The Organisation for Economic Co-operation and Development (OECD) has proposed a Common Reporting Standard (CRS) for the Automatic Exchange of Information (AEOI) that will see a significant increase in the customer due diligence and reporting obligations of financial institutions across the world.
According to a recent survey by KPMG of executives at financial institutions worldwide, 65% of businesses with headquarters or operations in the UK anticipate CRS will affect more accounts than the existing Foreign Account Tax Compliance Act (FATCA) regime and, unsurprisingly, a similar number expect compliance with CRS will require more resources. However, with CRS coming into effect from 1 January 2016, the KPMG research also highlighted that 40% of those organisations surveyed had not yet initiated their CRS compliance programmes.
With these new regimes affecting more than 24,000 financial institutions in the UK (according to the US Internal Revenue Service’s Foreign Financial Institution list), this begs the question as to whether many of these organisations will be ready in time.
Peter Grant, Director at KPMG in the UK questions if they are ready:
“The CRS will be effective from January 2016 for more than 50 ‘early adopter’ countries including the UK. Our research highlights that financial institutions expect the CRS will impose a much heavier operational burden on them, far beyond what is currently required under the existing FATCA and UK Crown Dependencies and Overseas Territories (CDOT) regimes.
“There are currently more than 24,000 financial institutions in the UK registered under FATCA and these will need to be compliant under FATCA and CDOT with the next reporting required on or before 31 May next year. Additionally, they will also be required to report under CRS, starting in 2017 for 2016 information. With nearly 100 countries already expected to sign up to the CRS this will significantly increase the burden on financial institutions in term of tax reporting and therefore begs the question, will they be ready?
“Just recently HMRC opened a consultation into draft guidance for the AEOI regimes which has no doubt reminded financial institutions of the challenges ahead and the substantial increase in their reporting obligations. However, without an automated solution, reporting to local tax authorities under a myriad of different regimes will be extremely challenging and opting to undertake the task manually presents a significant risk as well as high cost implications.
“Against this backdrop of new and ever more complex reporting requirements and with increasing demands for regulatory tax reporting, KPMG are investing in a global AEOI reporting solution designed to reduce risk and cut the cost of complying with these new regulations. The global solution will provide a comprehensive platform whereby financial institutions can manage the different reporting requirements for multiple jurisdictions and entities across their business.”