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26th May 2016

Firms must not lose sight of the new CRS/DAC reporting requirements since the first reports will be due on or before 31st May 2017.

DAC/CRS: First Reports to HMRC due May 2017

There is just over a year to go until 31st May 2017 when UK financial institutions have to make their first report to HMRC for the European Directive in Administrative Co-operation (DAC).

Many firms will have spent the first half of this year gearing up for other regulatory changes both large and small such as the new EU Market Abuse Regulation (effective in July) and the changes to Complaints Handling & Reporting that affects all firms from June.

With the half-way point of 2016 almost upon us, firms cannot afford to ease off of the regulatory response pedal. Instead their sights must be firmly set on preparing for what the road ahead has in store – two such milestones being the implementation of MiFID II (now due to in January 2018) and before that the first reports for DAC/CRS that the UK agreed to adopt at the start of the year.

For some firms, preparing for DAC/CRS may have flown under the radar, however with the first reports due in May next year and with HMRC having recently published its final internal manual on the International Exchange of Information then there is no better time to get up to speed. Financial Institutions must ensure that they understand what is required and ensure they have collated the required data in good time to meet next year’s deadline.

New Guidance: HMRC’s International Exchange of Information Manual

Whilst HMRC previously published a draft manual in relation to DAC/CRS last September, HMRC’s new manual will help firms clarify particular reporting requirements not only on DAC/CRS but for all current obligations on the UK financial sector with regards to the UK’s international agreements for collecting and reporting of financial account details held by those who are a tax resident elsewhere.

At present the UK has legislation in place that covers four regimes, for which the requirements of each is covered in HMRC’s final manual:

• FATCA – The United States Foreign Account Tax Compliance Act;
• CDOT – The Crown Dependencies and Overseas Territory Regulations;
• CRS – The Common Reporting Standard as developed by the OECD; and
• DAC – The EU Directive on Administrative Co-operation in Tax Matters.

CRS and DAC are the most recent additions that impose obligations on the UK financial industry, with the UK having agreed to an early adoption of CRS at the start of this year (2016) and the DAC being the European Directive that enforces the recommendations of CRS throughout EU Member states.

DAC & CRS

DAC is based upon the OECD’s Common Reporting Standard (CRS) that aim to increase tax compliance and cut down on tax evasion. DAC will require UK firms to annually report to HMRC upon the financial assets related to overseas parties where the overseas jurisdiction has also signed up to CRS and the global Automatic Exchange of Information (AEOI) that it specifies. At the last count, 97 jurisdictions had signed up.

We previously summarised CRS/DAC, however to recap, CRS/DAC is often likened to a ‘Global FATCA’. As many in the industry will know, the USA’s FATCA regime requires firms to annually report upon financial assets held by US citizens outside of the USA. With CRS/DAC the number of reportable jurisdictions is widened to all those who have also agreed to adopt the CRS regime.

At the start of this year, the UK agreed to adopt the new reporting regime and thus financial institutions will need to make their first reports next year in relation to the 2016 calendar year next year.

UK financial institutions are required to identify, maintain and report information relating to jurisdictions that the UK has committed exchanging information with. Therefore effective due diligence procedures to identify the territory in which an account holder or a controlling person is resident for income tax or corporation tax purposes must have been established.

Subject to certain requirements, some examples of reportable data under DAC/CRS are:

• Name
• Address
• Date of Birth
• Place of Birth
• Taxpayer Identification Numbers or an equivalent
• Tax residency jurisdictions (non UK) to which the information is reportable
• Account number
• Type of Account
• Details of the reporting Financial Institution
• Account balance or value for the reporting period

DAC/CRS Impact upon firms:

Firms will need to spend a significant amount of time this year and in the lead-up to reporting reviewing their client on-boarding procedures and examining their existing and new client account records.

If we can provide any assistance with regard to your DAC/CRS planning then please get in touch.

• See also: Tax Matters: DAC & CRS Reporting

DAC & CRS: Don’t lose sight - one year to go!