2 Takeaways from the IIAC Tax Withholding & Reporting Conference

On May 19th, TAINA joined industry professionals and CRA experts at the Tax Withholding & Reporting Conference hosted by the IIAC, for a full day of engaging discussions on the latest regulatory changes and industry topics including FATCA and CRS Reporting. Thank you to all of the speakers and moderators that presented at the conference for very well presented updates.

I have summarized my top tax takeaways that I found most notable from the Tax Withholding and Reporting sessions. Below I get into some additional details on the topics and how I believe regulatory technology solutions can help institutions solve for the latest updates.

• Financial Institutions Should Perform Internal Review and Remediation of FATCA and CRS Procedures

• Both Financial Institutions and Crypto Asset Service Providers will be impacted by the OECD’s CARF and CRS Amendments

Thank you again to the IIAC  team, in particular, Adrian Walrath, Tina Kremmidas and Gillian O'Mahony for connecting TAINA to the conference. We look forward to attending it again next year.

Takeaway 1: Financial Institutions Should Perform Internal Review and Remediation of FATCA and CRS Procedures

I would also like to thank  Tony Zhang - Borden Ladner Gervais,  Grace Pereira- Borden Ladner Gervais LLP, Ji Kwon - KPMG , Dara Moore - AGF Investment Inc for a well-presented FATCA and CRS session.

CRA audits have prompted many Canadian Financial Institutions to review and remediate the FATCA and CRS compliance procedures. These ‘internal health checks’ have raised questions about staying to date with regulatory developments and in turn updating internal processes and procedures, monitoring account opening and change in circumstances and maintaining an audit trail of data gathered and validated. 2  key areas still seem to be causing Canadian FIs significant pain.

• Record Keeping
• Self-Certifications

Record Keeping under FATCA and CRS Compliance

Financial Institutions are obligated to establish, maintain, and document due diligence procedures to identify reportable accounts. This requires record-keeping of any tax reporting documentation including self-certification forms. In addition, FI’s must keep records of any tax compliance policies and procedures including due diligence procedures. These records including self-certification must be retained for a minimum of 6 years after the financial account was closed whereas some other records may only be retained to the of the last calendar year. It is important that financial institutions can provide a robust audit trail of this record-keeping for auditing purposes.

FATCA and CRS Self Certifications

Under FATCA and CRS the CRA requires that FIs obtain self-certifications when an account is opened or in certain cases within 90 days of account opening. FIs are then obligated to validate self-certification forms within 90 days of account opening.If there is a change in circumstance a new self-certification form may need to be collected or revalidated to cure the change in circumstance. Canadian  FIs can be penalized by the CRA for failure to take effective measures of closing or freezing undocumented accounts. In addition, each undocumented account may be liable for fines up to $2,500 under FATCA and CRS. 

Takeaway 2: Both Financial Institutions and Crypto Asset Service Providers will be impacted by the OECD’s CARF and CRS Amendments 

Firstly I would like to thank Jinyi Ye - Deloitte, Rasheed Khan - TAINA Technology, Adrian Walrath -  IIAC for a well-presented session on the OECD Crypto-Asset Reporting Framework (CAFR). In recent years there has been a clear global focus and concern over having clear regulatory guidance for tax treatments of crypto-assets to ensure global tax transparency and compliance. 

Scope of CARF

Under the current OECD definition of a Crypto asset, the following digital assets would be considered in scope of CARF regulation; NFTs, Smart contracts, Stablecoins whilst Central Bank Digital Currencies and Closed Loop Crypto Assets would be excluded for now. In addition, intermediaries that would be considered Reporting Crypto-Asset Service Providers (CASPs) are individuals or entities which effectuate on behalf of customers a reportable transaction which therefore would include Crypto Trading platforms and exchanges in scope.

Reporting Requirements under CARF

Both CASPs and Financial Institutions will be impacted by the new reporting requirements for crypto assets under CARF. This includes having to report exchanges and transfers of crypto assets and reportable retail payment transactions. In addition, CARF requires wallet addresses to be provided which may raise data privacy concerns as it would de-anonymize aspects of the blockchains.

Changes to Due Diligence Procedures

Crypto companies and financial institutions would also need to make changes to their due diligence procedures to accommodate the CARF regulations. Self-certifications would need to be obtained for both individual users and entities stating the residence for tax purposes (individual and entities), entity’s status, the entity’s controlling persons and confirmation of reasonableness of said self-certification.For existing users and entities self-certifications need to be obtained within one year. Under the CARF rules these self-certs would need to be reconfirmed every 36 months and if a change in circumstances occurs then a new self-cert would be required within 90 days. 

CARF Impact on Financial Institutions

Unlike CASPs, FIs may already have self-certification collection procedures in place however they will still be significantly impacted. For starters, FIs will need to revisit the classification of entities that are crypto asset service providers. A FIs CRS self-certification forms may also need to be amended to account for the new status of CASPs. If a FI holds any crypto assets on behalf of clients these accounts will be custodian accounts. Lastly, FIs will now need to include the value of any digital currencies in the account balance of any depository accounts.

How Can TAINA Help?

In summary, many of the changes will drive a change in policies and procedures plus create new documentation requirements. Now more than ever it is important to think of an automated solution in the IRW space because there are limits to how much we can stretch our people. Let's focus on automating repetitive processes. The TAINA Platform takes care of your FATCA and CRS compliance in a seamless end-to-end process whilst maintaining an up to date, robust and detailed ruleset. 

TAINA’s fully-automated FATCA and CRS Validation Platform can help financial institutions lighten their compliance burden and prove their FATCA and CRS compliance whilst improving efficiency, reducing cost, mitigating risk and improving their overall customer and investor experience. Using our flexible and lightweight platform you can automate and streamline your FATCA and CRS validation process whilst ensuring you have good year-end data that will result in clean FATCA and CRS reporting to tax authorities.

TAINA continues to track and monitor these changes and updates to identify and deliver the best in class regulatory technology that gives financial institutions a competitive advantage. 

We would love to talk to you more about your current documentation validation process and how our award-winning FATCA and CRS Validation platform may add value to your organisation.

For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action.