Four Most Important Things That Reporting Financial Institutions Should Know
When OECD passed the Common Reporting Standards for Automatic Exchange of information, the reception by various jurisdictions was overwhelming. It had become evident that tax evasion was hurting both local and global economies.
The link of tax evasion to the economic slowdown and serious recessions like that experienced in 2007-2008 provided a clear example. Because of these, even non-OECD members have indicated their support for CRS and committed to its implementation.
The common reporting standard list of countries committed to task their tax collection departments to collect financial information on accounts held by foreigners. However, it is the financial institutions that shoulder the biggest responsibility. In Hong Kong, a law providing a framework for CRS was passed on 31st June. According to this framework, here are four most important things that reporting financial institutions should know.
The time frame for gathering information on reportable accounts
Every reporting financial institution in Hong Kong is required to start gathering information on reportable accounts starting 1st of July to 31st December and submit the report by May of 2018. IRD preferred this schedule because it matches well with that of the normal tax returns.
Therefore, it will be easy to include the information required under CRS as part of the main accounting procedures. Though some financial institutions have been forced to search for specific software to extract this information, it can also be captured well during the normal accounting procedures.
A financial institution is at liberty to use models that help to cut on cost
When Hong Kong passed the CRS implementation framework on June 2016, it highlighted the monumental task that financial institutions would be faced with when implementing the pact. Though financial institutions are required only to extract information of reportable accounts, running the process every time a client opens an account makes the task really monumental. Instead, the banks can extract information of all the new applicants after some time and then isolate the reportable accounts.
Hong Kong administration encourages the reporting institutions to cast their nets wider and capturing information even from accounts from jurisdictions that have not entered into an agreement with Hong Kong. For example, if a new jurisdiction on common reporting standard list of countries signs the necessary agreements with Hong Kong, the financial institutions could find it easy to make their reports.
It is prudent to identify accounts that become non-reportable promptly to reduce unnecessary work
Because financial institutions are required to carry due diligence in establishing the reportable accounts, unnecessary efforts and costs will be incurred when the status of such entities change.
It is, therefore, crucial that all common reporting stands list of countries and their reporting financial institutions detect promptly when an account status changes. For example, if an account holder moves permanently to Hong Kong, the account ceases to be reportable.
The financial institutions must be on the lookout for new agreements on CRS
While the common reporting standard list of countries stands at 100, the jurisdictions that work with Hong Kong are very few, By December 2016, only The US and Japan had signed the necessary agreements with Hong Kong paving the way for Common Reporting Standards for Automatic Exchange of information. Therefore, every financial institution must be on the lookout for new agreements in order to include accounts held by people from such jurisdictions.
So, what is the solution?
While Hong Kong and financial institutions have always worked very closely, the OECD requirements for common reporting standard list of countries makes it even more critical to work together.
Because the law is in its initial implementation phase, it is important that all reporting entities engage the government when they get difficulties of any kind. One of the best methods of doing this is focusing on generating the reports on a quarterly basis to test the suitability of adopted system.