The Common Reporting Standard (CRS) is the global standard for the collection, reporting and exchange of financial account information on foreign tax residents.
As of the 31st of July 2018 Australian financial institutions must comply with the CRS in addition to the current obligation to comply with the Foreign Account Tax Compliance Act (FATCA).
Non-compliance with the reporting obligations increases the reputational risk of Australian financial institutions. As such, adherence to the reporting obligations should become an integral part of a financial institution's risk management and governance procedures.
Compliance with the CRS reporting obligations requires careful consideration of the following steps:
Entity classification
All financial institutions will need to undertake a process to classify each legal entity within its group according to CRS. More than one classification may apply to an entity.
It is important to note that definitions under CRS may differ to the FATCA Agreement and therefore apply differently to financial institutions. Entities that were not subject to FATCA may be subject to CRS. Broadly, all financial institutions are required to comply with the CRS, including but not limited to, banks, mutuals, platforms and trusts.
Operating procedures to comply with CRS obligations
In order to comply with your reporting obligations a financial institution must:
- Analyse all legal entities within its group.
- Identify and analyse products, services and payments and assess the CRS impact.
- Complete a gap analysis of how CRS affects it compared to FATCA.
- Review and implement client information systems and client on-boarding systems. This includes considering whether appropriate Anti Money Laundering/Know Your Client procedures are in place going forward.
- Draft new policies and procedures to comply with CRS.
- Consider how annual reporting will be completed including implementing due diligence procedures, identifying reportable accounts, collating reportable information from source systems, preparation of the reports in the required format and lodging with the ATO.
Determining if accounts are reportable
Due diligence procedures will need to be undertaken to determine whether financial accounts are reportable. The procedures will depend on whether:
- The account is a pre-existing or new account.
- The account holder is an individual or an entity.
- For individual accounts – whether the account is a low value or high value account.
How we can help?
Grant Thornton’s Financial Services team can advise on your position under CRS and your reporting requirements by:
- Conducting a FATCA v CRS gap analysis
- Classifying your legal entity for the purposes of CRS obligations
- Drafting/reviewing relevant internal policy manuals to comply with CRS requirements
- Assist with (or review) system implementation with respect to CRS and FATCA reporting obligations
- Providing the relevant support and guidance in meeting all your other FATCA, CRS reporting obligations
