With a Jan. 1, 2016 effective date looming for 50 “early adopter” jurisdictions set to enact a new international Common Reporting Standard for reporting financial account information, 61 percent of respondents to a KPMG survey of executives at financial institutions worldwide say that the CRS will impact more of their accounts than the U.S. provisions commonly known as the Foreign Account Tax Compliance Act.
Moreover, 55 percent say compliance with the new standard will require more resources.
The CRS, a groundbreaking regime introduced by the Organisation for Economic Co-operation and Development, aims to address the issue of off-shore tax evasion by creating a globally coordinated and consistent approach to the disclosure of financial accounts held by non-residents and the automatic exchange of that information by governments. It builds upon FATCA, which obligates foreign financial institutions to provide the U.S. government with information about accounts held by U.S. taxpayers. In total, almost 100 jurisdictions have committed to implement the CRS by Jan. 1, 2017.
“Even for financial institutions that have a good handle on their FATCA obligations, complying with the CRS model will be a monumental task because of a greater volume of data that needs to be reported,” said Michael Plowgian, a principal in the International Tax practice of KPMG LLP and a former senior advisor at the OECD and attorney advisor with the Office of the International Tax Counsel at the U.S. Department of the Treasury.
Plowgian noted that differences between FATCA and the CRS mean that most financial institutions will need to undertake significant changes to their customer onboarding, due diligence and reporting procedures and systems.
In the survey of 138 high-level tax and compliance professionals, 44 percent of those polled say their ability to meet onboarding objectives by their target date will depend on guidance they receive beforehand, while some 71 percent believe, or are unclear if, CRS obligations will conflict with local privacy laws. Only 30 percent say their organizations have taken significant steps toward implementing the CRS.
“The CRS will clearly disrupt business as usual, but non-compliance could lead to significant consequences both financially and reputationally,” Plowgian said. “While awaiting binding guidance, companies should assess their in-house operations that will be impacted by CRS-related changes including technology systems, operational processes and management controls. Early preparation will be critical to help smooth some of the bumps on the road to compliance.”
KPMG principal Frank Lavadera added: “The survey results make clear that financial institutions recognize the need to devote a significant effort to comply with CRS, but their lag in taking significant steps to get efforts underway may be due to the need for implementing legislation from adopting jurisdictions, as well as a level of fatigue related to FATCA.”
The KPMG survey, conducted this past summer, focuses on the views and behaviors of bank, asset management and insurance professionals working to bring their financial institutions into compliance with the CRS.