The OECD recently released two documents evidencing its perseverance in ensuring an effective implementation of and a level playing field with regard to its Common Reporting Standard (CRS) for the automatic exchange of financial account information:
- A report on the Peer Review of the Automatic Exchange of Financial Account Information 2020 (Peer Review Report), which summarises the conclusions of the peer reviews of the legal framework put in place by each jurisdiction to implement CRS, and
- A Guide on Promoting and Assessing Compliance by Financial Institutions (Compliance Guide), the purpose of which is to assist government officials and financial institutions (FIs) with the obligations to monitor and ensure compliance of FIs who have CRS and FATCA reporting obligations. Further, the Compliance Guide aims at providing a practical overview of what a robust CRS and FATCA compliance regime may involve.
Peer Review Report
Over the past years, the OECD Global Forum performed a review of the CRS legal framework implemented by the 100 jurisdictions that committed to exchanging CRS information starting from 2017 and 2018. The OECD Global Forum applied an iterative review process, i.e. allowing jurisdictions to address the findings immediately and then re-assessing.
The Peer Review Report published on 9 December 2020 summarises their findings, including:
- The overwhelming majority of jurisdictions successfully commenced exchanges and delivered on their commitment to exchange in 2019 (except for Dominica, Niue, Sint Marteen and Trinidad and Tobago).
- 98 out of the 100 jurisdictions adopted an international legal framework that is fully compliant with both (a) the prescribed content requirements for their international agreements and (b) the expected scope of the CRS exchange network; the two jurisdictions not meeting this requirement are Sint Marteen and Trinidad and Tobago.
- With respect to the domestic legal framework:
- 54 jurisdictions were assessed to be fully compliant with the CRS standard, including Cayman Islands, France, Guernsey, Jersey, Hong Kong, Ireland, Italy, Luxembourg, Singapore, Spain and the UK.
- 34 jurisdictions received the grade “In Place But Needs Improvement”, i.e. the Peer Review Report includes recommendations for these jurisdictions to amend the domestic legal framework to be fully consistent with the CRS standard; notably, this group includes Switzerland as well as the Bahamas, BVI, Canada, Germany, Japan, Liechtenstein, Mexico, Monaco, the Netherlands, and Panama.
- 10 jurisdictions have major deficiencies in their domestic legal framework that could undermine CRS requirements, including Israel, Macao and Romania.
- 2 jurisdictions have not yet implemented a domestic legal framework, i.e. Sint Marteen and Trinidad and Tobago.
- For Switzerland, the recommendations relate to the non-reporting FI and excluded account categories. Although Switzerland originally proposed to abolish these categories by 1 January 2021 the Swiss Federal Council ultimately decided keep them. The other recommendations the OECD Global Forum originally made for Switzerland (see our blog post from 5 March 2019) are not mentioned in the Peer Review Report because they have already been addressed in the amended CRS Act and Ordinance coming into force on 1 January 2021.
The Compliance Guide is structured across six chapters:
- Implementation assistance: This chapter highlights the importance of collaboration between tax authorities from different jurisdictions as well as a jurisdiction’s educational activities, service initiatives and self-help tools to support FIs.
- Identifying the FI population: This chapter provides guidance to tax authorities on best practices to identify all in-scope FIs, e.g. through registration, nil reporting requirements, matching known FI population against other regulatory listings as well as additional measures to deal with non-regulated FIs.
- Developing a risk-based approach towards CRS and FATCA compliance: As most tax authorities do not have the capacity to review the compliance of all FIs at the same time, this chapter provides suggestions for risk identification and prioritisation. Furthermore, it elaborates on the different review methods including the use of questionnaires, desk-based reviews and on-site reviews.
- CRS and FATCA governance implementation: This chapter outlines the core elements the OECD expects FIs to have in place to ensure appropriate governance, including project organisation, stakeholder collaboration, roles and responsibilities, training as well as documentation and monitoring. For each core element, the OECD defines key requirements (called “hallmarks”, which should not be confused with the DAC6 hallmarks) as well as sample questions aiming to help tax authorities easily identify potential shortcomings in the implementation of a specific FI. In addition to the generic guidance, there is also more specific guidance for the fund and trust industries.
- Ensuring FIs have fulfilled their due diligence obligations: Similar to the prior chapter, this chapter defines hallmarks and sample questions around the due diligence process covering the scope of relevant accounts and the due diligence for different types of accounts (preexisting and new, individuals and entities). Notably, the OECD is coming back on the topic of residence/citizenship by investment (RCI/CBI) schemes suggesting that a reviewer investigate the processes triggered at an FI when account holders declare themselves tax resident in a jurisdiction included on the respective OECD list. In addition, there is industry-specific guidance for banks, insurers, funds and trusts with additional questions and a proposed list of documentation for the audit scope.
- Reporting systems and procedures: Once again, in this chapter, the OECD defines hallmarks and sample questions, including with regard to reporting systems, data extraction and report preparation, submission of reports and managing amendments, and provides further industry-specific guidance.
While neither of the two documents directly impose obligations on FIs, each provides interesting insights on potential future developments:
- If and when affected jurisdictions decide to implement the recommendations listed in the Peer Review Report, this may potentially impact all or some FIs in that jurisdiction, depending on the identified deficiencies. Therefore, FIs should carefully analyse the OECD Global Forum recommendations for the jurisdictions relevant to them and identify the potential impact of adopting such recommendations.
- The Compliance Guide is likely the more relevant document for many FIs as it helps them understanding potential focus areas of the upcoming compliance reviews and audits. Against this background, FIs may want to consider performing an internal assessment or have an external party perform an audit readiness review against the hallmarks and sample questions set out in the Compliance Guide. This will allow for upfront remediation (if necessary) and shall provide peace of mind to the responsible officers and executives prior to official reviews and audits.
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