The Organisation for Economic Co-operation and Development (OECD) has urged participating tax authorities around the globe to take further steps to ensure compliance with the Common Reporting Standard (CRS). As a result Financial Institutions have seen an increase in notices and other inquiries as tax authorities seek to enforce the CRS. As scrutiny increases on CRS compliance, Bermuda Financial Institutions must prepare and have a governance framework in place.
The OECD developed a common reporting standard, referred to as the ‘Standard for Automatic Exchange of Financial Account Information in Tax Matters’ (the “Standard”) in 2014, with the purpose of improving transparency in the fight against tax evasion and protecting the integrity of tax systems. The Standard provides for the annual exchange between tax authorities of a predefined set of information on financial accounts held by individuals and entities resident in a foreign jurisdiction. Working under the auspices of the OECD, The Global Forum on Transparency and Exchange of Information for Tax Purposes (the “Global Forum”) has been leading the global implementation of the Standard since its inception.
In order to ensure that the implementation of the Standard is both complete and effective, the Global Forum has developed and conducted a range of peer review processes specifically designed to assess each area of the requirements in the Standard. As many of the requirements could only be fully assessed once several years of exchanges had taken place, the Global Forum put in place a “Staged Approach”, conducting these reviews in stages, mirroring the timings of the implementation process. The peer reviews were initially focused on assessing confidentiality and data safeguard standards, and domestic and international legal frameworks put in place by participating jurisdictions.
With the completion of the assessments of the confidentiality and data safeguard standards and the legal frameworks, the focus of the reviews shifted to ensuring that the Standard operates effectively in practice. The results of these initial effectiveness reviews were published in the ‘Peer Review of the Automatic Exchange of Financial Account Information’, issued by the OECD in 2022. They show that the majority of jurisdictions are on track with the implementation of the Standard, with tax authorities utilising a wide range of measures to check compliance, including analytics, audits and penalties. However the results also indicate that many jurisdictions are still in the early stages of developing and implementing their frameworks.
Another round of reviews which are designed to obtain a deeper level of comfort that the Standard is effective in practice and commenced in 2023 (the results are due to be published in 2025). These reviews involve a more detailed assessment of the effectiveness of each jurisdiction’s administrative compliance framework and each jurisdiction’s exchange of information in practice, including the proper preparation, validation and transmission of the information. To facilitate this round of peer reviews tax authorities have been urged by the Global Forum to perform desk-based reviews, utilise analytics and conduct onsite reviews.
In response to the increased scrutiny by the OECD, tax authorities around the world have hired additional inspectors and invested in enhanced data analytics capabilities. Financial Institutions have seen an increase in notices and other inquiries as tax authorities seek to enforce the Standard.
In Bermuda it is the Bermuda Competent Authority (via the Ministry of Finance, Registrar of Companies, or the “Ministry”) which has the obligation to ensure that the Standard has been implemented effectively and to monitor and ensure compliance of Bermuda Financial Institutions with both the Standard and the domestic CRS Regulations.
In order to ensure effective implementation of the Standard by Bermuda Financial Institutions the Ministry announced in September 2021 that an Annual CRS Compliance Certification Form (the “CRS Compliance Form”) has been added to the Bermuda Tax Information Reporting Portal. The responses submitted by Financial Institutions in the CRS Compliance Form will be used by the Ministry to inform additional compliance review requirements as expected by the OECD.
The Ministry also announced in September 2021 that they will periodically issue notices requiring certain Bermuda Financial Institutions to undertake a CRS Independent Compliance Review (the “CRS Review”). The main purpose of the CRS Review is to provide further assurance that Bermuda Financial Institutions are applying the CRS rules correctly, by analysing account identification and monitoring procedures, application of due diligence, and reporting systems and procedures.
Since the implementation of the CRS Review in 2021 additional staff have been hired by the Ministry. As a consequence Bermuda Financial Institutions have seen an increase in CRS related inquiries and notices. As scrutiny increases on CRS compliance, Bermuda Financial Institutions are encouraged to ensure entities are correctly classified and registered, analyse and clean up data, annually review and update internal policies and procedures related to CRS compliance, and periodically perform CRS health checks to assess governance, compliance and due diligence processes.
This article is written by Christian Stjarnqvist, Business Advisory Manager in Conyers Regulatory Services.
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