Transparency is key when it comes to CRS

The concept of global information exchange has become widely accepted as an every day part of doing business. But data protection legislation can make this complicated. As Rachel Keates, associate director at Hawksford, explains, a collaborative approach is proving the best solution.

It is important for licensed businesses such as Hawksford to manage compliance with the legislative requirements of FATCA and the global standard on Automatic Exchange of Information (AEOI) whilst being conscious of the requirements arising from data protection law. It is crucial for financial institutions, including trust and company service providers, to ensure that any information they provide to the relevant tax authorities is both complete and accurate. To help achieve this goal, best practice is to collate the reportable data in an efficient and timely manner, so that the financial institution can liaise with the client or account holder in advance of reporting to the authorities.   

Trust in transparency

Open lines of communication with the client or account holder have proved worthwhile, both before and during the collation of reportable data for 2016. We have found a collaborative approach to both FATCA and the Common Reporting Standard (CRS) is beneficial to all parties. We have liaised with clients and their advisers with regards to the classification of entities, been in direct contact with all clients to ensure that the data we hold in respect of their tax residence is accurate and up-to-date, and, most recently, we have communicated with all reportable account holders details of what data we intend to report about them to our local authorities.

Transparency with our clients is extremely important and appears to have been well received in most cases. Our clients and account holders recognise that what a financial institution is obliged to report does not necessarily agree with what they record in their tax return. So, having this communication in advance allows them to be prepared to deal with any queries raised by their local tax authorities.   

Consistency is key

A significant challenge for trust and company service providers has arisen from inconsistencies in the information requested by banks and other financial intermediaries. Although many intermediaries rely on the US W-8 or W-9 forms for FATCA purposes, a number have formulated their own documentation to capture both FATCA and CRS classifications in one document. Although the OECD published sample self-certifications, the format of internally drafted forms can vary dramatically both in terms of their format and the terminology used. This places extra administrative burden on front line staff in dealing with intermediary correspondence and determining how best to complete the relevant self-certification forms accurately.

A balancing act

The integration of the information exchange processes for both the FATCA and CRS programmes into ‘business as usual’ for client-facing teams has been a challenge. We must balance the need to continue to provide the usual high standard of client service in a constantly changing landscape, from both a local regulatory and international tax perspective. For example, in the private client arena, the significant tax changes included in the UK draft Finance Act 2017, which were expected to, but failed to, come into effect from 5 April 2017. This has understandably pushed the AEOI integration agenda on the back burner for client-facing teams. It has been essential to strike a balance between ensuring key deadlines are met whilst continuing to provide exceptional services to clients.

The changes to the way in which the Companies Registry at the JFSC collects information concerning beneficial ownership and control will likely benefit the FATCA and CRS programmes for Jersey financial institutions. Jersey has made an international commitment to have an up-to-date and current centralised register (albeit one that is non-public) by 30 June 2017. It is unfortunate that this coincides with the reporting deadline for all FATCA and CRS reports by Jersey financial institutions. Going forward, however, we would expect the fact that details of owners and controllers of certain Jersey entities is held consistently, will allow the FATCA and CRS reportable data to be much more easily identified.

Data protection

A significant concern for many individuals is security of data. In our experience, clients are comfortable with providing personal and financial information that is required in order to comply with the law, but some are understandably concerned with the possibility that this valuable data could fall into the wrong hands. It is important to note that confidentiality, data safeguards and proper use of the information is so critical, that the global standard on AEOI includes well-defined requirements, which must be met by the competent authorities of all participating jurisdictions. Should a competent authority fail to meet such strict requirements, other AEOI participating competent authorities are not obliged to automatically exchange the personal and financial data of any account holders resident in such jurisdiction. It should be noted, however, that financial institutions are still required to collate and report data in respect of residents of the potentially non-compliant jurisdiction and report to their local competent authorities. It is the responsibility of the competent authority to determine whether or not such information should be automatically exchanged under the AEOI.  

It is clear that there are multiple challenges in the current environment, but it is important to ensure that transparency and open lines of communication are appropriately prioritised so that clients remain informed and are not disadvantaged along the way.