OECD report details preventive and corrective actions for financial institutions’ FATCA and CRS non-compliance

Tax administrations can use a combination of detection, preventive and corrective measures to assess and address non-compliance with Foreign Account Tax Compliance (FATCA) and Common Reporting Standard (CRS), in accordance with the “Guide on promotion and assessment of compliance by financial institutions ”(the guide). The report is published by the Forum on Tax Administration of the Organization for Economic Co-operation and Development (OECD).

Tax administrations assess the compliance of financial institutions (FIs) on the basis of the information they provide. The Guide states that when the level of risk is assessed to be relatively high and the root cause analysis points to a systematic and behavioral problem with an FI or group of FIs, tax administrations can use compliance measures and more focused thematic reviews.

Administrators look for “visible errors” in content, including:

• Above average number of undocumented or recalcitrant accounts
• Use of terms such as “Ltd”. or “trust” to describe those in control
• Missing information in fields, including missing addresses or TINs
• Use of 1/1/1900 or 1/1/1901 for the date of birth
• Inclusion of “bank”, “authority” “test” or “plc” in the name field (could indicate that accounts may have been declared when they should not have been)

When considering compliance, the Guide notes that FI behavior can be broadly classified into four groups:

• voluntarily compliant
• ignorant
• negligent
• wandering

Tax administrations examine the behavior of FIs in the context of their overall compliance environment in order to apply appropriate risk treatments. They can also

• issue questionnaires to FIs,
• perform document audits of FI responses, clarifications and evidence.
• make site visits
• conduct face-to-face interviews with relevant staff to review the FI’s CRS or FATCA policies, processes and documentation.

For FIs that are “generally compliant” but make minor errors, tax administrators can offer timely assistance and education, as well as warnings or penalties. For FIs considered negligent, repeatedly committing similar reporting errors, or deliberately not complying with FATCA and CRS reporting, administrators can institute mandatory compliance programs.

Some of the more powerful methods that can be used in these cases include:

• Questions to determine the physical or physical documentation available to the FI for review in the office or on site.
• Documentation of the current knowledge of Responsible Officers (ROs) of their responsibilities with FATCA Documentation of RO rotation (names, dates), if applicable for desk review.
• Interview with the RO on his role and responsibilities
• Documentation of RO turnover (names, dates), if applicable
• The review of the FATCA registration system for compliance activities relates to the renewal of the FFI agreement, registration, certifications, etc. for an on-site review.

Obviously, FIs need to exercise due diligence in their FATCA and CRS reports, or deal with the consequences.