By: Marco Zawar. MBA/LL.M
In June 2019 the OECD released Version 3.0 of their CRS XML User guide for Tax Administrations (“User Guide”) and Version 2.0 of their XML Schema Version.
The third version of the User Guide reflects changes following the feedback provided by jurisdictions and financial institutions.
As the schema is designed for the automatic exchange of financial account information between tax authorities it is also used by reporting jurisdictions to receive information from their Financial Institutions.
The new schema comes into force on February 1, 2021 and will be used for the exchanges of
- new CRS returns for reporting year 2020, and
- corrections and deletions
affecting CRS returns filled in previous years.
Focused on the APAC region the picture below portrays the shift from “CRS XML User Guide Version 2.01” to “CRS XML User Guide Version 3.02” for Australia, Hong Kong, Macau, Malaysia, and Singapore.
Challenges for Reporting Financial Institutions to stay CRS reporting compliant
It is the authors understanding that the enforcement dates of Version 3.0 in the shown jurisdictions shall not be interpreted as implementation milestones by when CRS reportable financial institution must finalise their update activities to safeguard the CRS tax filing for the reporting year 2020.
But it is worthwhile to mention, that after ceasing of CRX XML User Guide 2.0 (e.g., Hong Kong December 31, 2020) the transmission of
- correction messages, or
- deletion messages
for CRS returns affecting previous years cannot be transmitted.
In the light of the ongoing Covid-19 situation financial institutions (including trusts, funds) may find it still challenging to get the adequate resources in place
- to upgrade the technical procedures to meet CRS XML User Guide 3.0,
- to adapt the business process documentations and compliance policies, and
- to test
the compliance policies and IT procedures to meet the jurisdiction specific reporting deadline.
In addition, jurisdictions like Singapore and Malaysia established frozen zones, in which it is not possible to transmit CRS fiscal reports (even when the transition to the XML Schema 2.0 is finalised on Financial Institution level). Such frozen zones shorten the timelines for financial institutions to test the validation and transmission
- of new reports; or
- the correction or deletion of previous submitted reports.
The Hong Kong Inland Revenue Department (“IRD”) in 2019 increased the number of reportable jurisdictions from 75 to 126 from the reporting 2020 onwards.
Hong Kong based small and mid-size financial institutions that rely on manual CRS filing procedures may face legal and financial risks through
- underreporting of offshore account holder (not all account holder subject to CRS reporting are considered, financial account information is reported erroneously); or
- the violation of data privacy regulations (local and e.g., GDPR) through overreporting (exchange of accountholder not subject to CRS reporting)
as it might become more and more complex to identify and validate the reportable tax residence(s) for each offshore accountholder and transmit the CRS returns in time to the IRD.
Way forward to mitigate legal and financial risk
To minimise the risk of late or incorrect CRS return filing financial institutions are encouraged to choose a two-step approach:
- Step 1
- Transfer historical data into CRS XML Schema Version 2.0 data format to file correction/deletion reports.
- Step 2
- Report preparation for reporting year 2020.
Small and mid-size financial institutions, that actually revisit or plan to revisit their business models to meet their CRS and FATCA reporting obligations may evaluate the usage of a SaaS Solutions as a potential affordable way to digitize their reporting processes and to safeguard their CRS and FATCA compliant reporting procedures.
CRS/FATCA One, a RegTech Solution designed by our business partner Trans World Compliance Inc., is such a solution.
Advantages using CRS/FATCA One
- Mitigate your legal and financial risks to fail with your CRS filing as CRS/FATCA One uses the latest CRS XML Schema Version,
- Reduce your operational costs as the service is paid when it is used and not like licensed models based on a yearly maintenance fee,
- Allows the allocate of resources to business streams generating values to your clients and your businesses.
Interested to find out more?
If you interested to find out more about the CRS/FATCA Solution to improve your current operating model, please feel free to contact us or our representative in Hong Kong for an initial discussion or product demo.