Global tax reporting is now a major concern for financial institutions given the maturation of the Foreign Account Tax Compliance Act (FATCA) reporting standard in the US and the rapid expansion of the Common Reporting Standard (CRS) in the rest of the world.
A recent survey carried out by Aberdeen Group and Sovos identified the most prominent concerns tax professionals at financial institutions (FIs) have about CRS and FATCA reporting. It also revealed a gap in how prepared FIs are to meet the new challenges of global reporting.
The Aberdeen report identified two factors as separating companies that are successfully dealing with global reporting from those that are struggling: centralization of tax reporting processes and adoption of automated reporting solutions.
With fines for failing to comply with both FATCA and CRS kicking in, concerns about financial penalties topped the list of “most feared results of non-compliance” among survey respondents. However, nearly even on the list of concerns was loss of reputation as a result of failing to comply. In fact, the most prominent ongoing worry about compliance was loss of reputation, ahead of financial penalties and ability to maintain compliance.
Respondents found reporting across multiple jurisdictions to be their biggest challenge with FATCA and CRS reporting, followed by collecting and aggregating data, and standardizing filing processes.
Leaders and Followers
Aberdeen broke respondents into two categories: leaders and followers. Generally speaking, leaders are FIs that have implemented centralized reporting processes and automated solutions. The report identified a wide gap between the two in terms of successful completion of FATCA and CRS reporting, as well as in terms of preparedness for global compliance challenges to come.
Leaders were more likely to have moved forward with two critical projects:
- Managing compliance though a centralized team of tax professionals rather than handling reporting by geography or business unit
- Adopting Automatic Exchange of Information (AEOI) technology to carry out filings rather than relying on manual processes or trying to build systems in-house
The difference were striking. Over the last two years:
- Followers saw the time it takes employees to maintain compliance increase at a rate more than double that of leaders
- Leaders reported 95 percent accuracy in filings, while less than half of followers’ filings were accurate
- Followers had nearly six times more gross proceeds withheld due to non-compliance than leaders
- Followers were nearly seven times more likely than leaders to have audits result in penalties
Ultimately, FIs with an AEOI solution are 93% more likely to have a tool for efficient data import. They are also twice as likely to have automated data cleansing capabilities as well as the capacity for automated reconciliation of client information from multiple sources.
A Dangerous Gap
FIs that have not centralized global reporting processes and have yet to adopt and AEOI solution are already falling behind counterparts that have taken those critical steps. Those FIs that fail to centralize and automate will only continue to fall further and further behind leaders.
Followers are at far greater risk of seeing their worst nightmares—including loss of reputation and financial penalties—play out as FATCA and CRS reporting become both more widespread and more complex.
Sovos AEOI reporting solutions enable FIs to efficiently and successfully centralize and automate CRS and FATCA reporting. Discover how to become a global tax reporting leader at https://sovos.com/product/aeoi-reporting/