Globalization of FATCA
21st November 2014
Presenter: James Plummer
1
Automatic exchange of information – direction of travel
FATF – Financial
Action Task Force on
money laundering
Tax
Transparency
EU Savings Directive
(EUSD)
UK FATCA
Final withholding tax
agreements
QI system and US
FATCA
Breadth of national
measures
OECD Common Reporting
Standard (CRS)
Double Taxation
Conventions
(DTC)/ Tax Information
exchange Agreements
(TIEA)
2
Background
OECD issues standard for global information exchange which has been widely endorsed
1.
On 21 July 2014 the OECD issued the Standard for Automatic Exchange of Financial Information in Tax Matters.
2.
The OECD on the rationale for automatic information exchange: As the world becomes increasingly globalised it is becoming easier
for all taxpayers to make, hold and manage investments through financial institutions outside of their country of residence. Vast
amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply with tax obligations in their home
jurisdiction. Offshore tax evasion is a serious problem for jurisdictions all over the world, OECD and non‐OECD, small and large,
developing and developed. Countries have a shared interest in maintaining the integrity of their tax systems. Cooperation between
tax administrations is critical in the fight against tax evasion and in protecting the integrity of tax systems. A key aspect of that
cooperation is exchange of information.
3.
The Standard is a global “FATCA-like” automatic information exchange regime aimed at preventing off-shore tax evasion and
maintaining the integrity of tax systems.
4.
The Standard includes the Model Competent Authority Agreement (CAA), the Common Reporting Standard (CRS) and
accompanying Commentaries.
5.
Over 98 jurisdictions have committed to swiftly implement the CRS. Of those, more than half are “early adopter” jurisdictions which
have committed to begin exchange of information by September 2017.
6.
In early adopter jurisdictions, new account opening procedures will need to be in place from 1 January 2016.
.
3
Background
Next steps for participating jurisdictions
1.
Participating jurisdictions will be seeking to enter into CAAs to exchange information
2.
It is expected that the first of these will be signed in the early Autumn of 2014
3.
Jurisdictions will need to implement local law to bring the CRS into effect The CRS will need to be translated into domestic law, whereas the CAA can be
executed within existing legal frameworks such as Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or the equivalent
of Article 26 in a bilateral tax treaty. Before entering into a reciprocal agreement to exchange information automatically with another country, it is essential that
the receiving country has the legal framework and administrative capacity and processes in place to ensure the confidentiality of the information received and
that such information is only used for the purposes specifiedin the instrument.
4.
The EU the Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation between EU member states is designed to
extend the scope for mandatory information exchange between tax administrations. The Directive effectively implements CRS and is intended to ensure a
common adoption approach across the EU. The DAC sets out a common basis for the exchange of information and will remove the need for member states to
agree to Competent Authority Agreements with one another. There are differences between the DAC and CRS.
5.
Some jurisdictions (e.g. Australia, UK) have started a consultation process
Next steps for financial institutions
5.
Financial institutions now have a new global compliance standard to implement and adhere to by 1 January 2016
6.
Financial Institutions should consider the impact of the CRS and identify any synergies with their existing US FATCA programme
4
The Common Reporting Standard
1.
Blueprint for the automatic exchange of information issued by the OECD
2.
The common reporting standard (CRS) covers:
3.
i.
Definitions;
ii.
Types of information to exchange;
iii.
The time and manner of exchange; and
iv.
Confidentiality of data and safeguards that must be respected
However, it also states that “Given that implementation will be based on domestic law, it is important to ensure consistency in
application across jurisdictions to avoid creating unnecessary costs and complexity for financial institutions in particular those with
operations in more than one jurisdiction”
5
OECD CRS: status of commitments
On 29 October 2014, a number of jurisdictions confirmed their intended implementation timelines of the new global standard:
Jurisdictions undertaking first exchanges by 2017
►
Anguilla* (EA)
►
Colombia* (EA)
►
Finland* (EA)
►
India (EA)
►
Luxembourg* (EA)
►
Portugal* (EA)
►
Trinidad & Tobago
►
Argentina* (EA)
►
Croatia* (EA)
►
France* (EA)
►
Ireland* (EA)
►
Malta* (EA)
►
Romania* (EA)
►
Turks & Caicos* (EA)
►
Barbados (EA)
►
Curacao* (EA)
►
Germany* (EA)
►
Isle of Man* (EA)
►
Mauritius* (EA)
►
San Marino*
►
United Kingdom* (EA)
►
Belgium* (EA)
►
Cyprus* (EA)
►
Gibraltar* (EA)
►
Italy* (EA)
►
Mexico* (EA)
►
Seychelles (EA)
►
Uruguay
►
Bermuda* (EA)
►
Czech Republic* (EA)
►
Greece* (EA)
►
Jersey* (EA)
►
Montserrat* (EA)
►
Slovakia* (EA)
►
BVI* (EA)
►
Denmark* (EA)
►
Greenland (EA)
►
Korea* (EA)
►
Netherlands* (EA)
►
Slovenia* (EA)
►
Bulgaria (EA)
►
Dominica
►
Guernsey* (EA)
►
Latvia* (EA)
►
Niue
►
South Africa* (EA)
►
Cayman Islands* (EA)
►
Estonia* (EA)
►
Hungary* (EA)
►
Liechtenstein* (EA)
►
Norway* (EA)
►
Spain* (EA)
►
Chile
►
Faroe Islands* (EA)
►
Iceland* (EA)
►
Lithuania* (EA)
►
Poland* (EA)
►
Sweden* (EA)
Jurisdictions undertaking first exchanges by 2018
►
Albania*
►
Costa Rica
►
Russia
►
Andorra
►
Grenada
►
Saint Kitts & Nevis
►
Antigua & Barbuda
►
Hong Kong
►
Samoa (US)
►
Aruba*
►
Indonesia
►
Saint Lucia
►
Australia
►
Israel
►
►
Austria*
►
Japan
►
The Bahamas
►
►
Marshall Islands
Saint Vincent &
the Grenadines
Saudi Arabia
Belize
Singapore
►
Macau
►
►
►
Malaysia
Sint Maarten
►
Brazil
►
Brunei
►
►
►
Monaco
►
Canada
►
New Zealand
►
Switzerland (M1
intended)
Turkey
►
China
►
Qatar
►
United Arab Emirates
Key
EA – “Early Adopter Group” – see below for specific implementation timeline
* - Signatory to the Multilateral Competent Authority Agreement
FATCA IGA classification
Green – Jurisdictions entered into an IGA model 1 (including in substance)
Blue – Jurisdictions entered into IGA model 2 (including in substance)
Grey – Jurisdictions under FATCA with no IGA
Key dates for “early adopters”
1 January 2016
New account opening procedures to record tax residence to be in place
from 1 January 2016
31 December 2016
Due diligence for identifying high-value pre-existing individual accounts
to be completed
March 2017
First CRS reporting by financial institutions
September 2017
Exchange of information between Competent Authorities commences
31 December 2017
Due Diligence for identifying low-value pre-existing individual account
and entity accounts to be completed
6
The impact of differences in CRS to IGA Model 1
Total number of
differences
185
Significant
41
22%
Medium
81
44%
Less significant
63
34%
Pag
CRS: Similarities and differences to FATCA
CRS vs. FATCA
FATCA
CRS
De minimis limits
$50,000/$250,000
No de minimis (with the exception of pre-existing
entities with a value lower than $250,000)
Indicia
Focused on US citizenship
Focused on tax residency
Due diligence
Separate due diligence for pre-existing
and new accounts, and for individuals
and entities.
Significantly different processes between
FFI Agreement and Model 1 IGA
Due diligence modelled on IGA, but with a
number of key differences
Who is an FI?
Most financial institutions unless
specifically exempted as being lower risk
FATCA exemption removed per CRS thus
include smaller local entities excluded under
FATCA => Flexibility for local guidance to define
specific exemption for low risk entities
Account scope
Most banking products unless low risk,
some insurance, most asset
management
Banking and Asset Mgmt. broadly similar,
though regularly traded exemption removed.
Many jurisdictions will have no back book
exemption for Insurance
Reporting
Primarily to US (some US reporting
obligations to non-US).
Many-to-many, via local authority.
Account balances from 2014, with
income and sale proceeds phased in
Account balances, income and sale proceeds
from day one
8
CRS: What is required?
1. CRS shares a number of similarities with FATCA, allowing, to a large extent, leverage of existing FATCA
capabilities to support delivery.
2. The scale of change required will depend on the implementation approach adopted for FATCA
Significant redesign required
Gap to:
Overall client due diligence
Process changes and new information requirements
Minor or no redesign effort
Model 1 FATCA IGA
►
Possible need for dual FATCA and CRS classifications of both
(i) Reportable clients; and
(ii) Reportable accounts
Pre-existing individual
identification
►
►
New individual identification
►
Pre-existing entity identification
►
New entity identification
►
Reporting
►
►
►
Additional indicia checks required but only for high value accounts, or accounts where no
current residence address held.
De minimis limits removed
Current self certification must be amended to cover all countries, rather than a ‘not US’
declaration
Minor changes to entity types – documentation standards and workflow largely preserved.
A number of changes needed, including a self-certification on residency for all new entity
accounts
Reporting to local authorities as under FATCA in a ‘many to many’ manner
No phased implementation, as seen under FATCA
Multiple reporting formats issued by IRS, OECD and HMRC. Schemas broadly similar, but
some differences
Withholding
►
No withholding requirement under CRS
Compliance
►
As with Model 1 FATCA, compliance is under local law
9
High-level gap analysis between FATCA IGA and
OECD CRS
General
Area
Sub Area
Key differences
Impact
Timeline
Potentially staggered approach for CRS
implementation as and when jurisdictions sign
Competent Authority Agreements (CAA)
Complexity of implementation i.e.
local v hub & spoke model
Reportable
Jurisdictions
Increased scope of implementation with CRS
currently supported by 67 jurisdictions
Legislative interpretation required in
numerous locations
Specified/
Reportable
Persons
Non-compliant
Financial
Institutions (FIs)
IGA/ Agreements
Under the CRS, Reportable Person covers an
increased scope of Individuals and Entities to be
classified.
For the CRS, Financial Institutions in NonParticipating Jurisdictions will be deemed Passive
Non-Financial Entities and the Controlling Person(s)
will be required to be identified
Withholding tax deterrent not applied to FIs located
in non-participating jurisdictions.
See Withholding section for further information
Potential for multi-lateral CRS Competent Authority
Agreements
No direct reporting from FIs to other Competent
Authorities under the CRS
Larger volumes of clients to classify
and report on
May no longer rely on tactical
approach
No withholding, but local enforcement
powers
Legislative interpretation required in
numerous locations
Only one report required, but schema
fields require analysis and may vary
between locations
10
High-level gap analysis between FATCA IGA and
OECD CRS
Financial Institutions (FI)
Area
Accounts
Area
Sub Area
Reporting
Financial
Institutions
Key differences
Impact
Relevant Holding Companies and Treasury
Companies are not deemed Reporting FIs under the Need to revisit entity classification
CRS
The definition of a Non-reporting FI is more limited
under CRS
Non-reporting
Financial
Institutions
FIs with a local client base, low value accounts and FIs will require analysis for
non-profit organisations are not automatically exempt differences in classification between
FATCA and the CRS
under the CRS
Deemed Compliant FIs are not replicated in the CRS
although CRS allows low risk entities to be defined
as exempt under local jurisdiction
Sub Area
Key differences
Impact
Financial Accounts
Product scope is broadly consistent (depository,
custodial etc. )
Product analysis to be revisited, but
will be largely similar
Excluded
Accounts
The definition of an exempt product under CRS is
narrower than under FATCA . eg. Certain low risk
products are not exempt under CRS
Some products excluded under
FATCA will be reportable under CRS
Industry variation
Insurance: Back book exemption
Asset Management: Regularly traded exemption
Wider scope than FATCA
11
High-level gap analysis between FATCA IGA and
OECD CRS
Due Diligence- Entities
Due Diligence- Individuals
Area
Sub Area
Key differences
Impact
All pre-existing individual accounts are within scope
under the CRS
Under CRS you can rely on
residence address to determine tax
residency, no need to undertake
indicia search
Individuals – New
Accounts
All New Individual Accounts are within scope under
the CRS
Need to make amendments to all
accounts onboarding
Self-certification Individuals
Citizenship not required in CRS self-certification
Require tax residency for all new
accounts
Indicia search –
Individuals
CRS could dramatically reduce the number of preexisting individuals that need to be subject to full
indicia review.
But note: continued need for
enhanced review
Entities – PreExisting Accounts
Under the CRS accounts exceeding $250,000 must
Classifications differ to FATCA.
be subjected to due diligence.
Some redesign likely to be required
There is no upper threshold in CRS
Individuals – Preexisting Accounts
Entities – New
Accounts
No difference
Cannot rely on W-series forms.
Significant redesign effort may be
required
Self-certification Entities
Self-certification always required to identify tax
residency for new entities for the CRS
Required to collect self certification
on residency
Indicia search Entities
No set indicia search published in CRS however
information maintained for regulatory or customer
relationship purposes may be relied upon
End result is expected to be similar to
FATCA
12
High-level gap analysis between FATCA IGA and
OECD CRS
Reporting & Withholding
Area
Sub Area
Key differences
Impact
Volumes of reportable data and
accounts will vastly increase
Reporting
Broadly similar, however, a comparative analysis of
the IRS FATCA and OECD schema illustrates
deviations in data elements between the two
schemas, e.g. one third only appear in one of the
schemas.
Unlikely to be able to rely on tactical
reporting solution
Detailed analysis of the schemas
required
Multiple data sources required to
inform reporting engine
Withholding
No withholding under CRS.
Implementing jurisdictions are expected to place
local effective enforcement provisions to address
non-compliance
No requirement to build withholding
capability
13
Gap analysis: FATCA and CRS
Perceived degree of Complexity
No withholding/penal
withholding under
CRS
No phased
implementation for
CRS; multiple
reporting possible
Withholding
Reporting
No group concept and
no deemed-compliant
FI under CRS
Definition FFI
9
8
7
6
5
4
3
2
1
0
Registration
No registration duties
under CRS
Identification Ind. Acc.
No de minimis rules
under CRS, search for
indicia of residency
CRS based on
AML/KYC information,
FATCA in addition on
US documents
Documentation
Identification entity Acc.
Group requirements
FATCA
FATCA allows group
compliance, CRS not
CRS
14
Immediate next steps regarding the OECD CRS
1
2
3
4
5
Establish CRS
program
governance
Assess overall
impact of CRS
Define strategy
and impact to
current FATCA
program
Plan CRS
compliance
efforts
Determine
strategic FATCA
and CRS
reporting
platform
►
Determine whether or not OECD/CRS is managed separately from FATCA program
►
Identify program sponsor and steering committee
►
Establish change management protocols and rapidly build stakeholder awareness
►
Build an internal communications strategy including Board involvement
►
Map early adopter countries to group footprint
►
Understand CRS requirements, local privacy laws and agreements between jurisdictions
►
Determine impact of CRS to lines of business
►
Perform comparison of CRS requirements to existing FATCA program, identifying synergies where appropriate
►
Determine and document key assumptions and enterprise policy decisions
►
Local vs. central communication and decision making
►
Resource availability
►
Establish workstreams
►
Prioritize activities and secure resources
►
Define milestones and build work plans
►
Identify reporting solution strategy and approach
►
Central vs.de-centralized reporting implementation models
►
Identify solution alternatives
15