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Five years on from the introduction of the Common Reporting Standard (CRS), administrations are still learning how to successfully embed transparency standards. Drawing from real-world examples, we look at the key learnings for tax authorities.
The CRS is a transparency standard introduced in 2017 to increase tax transparency and reduce illicit financial flows, sitting within the OECD’s automatic exchange of information (AEOI) standard. Countries committed to the standard must gather information from financial institutions and automatically exchange the information with participating jurisdictions.
Financial institutions within CRS-compliant countries must identify and report relevant information to the tax authorities, which shines a light on hidden financial flows. This in turn has a knock-on effect on the customers, as increased transparency encourages compliance from the bottom up.
This measure provides a unique opportunity for tax authorities to encourage disclosure, strengthen tax compliance, and consequently increase tax revenue – all of which are even more important in a post-pandemic context.
Introducing and implementing a transparency standard like the CRS is no easy task and countries considering committing to this global measure can learn from other countries experiences. In short, technology is essential, setting up takes time, and compliance is difficult.
Technology can drive stronger compliance as it can reduce costs – driving more time-efficient processes, reducing human error, and enabling data-driven decisions. This also supports a better understanding of regulatory and technical rules.
Organisations participating in the CRS must provide high-quality data in the right format. This is passed to partner jurisdictions through automation. Technology largely manages these processes and identifies errors faster, providing:
Having a robust technological infrastructure allows for effective and efficient management of the CRS but developing the right framework that can meet unique needs is complex.
While many will be tempted to develop a tool from scratch because it may seem like the cheaper option upfront, it is easy to underestimate the many layers of technical and technological expertise that need to be leveraged to produce the necessary technology. In addition to this, a solution must evolve alongside the ongoing changes to rules and requirements.
An out-of-the-box solution can be tailored to each tax authorities’ specific needs - this includes leveraging a core team of experts to help countries meet their compliance obligations. Using a tried and tested solution is also a more scalable option that provides a strong foundation but also the flexibility to adapt to future changes.
Find out more about the benefits and challenges of building your own tool vs buying a ready-made solution here.
Tax authorities must consider realistic end-to-end timelines for delivering such a complex project, ensuring that they have factored in enough time for internal teams to bridge knowledge gaps and fully understand all standards, specifications, and guidelines, including any recent changes.
Many moving parts must be aligned to ensure project success, requiring a precise project management capability that aligns with a country’s commitment and timelines. Administrations must consider a wide range of time-intensive processes such as developing the legal framework, as well as facilitating the procurement, contractual, and eventual implementation of the technical platform.
Without previous experience in delivering such an extensive solution, it is difficult to accurately assess all the resources necessary to produce a ready-to-use solution.
In theory, collecting and sharing information on financial institutions seems relatively simple, but in practice it is complex. Complying with the CRS requires a deep understanding of obligations from a regulatory and technical perspective.
Tax administrations should consider whether they currently have the right skills and expertise available, or whether they realistically have the resources to spare to train their teams. This includes researching all editions of the CRS user guide, the CRS status message user guide, guidance notes from the OECD and feedback from the tax authorities.
Furthermore, expertise is dynamic, meaning that teams must continually learn as rules change and expand. The OECD has already signalled changes to the CRS, particularly with regard to the quality and usability of its data.
We have supported several tax authorities in meeting global information standards, including the CRS. Our end-to-end support in delivering these successful projects allows us to leverage learnings from a range of different real-world examples.
Nigeria’s Federal Inland Revenue Service (FIRS) fully implemented the AEOI platform to fulfil its commitments set out under the OECD’s CRS regulation. This resulted in financial institutions filing their first annual returns for AEOI-CRS in Nigeria in September 2020.
We delivered this project fully remotely, making it the second after Oman, showing that even with physical and travel restrictions in place, we support tax authorities with developing their tax transparency plans.
Panama’s tax authority, the Dirección General de Ingresos (DGII) selected worked with us to achieve its international tax transparency agreements, helping the country to meet the CRS rules within the AEOI standard.
We navigated the challenges of being an ‘early adopter’ by using our experience in providing AEOI solutions to tax administrations. We also delivered accurate translation of our solution into Spanish, ensuring we conveyed the exact requirements of the standard.
Oman's tax authority chose to use our software to meet its commitments under the CRS.
We overcame supply chain disruptions from the pandemic, which meant that hardware delivery was delayed, by communicating effectively with the tax authority. We partnered with a local technology services company to deliver a user-friendly and data-rich platform.
Tax authorities must recognise that introducing and implementing the CRS is a difficult task but leveraging the right expertise and building a strong technological framework makes it manageable.
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