Complying with Irish Common Reporting Standard Regulations
Achieving global tax compliance and tax transparency has become one of the key focuses of the OECD and G20 in recent years, with many initiatives for the automatic exchange of information for tax purposes across various jurisdictions having already been introduced.
Further to the introduction of the Foreign Account Tax Compliance Act (“FATCA”), on 15 July 2014, the OECD introduced the Common Reporting Standard (“CRS”) which acts as the single global standard governing the automatic exchange of information between tax authorities of tax jurisdictions that have signed up to the standard.
Ireland fully supports the move towards global tax compliance and tax transparency, including the automatic exchange of information for tax purposes, and has already signed up as an early adopter of CRS, having implemented these rules into Irish law in December 2015. As persons in an early adopter country, all Irish entities and Irish branches of foreign entities must ensure that they are compliant with Irish Common Reporting Standard Regulations (“Irish CRS Regulations”) from 1 January 2016.
How can I make sure I am compliant with CRS?
Achieving CRS compliance falls into four main areas which are discussed in further detail below.
i. Review your Activities and determine your CRS classification
In order to be compliant with Irish CRS Regulations, all Irish entities and Irish branches of foreign entities must firstly review their activities and determine whether they fall within the definition of a Reportable Financial Institution (“RFI”) or a Non-Financial Entity (“NFE”) for that purpose.
Generally, entities falling within the investment management industry, such as funds, asset managers and custodians, will fall within the definition of an RFI. However, there are a wide range of exemptions from this, such as certain pension funds or certain collective investment vehicles that may be considered to be Non-Reporting Financial Institutions.
While RFIs for FATCA purposes had to register with the Internal Revenue Service (“IRS”) to obtain a Global Intermediary Identification Number (“GIIN”) to facilitate FATCA reporting, RFIs for CRS purposes have no obligation to register for a separate tax number to facilitate CRS reporting.
ii. Report Annually to Revenue
Where Irish entities and Irish branches of foreign entities fall within the definition of an RFI, they have an obligation to report certain information annually to Revenue in relation to Reportable Financial Accounts for CRS purposes that they maintain for customers (“Reportable Accounts”).
While Revenue acknowledge that some of the Reportable Accounts of Irish RFIs may be held by customers who are resident for the purposes of tax in jurisdictions not signed up to CRS, Irish RFIs are permitted under Irish CRS Regulations to collect information (including tax reference numbers) on all non-resident account-holders irrespective of their country of tax residence.
The Irish RFI may then report relevant details with respect to the holders of all Reportable Accounts to Revenue, who will then determine whether the jurisdiction of tax residence reported for those account-holders is a participating jurisdiction for CRS purposes. Where an account-holder is resident for tax purposes in a jurisdiction that has signed up to CRS, Revenue will exchange data relating to said account-holder (as received from the RFI) with the tax authorities of the relevant tax jurisdiction, while deleting any data relating to account-holders resident for the purpose of tax in jurisdictions not signed up to CRS.
It is intended that this practice (which is known as the “wider approach”) will be permitted for a period of two-to-three years, after which it is expected that a final list of jurisdictions participating in CRS will be determined. Once that list has been confirmed, Irish RFIs will only be permitted, to collect and should only return, relevant details to Revenue with respect to Reportable Accounts held by customers’ resident for the purpose of tax in those jurisdictions which have signed up to CRS.
The first CRS return for Irish RFIs is due to be filed with Revenue in June 2017 (in respect of calendar year 2016) with Revenue expected to share this information with tax authorities of other tax jurisdictions that have signed up to CRS in September 2017. It is important to note that Irish CRS Regulations do not permit any alternative reporting period, such as an RFI’s accounting period, which may not be helpful for some RFIs.
Similar to FATCA, NFEs can be further classified as either “Active NFEs” or “Passive NFEs” for CRS purposes. While NFEs do not have any annual CRS reporting obligations, they must provide their CRS classification to other RFIs (such as banks) when opening accounts with them to facilitate CRS due diligence and reporting by that RFI.
iii. Update on-boarding procedures for new customers and new customer accounts
In order to facilitate CRS reporting, Irish RFIs should ensure that their on-boarding procedures for new customers and the opening of new customer accounts on or after 1 January 2016 are sufficient for:
- Identifying Reportable Accounts and
- Confirming the jurisdiction of tax residence of the holder of those Reportable Accounts.
This is usually done by RFIs through requesting customers to complete CRS self-certification forms prior to opening accounts for them.
As for FATCA, Revenue have not provided template CRS self-certification forms for RFIs to use as part of their account-opening procedures. However, Irish Funds FATCA/CRS Working Groups have drafted sample self-certification forms for both individuals and entities that can be used by Irish RFIs as part of their on-boarding procedures for new customers and the opening of new customer accounts for both FATCA and CRS purposes. Two types of CRS self-certification forms have been made available by Irish Funds;
- CRS only self-certification forms for individuals and entities which can be used where account holders wish to use Forms W-8/W-9 for FATCA self-certification purposes.
- FATCA & CRS combined self-certification forms for individuals and entities which can be used in all other cases.
Upon receipt of a self-certification, an RFI must confirm its reasonableness based on the information that they have obtained through Anti-Money Laundering/Know-Your-Client (“AML/KYC”) procedures, etc. The OECD have stated that in certain circumstances, where it is not possible to validate on day one, validation of the self-certification should be completed within 90 days of account-opening.
iv. Carry out certain due diligence procedures on existing customer accounts
In order to comply with Irish CRS Regulations, Irish RFIs must also review their existing customer accounts (i.e. those in place at 31 December 2015) using CRS due diligence guidelines in order to:
- Identify Reportable Accounts and
- Confirm the jurisdiction of tax residence of the holder of those Reportable Accounts.
Where information held on an account holder of a Reportable Account indicates that they may be resident in a participating jurisdiction for CRS purposes, that account is considered to be a Reportable Account for CRS purposes until such time as other information is obtained to indicate that this is not the case. This information is often obtained by RFIs through requesting existing customers to complete CRS self-certification forms similar to those published by Irish Funds which are noted above.
As for FATCA, these due diligence procedures have been introduced on a phased-in basis. Due diligence procedures on existing customer accounts that are considered to be “High-value accounts” for CRS purposes must be carried out by 31 December 2016, with the relevant due diligence procedures on existing customer accounts that are considered to be “Low-value accounts” for CRS purposes required to be completed by 31 December 2017.
It is important to note that some due diligence exemptions and thresholds that existed for FATCA do not apply under CRS. As such, some additional accounts that were not previously reportable for FATCA purposes may now become reportable under CRS. In light of this, existing accounts need to be reviewed from a CRS perspective even if they have previously been deemed to be non-reportable accounts for FATCA purposes.
Given how onerous being CRS-compliant may be for some Irish RFIs, it is helpful that in passing Irish CRS Regulations Revenue have permitted Irish RFIs to use service providers (either in Ireland or abroad) to assist them in meeting their obligations in this area. However, it is important to note that as with FATCA, ultimate responsibility for being CRS-compliant would still lie with the Irish RFI in these circumstances.
Other key areas to consider in monitoring your obligations under CRS
- How you will cross-validate CRS self-certification forms – CRS self-certification forms will introduce challenges in the documentation review. An additional CRS self-certification will require a cross-check against AML/KYC information, and FATCA forms on file.
- How you will validate Tax Identification Numbers (“TINs”) from different reporting jurisdictions – Each jurisdiction will release their TIN format requirements in the OECD AEOI Assist portal. Each jurisdiction requires different format requirements, leading to possibly complex validation processes.
- How you will track local CRS Regulation changes – Jurisdictions will roll out regulations and guidance at various times. To comply with CRS, rules of all applicable jurisdictions will need to be tracked to confirm the most recent rules are being followed.
- The reclassification of group entities for CRS purposes – Entities will need to be re-assessed to determine their CRS classification. FATCA classifications may not always coincide with CRS classifications (e.g. sponsored entities for FATCA are not recognised under CRS).
Key differences between FATCA and CRS
While CRS has similarities to FATCA, there are some key differences between the two. When compared to FATCA, CRS:
- Does not impose a withholding tax obligation where you are non-compliant
- Requires a greater volume of information on customer accounts to be collected and reported to Revenue and
- May result in a greater number of customers being reported to Revenue since:
- Certain sub categories of Non Reportable Accounts which existed under FATCA have been removed for CRS, and
- Certain reporting thresholds for existing account holders which existed under FATCA have been reduced under CRS.
Given that FATCA classifications may not always coincide with CRS classifications, Irish entities and Irish branches of foreign entities may need to be reassessed to determine their CRS classification.
How does CRS reporting interact with FATCA reporting?
Reporting for CRS purposes is intended to work alongside, rather than replace, reporting for FATCA purposes.
Following the introduction of CRS, Irish RFIs should continue to collect sufficient information on their customers to:
- Identify reportable accounts for both FATCA and CRS purposes and
- Confirm the jurisdiction of tax residence of the holder of those accounts.
The relevant details in respect of all accounts maintained by the Irish RFI on behalf of customers who are resident for the purposes of tax outside of Ireland should be reported annually to Revenue. Revenue will then report the relevant information in respect of U.S. account holders to the IRS under FATCA rather than under CRS. The relevant details in respect of account holders resident in tax jurisdictions outside of the U.S. will be reportable by Revenue to foreign tax authorities under CRS (to the extent that they are signed up to CRS).
How Can We Help
Deloitte offers a full suite of services to help you to manage the introduction of CRS and your ongoing obligations with respect to same. We can;
- Carry out a CRS impact assessment for your organisation and use it to create an implementation roadmap tailored to your organisation’s needs
- Carry out a Compliance and Completeness Review of policies, procedures and controls in place to capture CRS information for new customers and new accounts
- Identify the CRS classification of entities in your group and their reporting requirements
- Analyse financial accounts and identify which are reportable for CRS purposes
- Assist with on-boarding process changes, as well as updating system mappings for custodians where required
- Create a tax document-collection process to assist with CRS Implementation
- Assist with system design documentation, testing and training for regulatory changes
- Provide learning sessions on CRS, tailored to the needs of your organisation.