Whatever the forces are that have been promoting the benefits of tax transparency, they seem to be proving successful.
Most respondents (53%) to our recent Thomson Reuters ONESOURCE survey said they think non-compliance with global regulations to promote tax transparency and curb tax avoidance can affect their institution’s reputation. These respondents were largely C-level executives at banks and other financial institutions, and the survey was conducted before the full impact and scale of the Panama Papers was dominating headlines. Today, it is almost certainly higher.
Three regulations are in question:
- Foreign Act Tax Compliance Act (FATCA) stipulates that Financial Institutions (FIs) must report to the IRS or local tax authorities the accounts of U.S. residents that are held in foreign financial institutions.
- Similarly, CDOT, or “U.K. FATCA,” stipulates that FIs must report to local tax authorities and to the HMRC the accounts of U.K. residents in 10 crown dependencies and overseas territories.
- Common Reporting Standard, or CRS, is a global initiative to promote the automatic exchange of tax information to promote transparency. In 2017, 56 countries will begin reporting under CRS, and nearly 100 jurisdictions have committed in total.
That’s a lot of nuance. While tax teams are doubtlessly familiar with the specifics of each regulation, what they’re perhaps not used to is the attention and rigor that the C-level will, according to our survey findings, be placing on compliance and reporting practices.
The fuel to all of this is the fact that tax transparency is not just about quelling government scrutiny and appeasing tax authorities anymore. Popular opinion is now driving the importance business is placing on tax transparency.
This began to brew with high-profile cases of corporate tax avoidance and accelerated with the Panama Papers data breach. And, years after Goldman Sachs famously began to list bad publicity as a material risk factor in its reporting to investors in 2010, corporate executives are once again reminded of the fact that real profits and losses lie behind the nebulous concept of reputation.
The time to act on these transparency regulations is now, in order to control reputational risks. The good news is that, today, modern technology can do much of the heavy lifting for global financial firms that need to comply. In a forthcoming series of blog posts, we’ll be laying out the technological challenges and solutions surrounding FATCA, CRS and similar regulations. This is part one in a three-part series.
Thomson Reuters recently gathered industry views from across the globe to piece together a full picture on the financial market’s readiness for FATCA and CRS. For a more in depth look at the survey findings, including gaps and challenges in global tax reporting, download the full report here.
Thomson Reuters ONESOURCE™ is your foundation in a changing world. We stay one-step ahead of the regulations so you can future-proof your reporting strategy. With 25 years of experience in global tax reporting, we have the knowledge and expertise to assess and improve existing reporting solutions. To learn more, visit tax.thomsonreuters.com/FATCA-CRS.