What are the multi-jurisdictional issues of the OECD's Common Reporting
Standard Part I/II.
The Standard for Automatic Exchange
of Financial Account Information in Tax Matters, including the Commentary
on the Common Reporting Standard (CRS), seeks to establish the automatic
exchange of tax information as the new global standard. The electronic
exchange of information involves the systematic and periodic transmission
of 'bulk' taxpayer information from the country that is the source of
the payment to the taxpayer's country of residence.
I. Identification
CRS will increase the number of accounts identified, resulting in the
need for a change in internal processes. Customer due diligence procedures
will also need to dive deeper and different thresholds will need to be
implemented to identify controlling persons.
Additionally, firms, unlike with FATCA, will have to determine residency,
thus adding complexity to the identification process and bringing potential
concerns over the robustness of residency documentation from other jurisdictions.
Moreover, firms will be required to develop a broad knowledge of funds
and controlling persons. Significantly, companies will be required to
identify controlling persons from non-CRS jurisdictions that have a controlling
interest in funds based in CRS jurisdictions.
Furthermore, the scope of funds under CRS has seemingly expanded, where
– unlike FATCA – it does not exempt interests that are "regularly traded
on an established securities market'. This will place a considerable burden
on the fund management industry and its reporting obligations.
II. Classification
There are already issues in reconciling codes when reporting. Under FATCA,
firms register for a GIIN to be published by the IRS. However, companies
will also use other codes, for example, an LEI. This can result in errors
when reconciling information, causing internal complexity with data classification.
Additional doubts arise when assessing the reasonableness of the self-certification
for classification. One, what is reasonable? Reasonableness in the UK
is an objective test, but can this legal concept be applied consistently
in other jurisdictions, especially civil law jurisdictions? Two, what
is reasonable to a bank may not be consistent to a regulator. There is
no set of criteria to apply and no agreed yardstick to go by.
This is not the only area lacking clarity. For instance, firms are concerned
about the lack of clear guidance on what is a controlling person for an
entity.
III. Validation
How do you ensure that the validation process in other jurisdictions and
documentation supporting self-certification are robust and reliable? This
is especially important when having to fall back on what is reasonable
when reporting to the authority and justifying the reasoning to the regulator.
Copenhagen Compliance works together with JWG to help you determine
how the right regulations can be implemented in the right way. http://www.jwg-it.eu/
