With evidence of income tax evasion that starves governments of revenue and undermines the perceived fairness of tax systems, the G-20 asked the Organisation for Economic Co-operation and Development (OECD) to develop a model Common Reporting Standard (CRS) for a global regime for automatic exchange of information (AEOI) on account information to facilitate tax transparency and reduce cross-border tax evasion.
The CRS implementation builds on the Model 1 Intergovernmental Agreement (IGA) under Foreign Account Tax Compliance Act (FATCA) to expand the AEOI to include account information for all non-resident account holders rather than just Americans.
Financial institutions that have not yet started to plan for AEOI CRS implementation should undertake an assessment to understand how they are impacted. Considerations may include:
Forward-looking institutions have also seized on the opportunity that CRS presents in enhancing business models, improving customer service, streamlining operations and informing product development. Some firms are taking advantage of the improved data quality and connection of account information to build analytics capabilities to deliver more targeted services and products. Like any large change program, AEOI should have management considering business model improvements that can be driven by or added onto the required implementation.
For financial institutions in early adopter jurisdictions, a short term tactical solution is required for on-boarding from 1 January 2016 and to capture year-end information on pre-existing customers. Thereafter, they should take a measured approach to designing a system solution that offers flexibility for future changes. In preparation, organisations should also consider:
Since almost every function in a financial institution is impacted by a CRS program, a clear communication plan is required to bring together business units, functions and geographies that would not usually be connected.
Governments are thinking about how they can get better quality information, both from the CRS and domestically, and increase their ability to match income to beneficial owners:
The CRS and all these possible improvements will require some higher level of advanced data infrastructure, which is likely to be a challenge for all governments and financial institutions around the world.
For larger institutions, management should prepared for a sustained effort to comply with these evolving rules. For smaller firms, keeping up with the rules and understanding how they impact your business is key. Compliance is anticipated to be complex and expensive, especially with the significant customer outreach efforts required and the expected customer annoyance that ensues. There are several technology tools in the market that can make compliance more effective and efficient, but they take time to deploy and integrate, so the time to start planning is now.
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