OECD Report Details Preventative and Corrective Measures for Financial Institutions’ FATCA and CRS Non-Compliance
Tax administrations can use a combination of detective, preventative and corrective measures to assess and treat Foreign Account Tax Compliance (FATCA) and Common Reporting Standard (CRS) non-compliance, according to the “Guide on Promoting and Assessing Compliance by Financial Institutions” (the Guide). The report is published by the Organization of Economic Cooperation and Development’s (OECD) Forum on Tax Administration.
Tax administrations assess financial institutions’ (FIs) compliance from the information they provide. The Guide states that where the risk level is assessed to be relatively high and the root cause analysis points towards a systematic and behavioral issue with an FI or a cluster of FIs, tax administrations may use more targeted compliance measures and thematic reviews.
Administrators search the content for “visible errors” including:
- Above average number of undocumented or recalcitrant accounts
- Use of terms such as “Ltd.” or “trust” to describe Controlling Persons
- Missing information in fields including missing addresses or TINs
- Use of 1/1/1900 or 1/1/1901 for DOB
- Inclusion of “bank”, “authority” “test”, or “plc” in the name field (could indicate that accounts may have been reported which should not have been)
When studying compliance, the Guide notes that behavior of FIs can be broadly categorized into four groups:
- voluntarily compliant
Tax Administrations consider the behavior of the FIs in the context of their overall compliance environment for purposes of applying appropriate risk treatments. They may also
- issue questionnaires to FIs,
- conduct desk-based audits of responses, clarifications and evidence from FIs.
- make on-site visits
- conduct face-to-face interviews with relevant personnel to review the FI’s CRS or FATCA policies, processes, and documentation.
For FIs that are “generally compliant” but make minor mistakes, tax administrators may offer timely assistance and education, as well as warnings or penalties. For FIs that are considered negligent, making similar reporting errors repeatedly, or deliberately non-compliant with FATCA and CRS reporting, administrators may institute mandatory compliance programs.
Among the stronger methods that may be used in those cases are:
- Questions to determine the soft or hard documentation the FI has available for desk or on-site review.
- Documentation of current Responsible Officers (RO) awareness of their responsibilities with FATCA Documentation of RO turnover (names, dates), as applicable for a Desk review.
- Interview with the RO about their role and responsibilities
- Documentation of RO turnover (names, dates), as applicable
- Review of FATCA Registration system for compliance activities relates to Renewal of FFI Agreement, Registration, Certifications, etc. for an on-site review.
Clearly, FIs need to practice due diligence in their FATCA and CRS reporting, or face the consequences.