This post is part two of a three-part series on complying with new tax transparency regulations such as FATCA and CDOT. Read part 1 here.
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to give the U.S. tax authority better information to detect tax avoidance and evasion.
Four years later, a similar set of regulations, UK-FATCA affecting the UK Crown Dependencies and Overseas Territories (CDOT) became law. By then, the Organisation for Economic Co-operation and Development (OECD) had persuaded 47 countries to enter into an agreement to develop and use a common standard to share information on residents’ assets and income.
Whether it is borne from an appetite for additional sources of revenue or a commitment to fairness, or a combination of the two, it is clear that tax regulators are catching up with the private sector in terms of how they use technology to obtain useful and actionable information related to assets and income. This is largely a positive development that will lead to better enforcement and ensure taxpayers are abiding by the letter of the law as well as its intent.
However, in the immediate term, financial institutions are feeling some pressure to get it right. Our recent survey that found 53% of banking and finance executives think noncompliance with these regulations pose risk related to their reputation.
Institutions already have significant challenges when a new client comes their way. Due diligence and other tasks to onboard new business can take months, and there are already numerous regulations to handle.
It is tough to overstate the value of a robust technological approach to tax compliance, facilitating transparency and the sharing of data. Centralization of the processes and procedures to meet regulatory obligations is a top challenge.
The most common approach institutions are taking is to add these new compliance responsibilities to an existing centralized team. Another is to create a new team that will handle them.
Across these approaches, the teams are ensuring the compliance function is centralized, and the software platform is a key piece of that centralization.
BNY Mellon, the largest withholding agent in the United States, is a case study in operational excellence of CRS reporting. “BNY Mellon recognized very early that it was going to be essential to streamline processes as much as possible. We had an existing client on-boarding team which we have augmented by the creation of a CRS centre of excellence that works closely with our FATCA teams,” Lorraine White, Head of Global Securities Tax Research, stated.