This blog was last updated on June 27, 2021
Sovos Compliance was the premier gold sponsor of The 13th Automatic Exchange of Information (AEoI) Congress held on November 10th and 11th in London. This conference was well attended by compliance leaders for some of the largest financial services organizations in the world. The 2015 AEoI Congress was dedicated to achieving compliance for Global Information Reporting regulatory obligations consisting of the Foreign Account Tax Compliance Act (FATCA), Crown Dependencies and Overseas Territories (CDOT), and the Common Reporting Standard (CRS). Both days of the Congress were full of thought provoking content. Presentations and discussion groups included global reporting experts from PwC, Deloitte, EY, and KPMG as well as experts within global organizations like RBS, Barclays, BNY Mellon, Santander, Black Rock, and Northern Trust. With over 30 global financial services organizations represented by attendees, this event highlighted the incredible complexities and challenges global reporting will present to every organizations as deadlines draw near and these new global reporting regimes come online. Since strategic preparations will be critical in minimizing the impact to overall business, the following are some of the key takeaways the Sovos team learned from attending the AEoI Congress. Low Volumes for FATCA The first year of FATCA reporting required significant effort to identify what ended up being very few accounts for foreign financial institutions (FFIs) must to report to the IRS. However, for many FFIs this required years of preparation, substantial costs (time, money, resources) dedicated to understanding FATCA and identifying reportable accounts, and then determining how to report those accounts to the United States’ Internal Revenue Service (IRS). FATCA is also the least challenging form of global information reporting for a couple of simplified reasons. FATCA is based on identifying US citizenship, only requires reporting account information with one country (non-reciprocal agreement), and has a governing regulatory power in the IRS to provide direction and enforcement. This next year of FATCA reporting will see a large increase in reportable accounts for most FFIs testing what many created as a tactical solution for reporting based on low volumes. It is also important to note that FATCA will continue to be a separate regulatory obligation when CRS comes online in tax year 2016. Do Not Overlook CDOT, Even If You Are Not Impacted Most FFIs are not recognizing the advantage in understanding the role CDOT plays in preparing for CRS, even if you are not required to report. CDOT, commonly referred to as ‘UK FATCA’, helps preview CRS as it is the first time global information reporting will see challenges like determining and reporting based on tax residency. CDOT also requires accounting for a reciprocal reporting environments in which jurisdictions will report account information to Her Majesty’s Royal Court (HMRC) in the UK and the UK will also report account information back to those jurisdictions. What makes CDOT simpler than CRS is the HMRC will act as an enforcer of the legislation, while CRS has no single authoritative power and CRS will have reciprocal reporting requirements with over 90 jurisdictions consisting of additional challenges like multiple currencies, languages, and data privacy requirements. There are enough similarities between CDOT and CRS that CDOT will transition into CRS when CRS begins reporting in tax year 2016. Just like with FATCA, the key lessons learned from CDOT reporting starting in tax season 2015 will help better prepare organizations to meet the exponential complexities of CRS. The Focus Now is Self-Certification, But What About Reporting? The first deadline for CRS is January 1, 2016, requiring early adopters, meaning the first of two waves of reporting jurisdictions, to identify reportable accounts and implement new onboarding procedures. To meet this deadline, most organizations have focused all of their resources on helping overcome the challenges this initial regulatory deadline presents. Based on the breakout groups at the event, which overwhelming focused on CRS, organizations have been stuck in this initial stage for quite some time as most of the jurisdictions have yet to release a majority of their requirements for complying with CRS. However, with reporting for early adopters starting in calendar year 2017, this leaves only a year to determine multi-jurisdictional reporting processes, budget allocations, and technology implementations required to report. For large global organizations (FFI’s), millions of dollars have been invested in determining who to report, but without the ability to actually report back to these jurisdictions as proof of these efforts, many organizations will be left in a vulnerable position. CRS is projected to be 100-250 times more complex than FATCA with half the time to prepare. Feedback from the conference suggests many organizations already have dedicated staff working beyond capacity focused just on FATCA, with the inability to take on additional work. This presents a problem as FATCA will continue to grow and still be required as a separate obligation when CRS mandatory reporting begins as well. Tax Compliance and Tax Operations Departments Will Need to Collaborate Well For global reporting, having a platform that is easily adaptable and scalable was a constant and consistent theme. Countries like India provide the best example of why. When India signed onto a FATCA agreement with the US, it gave FFIs less than a month to account for new reporting requirements that hadn’t even been completely defined by India upon joining. This means that departments focused on tax compliance and tax operations need to work closer than ever to meet these type of demands that are expected to be the norm for CRS. While many of the delegates attending the conference were responsible for overseeing their organization’s entire tax compliance team, in most cases their tax operations counterparts were not in attendance. A couple ways to give your organization an advantage in preparing for global reporting is to establish a consistent understanding of the regulatory asks between your compliance and operations departments, leveraging each other’s unique skill sets to determine best practices, and create strong, clear channels of communications to account for last minute jurisdictional changes. Also, given the limited time to prepare for CRS, the identification stage and reporting stage need to be happening simultaneously to properly report the appropriate accounts to multiple jurisdictions that organizations have invested considerably in identifying. Some Organizations May Have FATCA, CDOT and CRS Reporting All at the Same Time There is potential overlap for tax year 2016 with CDOT reporting and CRS. This means for some organizations they could be responsible for FATCA reporting, CDOT reporting, and early adopter CRS reporting all at the same time. This will likely require additional staffing, resources, and budget. This will definitely require very strategic planning and preparation to ensure compliance as FATCA reportable accounts continue to increase this year, CDOT reporting starts in tax year 2015, and CRS reporting starts in tax year 2016. To learn more about Global Information Reporting including FATCA, CDOT, and CRS, we invite you to visit our www.sovos.com/GIR and continue to watch for the latest global reporting blogs.
