Why should you be prepared for FATCA and CRS more than ever?
The new Foreign Account Tax Compliance Act (“FATCA”) and Common Reporting Standard (“CRS”) law ratified on 18 June 2020 has not only increased compliance requirements once again but, at the same time, it has reinforced the power of the Luxembourg tax authorities to carry out an audit within a 10-year time limit (see newsletter).
Given the higher risk of coming under the tax authorities’ spotlight, it is now, more than ever, crucial for Financial Institutions to make sure that appropriate policies, controls, procedures and IT systems are in place in order to meet their reporting and due diligence obligations.
How should you ensure that you are ready and well prepared for an audit? Here are some questions that might help you to assess your situation.
- Do you have adequate FATCA and CRS procedures in place?
- Have you carried out internal audits to ensure the procedures and processes in place are adequately followed?
- Do you have trainings in place to ensure the personnel are adequately followed?
- Do you have an efficient reporting tool solution?
If a CRS or FATCA audit by the Luxembourg tax authorities finds non-compliance with due diligence procedures, the maximum penalty of EUR 250,000 could apply. In addition, if reportable accounts are found to be unreported or under-reported, an additional penalty of a maximum of 0.5% of the non-reported amount could apply.
What will audits look like?
As suggested by the OECD, a jurisdiction like Luxembourg has many options when designing and implementing a compliance review procedure. A logical starting point for any compliance review would be to review the internal control framework maintained by the Financial Institutions to comply with their obligations under CRS and FATCA. Another approach could be to review a sample of accounts.
These methodologies can also be combined to design a multi-phase compliance review using the risk-based approach. Back in 2019, the Luxembourg tax authorities had already used the first method and conducted the initial audits.
How can KPMG help?
Besides drafting policies and procedures for a single financial institution or a group of entities, we can help with:
- FATCA and CRS entity classification review of your entities;
- FATCA and CRS trainings;
- Comprehensive internal audit or health checks;
- Remediation in case a correction needs to be made for prior years’ reporting; and
- Reporting assistance where your existing solution is not adequate.
If you have any questions or would like additional advice, please get in touch.