOI, 1099, and Affordable Care Act reporting. Below are key updates from the past two weeks (August 15-26):

Five New Countries Sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters

Burkina Faso, Malaysia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, and Samoa are the five latest signatories to the Organisation for Economic Co-operation and Development’s (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters. There are now a total of 103 countries that have signed on to the Convention, which encompasses the Common Reporting Standard (CRS), among other information exchange regimes. Prior to their adoption of the Convention, Samoa, Malaysia, and Saint Vincent and the Grenadines had signed the Multilateral Competent Authority Agreement (MCAA). In order to fully implement CRS in their respective jurisdictions, Burkina Faso and Saint Kitts and Nevis will have to sign the MCAA as well. These latest adoptions are significant for the OECD’s Exchange of Information efforts because there are now over 100 jurisdictions that can potentially participate in CRS. With each additional jurisdiction’s commitment, the fight against tax evasion grows more enhanced on a global scale.

South Africa Releases Draft FAQs for CRS

South Africa posted Draft FAQs concerning CRS reporting and due diligence requirements. The questions come from South African Financial Institutions. Those interested are encouraged to review the FAQs and submit comments to the draft before September 2 (two email addresses are listed on the cover page). There are 60 questions with answers that provide citations to either CRS and its commentaries, or to South Africa’s regulations.

Israel Ministry of Finance Issues Regulations for the Implementation of Foreign Account Tax Compliance Act (FATCA)

The Ministry of Finance released its Income Tax Regulations relative to the implementation of FATCA reporting requirements for Israeli Financial Institutions. Among other topics, the regulations provide:

• Definitions of specific terms that are relevant to the reporting requirements for various types of Financial Institutions.
• The registration process with the IRS and with the Israeli Ministry of Finance.
• The procedures for due diligence with regard to U.S. reportable accounts.

Israel is a late adopter, and thus will not begin exchanges until 2018. While the regulations provide the necessary legal framework to implement and administer CRS reporting obligations in Israel, the Ministry of Finance has yet to release specific guidance or technical specifications. Review the new Israeli FATCA regulations here.

Guernsey Releases Information Regarding Next Year’s Crown Dependencies and Overseas Territories (CDOT) Reporting

Guernsey has published on its Intergovernmental Agreements webpage an update concerning next year’s transition from CDOT reporting to CRS. All of the Crown Dependencies and Overseas Territories will begin their CRS reporting next year. This has created concerns between the U.K. and these jurisdictions regarding gaps in reporting between 2016 and 2018 while the transition is made from CDOT to CRS. The UK has termed next year as a “transition year” to allow for certain elements of CDOT to be reported alongside CRS. This week, Guernsey has suggested the following: For 2016, the CRS reporting requirements should be supplemented by the provision of information on pre-existing individual and entity low-value accounts of UK residents. This solution will ensure that due diligence already undertaken for reportable accounts under CDOT will not have to be repeated for CRS. In other words, a financial institution (FI) will not have to review its low-value accounts a second time. Moreover, under CRS, an FI has two years to complete its due diligence and reporting requirements for low-value accounts. However, since Guernsey has already completed its review of UK low-value accounts, then it must report those accounts next year. Additionally, FIs will only have to send one return with both CDOT and CRS information. Finally, the Alternative Reporting Regime (ARR) will only be available for 2014 and 2015 CDOT Returns.

Croatia Enacts Primary and Secondary Legislation Enabling Implementation of CRS

The Croatian Legislature and Ministry of Finance passed laws and issued the regulations that will enable that country to participate in AEOI pursuant to the Multilateral Competent Authority Agreement (MCAA) and the Common Reporting Standard (CRS). The primary legislation contains provisions for the legal groundwork that enables the Ministry of Finance to promulgate regulations that will allow it to obtain information from Croatian Financial Institutions for the purpose of transmitting to other competent authorities. The secondary legislation consists of the actual regulatory regime which the Ministry of Finance will follow in conducting AEOI, and the rules by which Financial Institutions should abide in that process. Croatia is an early adopter and will begin exchanges with partner jurisdictions in 2017. By enacting this primary and secondary legislation, Croatia has eliminated any pre-existing legal barriers to information reporting and exchange, and the Ministry of Finance will now have the authority to enforce the obligations as set forth in the legislation, the Convention, and the MCAA.

UK Releases New Schema for 2017 Reporting

On August 15, the HMRC released a new schema for next year’s AEOI reporting. This new version (v2.0) will be required for all submissions in 2017, including correction returns with information from 2014 and 2015. The new schema contains many changes which can be found in Annex A of the user guide. Several of these changes reflect the CRS reporting requirements. The new schema and samples of the new schema have been published on the HMRC website.