How FiTAX Can Prepare You For CRS
The following is a review of two webinars carried out by Marcus Evans in partnership with Bearing Point. The first, running in December last year, focused on communal awareness of OECD CRS, and on the importance of correct tax reporting procedure. The second, running in April earlier this year, was a solution showcase of BearingPoint’s FiTAX software.
What are the implications of CRS?
The Common Reporting Standard (CRS) has been adopted in over 100 countries, with more than 50 ‘early adopters’ introducing regulations more quickly. The new system aims to tackle the problem of tax evasion with a global solution that increases transparency in the tax system. This global solution, however, also raises a number of complexities to which companies must become accustomed.
Patrick Wilson, the head of operational tax at Coutts, discusses the confusion surrounding CRS and some of the challenges that clients may face when ensuring that they are abiding by these new laws.
Patrick begins by detailing how CRS differs from FATCA and UK FATCA that preceded it. Compared to these previous systems, CRS extends the identification and classification of the tax residences of account holders. Then, if necessary, this information is reported to HMRC who, in turn, are able to share it with any further relevant tax authorities under the Automatic Exchange of Information (AEOI). With a greater number of countries in scope under CRS, there is a heavily broadened scale of tax reporting.
In terms of practical changes to certification, Patrick suggests that personal client onboarding would be altered little by the switch. Entity client onboarding, however, requires some further consideration. While Patrick praises the OECD portal’s “excellent support” and suggests that industry standard forms for self-certification could be an easy and relative stress-free option, he nonetheless has some unaddressed issues with the process. For instance, is it necessary to separate the self-certification from the application form?
Compared to FATCA, a greater number of financial institutions are within the scope of CRS, according to Patrick. This includes Investment Trust Companies and Capital Trusts, alongside UK charities and those non-profits which are classified as financial institutions.
Patrick goes on to provide a specific example of the unresolved complexities inherent in CRS: if an entity is a trust with one trustee in a CRS-participating jurisdiction and another in a non-participating jurisdiction, then how can this be adequately resolved? Hypothetical quandaries such as this serve to further complicate an already complex system.
Patrick highlights information release by HMRC as being particularly illuminating and helpful, but not without the addendum that it has been released at a very late point in the process. In order to prepare for the future, he says, financial services will need to engage better with jurisdictional tax authorities across the globe.
Could FiTAX Be The Answer?
As previously mentioned, this webinar series is a collaboration between ourselves and BearingPoint. As such, the second webinar is a solution showcase of BearingPoint’s tax reporting software FiTAX.
Ronald Frey, Partner at BearingPoint, begins the talk by giving an overview of the firm and their aims. With fourteen years experience of online tax reporting, creating software solutions that have followed the changing tax schemes over the years, BearingPoint specialise not only in software but also in offering advice and providing a support service to clients.
Ronald moves on to the Automatic Exchange of Information (AEOI) — an integral part of CRS — which involves the transfer of tax data across borders. This is built up of a complex web of multi-lateral agreements and divergent local guidelines, meaning that the rules for clients resident in many countries are obfuscated further. For these reasons, Ronald says, financial institutions need a ‘reporting solution than can cover and monitor complexity’.
The above image, taken from the webinar, illustrates how AEOI works. In this example, a UK bank is transferring a German tax report to a German client — a process which is subject to AEOI by transmitting data to the UK Tax Authority. This is the portion of data transfer that FiTAX is able to facilitate.
This challenge of data transference is one currently being pondered by banks, many of whom are considering a ‘tax datamart’. This is a setup which reconciles data from bank systems and external tax data providers into one repository, thereby offering operational flexibility. This fits in to a wider trend of centralization, in which there are a small number of ‘hubs’ across the globe (often one per time zone) working on data in a central data store. ‘Satellites’ can then be appended to the hubs, offering the ability to export data out of a country and in to this central store. While undoubtedly an elegant solution to the formidable task of moving data en masse, there still remains logistical hindrances and some well-founded concerns regarding privacy.
Continuing the talk is Fabrice Chatelain (pictured left), Senior Manager at BearingPoint and Product Manager for FiTAX. He begins by talking about the somewhat daunting proposition of tax monitoring.
Keeping on top of the requirements and repercussions of such a vast, iterative and dynamic system as CRS needs, amongst other preparative measures, a keen monitoring system. The sprawling web of multi-lateral agreements is unfathomable enough without factoring in how they are subject to sudden, erratic changes. A reporting solution is invaluable with regards to keeping abreast of the changing landscape and altering the software accordingly. Coming back to FiTAX, Fabrice mentions the fifteen year partnership BearingPoint has with KPMG Luxembourg, experts on tax and on monitoring changes in tax.
When discussing all of the disparate ways that financial institutions can implement a reporting solution, Fabrice offers five options:
- Leave local reporting to each entity. The least efficient and most high-risk option.
- Create a solution maintained by your own centralized teams. A costly option, requiring constant maintenance.
- Purchase a rule-based reporting engine, or ‘vendor solution’. While more efficient than option two, this still requires a Big 4 tax advisory firm for updates.
- Purchase a ‘closed, all-inclusive’ reporting engine. This is more efficient than option three, offering updates that include the monitoring of local changes.
- Outsourcing. This can be just as efficient as option four, but some have concerns about the risks accompanied with this large-scale movement of data.
According to Fabrice, FiTAX can be used for an internal, all-inclusive approach, or for outsourcing. But what exactly is FiTAX, and how can it be used at your financial institution?
FiTAX is BearingPoint’s ‘standardised and ready-to-use tax reporting software’, regularly upgraded in line with emerging tax code changes. It is usually installed at the financial institution and operated by users of that institution.
FiTAX combines a powerful, clean and intuitive user interface with a robust system, offering the flexibility to successfully adhere to regulatory tax laws. Accepting many types of raw data, FiTAX is able to display records in a convenient way and can highlight any errors which would otherwise hinder reporting. The software is able to generate reports for a range of tax schemes, including CRS and FATCA, and can also handle the encryption process before delivering reports to the correct location.
The fact that FiTAX is intended for installation within the financial institution is evidenced by its unwavering focus on ease of use. The sleek design belies the enormous complexity of data management that goes in to the reporting process, handled effortlessly by the program.
Ronald (pictured left) ends the talk by reiterating how BearingPoint have over fifteen years experience, not just in software solutions but also in an advisory capacity. They currently have over sixty financial institutions as clients, reporting for over 2000 FFIs spread across eighty countries. Factor in their close relationship with KPMG Luxembourg, allowing an experienced eye to remain focused on the excitable world of tax laws, and the case for FiTAX as a tool to alleviate the complexities of CRS becomes even more apparent.
Download the webinars and their accompanying slides here: http://events.marcusevans-events.com/reporting-under-crs/ http://events.marcusevans-events.com/bearing-point-fitax/
Connor O’Malley,
Intern
Marcus Evans
101 Finsbury Pavement,
London, EC2A 1RS
webinars@marcusevansuk.com
