Global trend towards stricter enforcement of CRS

Global trend towards stricter enforcement of CRS  

More jurisdictions are committing to Common Reporting Standard (CRS) and the automated exchange of information. Including the recent introduction of CRS 2.0 and CARF changes to onboarding and reporting requirements, TAINA has observed a global trend of increased enforcement of CRS reporting to combat tax evasion and ensure greater transparency in financial reporting.  

The enforcement of CRS by multiple tax authorities have included more stringent audits, higher fines, and public statements to ensure compliance. Institutions in participating jurisdictions are encouraged to stay updated with the latest guidelines and comply with their respective tax authorities to avoid enforcement actions. 

Noticeable Jurisdictions who have Increased CRS Enforcement 

Tax authorities in these jurisdictions have been vocal about their commitment to enforcing CRS compliance. This indicates a broader commitment to transparency and effective international tax cooperation. 

• Singapore:

  • The Inland Revenue Authority of Singapore (IRAS) has emphasized the importance Reporting Singapore Financial Institutions (SGFIs) submitting timely and accurate CRS returns. IRAS has warned that enforcement actions will be taken against institutions that fail to meet this deadline of the 31st of May​. 

  • In January 2024, IRAS also issued the third edition of the CRS e-Tax Guide, which included clarified definitions and requirements for self-certification. This update guidance aims to enhance compliance and ensure that SGFIs understand their obligations under CRS​

• European Union:

  • The European Union (EU) has continued to strengthen its CRS framework through the adoption of DAC7, which enhances the automatic exchange of information
  • DAC7 similarly to CRS, aims to address tax evasion and improve transparency within the EU by adding additional reporting requirements on digital platforms.

• Australia:

  • In 2022 the Australian Taxation Office (ATO) issued a self-review guide to assist Australian FIs with their FATCA and CRS obligations, and identify any compliance gaps in governance, due diligence, data and reporting processes and systems. 

  • The ATO has also issued guidelines on the identification of reportable accounts and emphasized the importance of due diligence procedures.

• Switzerland:

  • The Swiss Federal Tax Administration (FTA) has been actively enhancing its CRS enforcement measures. In 2023, Switzerland expanded its list of reportable jurisdictions and updated its CRS guidelines to improve clarity and compliance. Swiss financial institutions are required to adhere strictly to these guidelines to avoid penalties.

Increaed Audits and Penalties 

• Singapore: The Inland Revenue Authority of Singapore (IRAS) has escalated its CRS audit activities since 2022. This includes both onsite and offsite audits targeting a broad range of financial services entities. These audits scrutinize year-on-year inconsistencies and compare filings against Foreign Account Tax Compliance Act (FATCA) data, indicating a nuanced and thorough approach to enforcement​. 

• Taiwan: A recent report by Taiwan's Ministry of Finance highlighted several ongoing deficiencies in Taiwan FIs adherence to CRS due diligence and reporting obligations as a result of inspections for 2023 reporting. These reviews identified gaps in internal process and procedures, account data shortcomings from a lack of self-cert form collection, and submission errors on the XML format of reporting. 

• Hong Kong: Inspections by the Inland Revenue Department conducted in 2024 have found issues with taxpayer information incomplete or missing, as well as many misunderstandings of account level definitions. Their findings led to a reminder that there are financial penalties exceeding six figure HKD amounts for failing to keep proper records and failing to provide requested information on request in future audits. 

• Australia: The Australian Taxation Office (ATO) has highlighted its rigorous enforcement of CRS compliance through both on-site and off-site audits. The ATO has also warned that non-compliant institutions could face significant fines and penalties​. 

• Luxembourg: The Luxembourgish tax authorities (ACD) have begun conducting comprehensive onsite audits aimed at ensuring compliance with CRS and FATCA obligations. These audits include detailed reviews of policies, controls, and IT systems related to due diligence and reporting. Luxembourg's approach emphasizes the importance of having robust internal processes and IT systems to manage reporting obligations effectively​ 

• United Arab Emirates: In the UAE, the Ministry of Finance and their delegated regulators including the Central Bank, Securities and Commodities Authority (SCA), Abu Dhabi Global Market (ADGM), Dubai International Financial Center (DIFC) and the Federal Tax Authority (FTA), have been carrying out strict audits for FATCA and CRS. Depending on the regulator, these audits may be conducted onsite at the RFIs premises or performed online 

The scrutiny in these jurisdictions is accompanied by the risk of increased fines and penalties for non-compliance. In Luxembourg for example, the regulatory framework has evolved to introduce more stringent penalties for deficiencies in compliance with CRS and FATCA requirements. Financial institutions are urged to proactively address any compliance gaps to avoid substantial penalties​. 

Best Practices for CRS Compliance 

• To mitigate the risks of non-compliance, financial institutions are advised to: 

• Conduct internal audits and perform gap analysis between the information already available in their systems, and the information required for reporting. 

• Ensure that data accuracy and revisit pre-existing accounts and new accounts onboarding due diligence processes and procedures. 

• Work with the IT department to develop outputs of the required data elements to complete CRS reporting; and 

• Train their team so they have a base knowledge of CRS requirements for further communication with the customers. 

• Keep abreast of regulatory updates and adapt reporting processes accordingly. 

• Utilize technology to streamline data collection and reporting, reducing the likelihood of human error​ 

In addition, Tax operations teams should already be planning to review and update their CRS compliance processes and systems by the end of 2025, to implement the recently published CRS amendments (CRS 2.0) agreed to by the OECD last year. New data elements introduced in the amendments are required to be collected on all new accounts starting January 1, 2026 to be reported in Tax Year 2027. 

How can TAINA help? 

The increased CRS enforcement paired with the changing legislation around CRS 2.0 has further increased the risk for financial institutions; making it more important now than ever to address your CRS validation process. The TAINA Platform takes care of your CRS self-certification compliance in a seamless end-to-end process whilst maintaining an up to date, robust and detailed CRS ruleset. 

TAINA’s fully-automated FATCA and CRS Validation Platform can help financial institutions lighten their compliance burden 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 all year round.

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.