A Few Tips for Automatic Exchange of Information Reporting
Contributed by Comply Exchange
11 March, 2019
Who is Impacted
Any financial institution with an obligation to report under the Foreign Account Tax Compliance Act (FATCA) or the Common Reporting Standard (CRS) will be interested in some tips and reminders for this Automatic Exchange of Information (AEoI) season.
Continually evolving and dealing with growing pains, AEoI reporting requires attention all year long. Unlike other reporting regimes, it has become less of a seasonal effort and more of a monthly (possibly daily!) burden. Financial Institutions have found that there is always something that they need to be thinking about, doing, preparing, filing, or even correcting with regard to AEoI reporting. This article will highlight some of the items to consider now that the actual reporting deadlines have started rolling for 2018 and are due in 2019.
Prepare reportable account information as early as possible. At this point, due diligence required under FATCA and the CRS should be implemented and in full swing. Because these are relatively new processes, financial institutions rarely find all of the information required to be reported under these regimes in one place where they can export a neat reporting package (unless you have the luxury of using Comply Exchange or other application that can aggregate this information!). Generally, account balance information can be located in one source system while payment information may be in another system. Taxpayer identification numbers may be stored in separate systems based on whether they are primary or not. Consider maintaining normalized data and begin running reports and testing ahead of time. Being able to pull this data early and map it to reporting templates early will be painful in the beginning, but will help sidestep known issues as you get closer to AEoI reporting deadlines.
Be consistent in your methodologies. Not all jurisdictions apply the same accounting methods, tax positions, definitions, or rules. The differences make it difficult to reconcile AEoI reports and to identify correct control totals. To maintain consistency, one approach is to document all methodologies and positions used, so that you are applying the same determinations year over year. Not only will this help with your controls, it will augment your documented policies and procedures â the first item all tax authorities request in the event of an audit or review. Speaking of which...
Document Controls around AEoI Policies and Procedures. Each article we publish includes this important step. Robust policies and procedures are the foundation of all well run and compliant organizations. Some jurisdictions now require documented policies and procedures by regulation or law. Adding in controls gives you the extra level of comfort that the processes are running as planned. Consider working with your audit teams to test the controls. All of these good faith and due diligence efforts will be recognized in the event of review by tax authorities.
Be vigilant about deadlines and file early. If there is one thing we have learned over the last few years, is that many of the AEoI reporting portals are relatively new and not very welcoming of site traffic. Be proactive about researching deadlines, changes to deadlines, and when local jurisdictions take portals offline for updates. Maintaining a detailed schedule incorporated into your tax calendar for all online requirements and obligations will help in last days of filing to avoid missing the deadline due to a technicality. Also, filing early will provide an opportunity to correct any errors or issues prior to the filing date, which will avoid later error notifications from tax authorities.
Confirm AEoI portal information, contacts, and key stakeholders. Each year, without fail, passwords get lost, staff move on from the tax department, and portal sites change. Since the AEoI portals are very specific to online login credentialing, it is important to maintain these details regularly. As part of your processes and procedures, update this information when staff join or leave your department. Points of contact and other key stakeholders may be the only way for certain jurisdictions to contact you in the event of any issues and you will not want to miss these messages. Update this information often.
Confirm registration requirements for all financial institutions within your organization. It may make sense to take an inventory on a quarterly basis of the financial institutions within your organizational network. If there are new ones, have you registered them? If there have been updates or changes to names, have you updated their names on the registration portals? If you have wound down any financial institutions and there are no further reporting responsibilities, have you deleted registration for that entity? Be sure to keep your portfolio of registered financial institutions up to date and the Tax Department in the information loop to avoid any potential filing mishaps.
Check the list of reportable jurisdictions under the CRS. Local tax authorities update these lists, sometimes without warning. As you are collecting your reportable information and details, be sure to check the list of reportable jurisdictions for each country in which your financial institution must report. Due diligence is required on all reportable jurisdictions by account holder and you do not want to miss one of those reports.
Check for local portal and user guide updates. As the online portals evolve, they identify new rules, formatting, or other restrictions that need to be addressed. Most do a great job of sharing this information in clearly detailed User Guides. Be sure to review these User Guides each time there is a new publication. Important changes may impact your submissions.
U.S. FATCA filers - Reminder to update digital certificate for IRS reporting. In September, 2018, the IRS reminded users of the International Data Exchange Service (IDES) to update their Digital Certificates. Digital certificates bind digital information to physical identities and provide non-repudiation and data integrity. Many were set to expire at the end of 2108. See the IDES enrolment website for additional information.
Keep an eye on undocumented accounts. If you find yourself reporting more and more undocumented accounts each year, consider reviewing your processes. Although not immediately, many jurisdictions have stated that they will be looking to this number of undocumented accounts to determine good faith and due diligence standards. Consider documenting methodologies and efforts taken to remediate undocumented accounts in the event tax authorities have questions.
How to Implement
There are so many interrelated moving pieces to AEoI reporting, that it can seem overwhelming. Sticking to an organized schedule of steps and processes will help keep your season manageable. The trick is to stay on top of the process all year long and not only in between seasons.
Unfortunately, although this should be a full-time job, most tax reporting departments do not have the flexibility that allows for this. With all the blocking and tackling, it can be difficult to fit AEoI reporting into the program, but if you spread the tasks throughout the year, things may naturally fall into place one tiny step at a time.
As always, financial institutions should consider the following:
Confirm your systems and reporting applications are update to date!
Confirm tax reporting vendors are aware of forthcoming updates to 2018 and 2019 reporting templates, schemas, formatting, and rules.
Add a reminder to your organization's tax calendar to check for updated deadlines, portal User Guides, regulations, along with your own internal contact updates.
Update process and procedure manuals to incorporate any changes required.
Update training materials and presentations to staff.
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