In recent years we have seen a seismic shift in the tax transparency landscape. The US Foreign Account Tax Compliance Act (US FATCA) has proved to be a watershed moment and we are rapidly moving towards a global network of automatic information exchange spearheaded by the OECD’s Common Reporting Standard (CRS).

These regulations impact a wider range of businesses than ever before and mean that a mixture of client information and financial data will be reported annually. The first reporting deadline for UK institutions is 31 May 2015  for US FATCA.

There are complexities in financial institutions meeting their compliance obligations but the volume of reportable accounts in year one may be relatively low. Some businesses are therefore using the first reporting window to develop scalable solutions that can cope with larger volumes of reportable accounts going forward.

A practical approach is needed

In order to develop a solution that is future-proofed to the fullest extent possible, businesses need to implement an approach that recognises the common elements across different information exchange regimes. We have identified 3 key phases:

  1. Import and validate reportable data – pooling the required data for reportable accounts, performing basic transformation, cleansing duplicates and tracking manual adjustments;
  2. Generate and validate submission files – generating xml files, performing checks locally, deciding on customer facing reports and documenting standard operating procedures; and
  3. Submit and record completion – enrolling financial institutions on submission portals, submitting reports correctly, tracking completion and documenting details.

There are a range of tasks to be completed under each phase but these do not necessarily need to be commenced sequentially and new requirements can be added to each phase over time.

There are a number of challenges to understand

There are a number of challenges and unknowns to overcome as financial institutions move through the phases:

  • The data required for reporting may be inconsistent, held in disparate systems, subject to data privacy limitations or just not collected.
  • The deadlines for submission are very short and are subject to change. We have seen some jurisdictions with early reporting dates moving these back (for example, France and Spain) but the reporting date is likely to still fall in the first half of 2015.
  • There are differences in requirements between jurisdictions and these are again subject to change. For example, we recently saw HMRC and Cayman announce that nil returns would not be required (though Cayman FIs are still required to register and notify that no return is being submitted). These are significant developments so close to the reporting deadline.
  • The way you report and the information needed will vary between jurisdictions. For example, the UK has its own schema and local portal whereas other jurisdictions may report through an IRS portal.

We have worked through these as part of developing Deloitte’s reporting solution and experience shows that, despite continuing uncertainty, starting immediately is key.