It seems like the news recently for anyone in the financial industry has been full of FATCA. How will FATCA affect your business? Will you be FATCA compliant? Do you understand the risks? Despite some resistance most companies are now getting ready to swallow the inevitability of FATCA.
Well, just as trust and estate practitioners, fiduciary and offshore providers get used to their new obligations for reporting under the USA Foreign Account Tax Compliance Act (FATCA) ……. a large side-order of global compliance reporting requirements are on the horizon, unofficially known as GATCA (the Global Standard for Automatic Exchange of Financial Account Information), that will add to the already onerous list of information that has to be obtained and maintained.
The Organization for Economic Cooperation and Development (OECD) have been developing a standard framework over the last two years to bring more transparency to the financial sector, and in parts is based on FATCA, and it’s intergovernmental agreements. The Common Report Standard (CRS) reporting already agreed by many jurisdictions including the United Kingdom will need to be in place by 2017.
While FATCA reporting requires organisations to record and track balances and some payments for ‘US specified persons’, for many wealth structures that they administer (including trusts), the CRS, however, will have a wider remit than reporting payments made to ‘US specified persons’ alone. Reportable accounts will also include accounts held by individuals and entities (including trusts, foundations and collective schemes), and looking through passive structures to the individuals that control them.
Although the agreements are in place for CRS reporting, the exact detail of the information to be reported and the mechanism to submit returns is still to be agreed. Yet, those organisations that prepared sufficiently for FATCA reporting are likely to easily digest this supersized order and be well positioned to fulfil the global compliance reporting regime obligations.
Thankfully, one small respite is that unlike FATCA, where the withholding tax and penalties for non-compliance is a major driver to implement internal procedures to ensure you are recording sufficient information, the CRS won’t encompass such penalties.
Organisations should now be making use of the time left until full CRS reporting in 2017 to review the level of current information they maintain and get ahead of their competitors, who perhaps were a little late reviewing the data they hold and what systems are in place. An element of risk arises for organisations that aren’t preparing the table for the additional reporting obligations, including risk of missing deadlines, poor client reputation and other client concerns surrounding the administration of their wealth structures.
Have you chewed through your existing system to check that you are currently able to identify where any controlling person (individuals who exercise control over an entity such as a trust) is resident, domiciled and their primary tax residence? Can you search your electronic records by jurisdiction to report on payments received and proceeds of the sale of assets? Don’t worry, help is at hand – thewealthworks’ Troika is an ideal tool to review and maintain potential CRS related data. We are able to assist our clients to identify gaps in their data and to put in place processes to periodically review and update it accordingly.
So, if you have any concerns at this early stage of CRS reporting, then get in touch and find out how we can help make reporting bite-sized again!