Staying afloat in a sea of regulatory change: priorities for 2018

Complying with new reporting requirements – Country by Country (CbC) Reporting, local file and master file

The OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan was launched in 2013 and one of the BEPS Action Points, namely Action 13, has been proven to be a real catalyst for change. Action 13 provides the framework for multinational corporations to disclose certain information annually, in each tax jurisdiction in which they conduct business. CbC Reporting, one of the new reporting requirements derived from Action 13, subsequently took effect in 2016 for the early adopting jurisdictions.

It is also required in many countries for businesses that are engaged in certain cross-border related-party transactions to file a ‘master file’ and a ‘local file’ report.

Understanding the new global reporting requirements

You should also be proactive, rather than reactive, in addressing other global reporting requirements, such as the Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA).

A key lesson from CRS early adopters is that FATCA and CRS are still being confused and interpreted as part of the same legislative piece, while they are two different requirements. At TMF Group, we see institutions claim that they are FATCA compliant, and therefore don’t need to be compliant with CRS, or have the same information.

CRS and FATCA do have some similarities, but the two reporting requirements are very different and it’s very important to understand that each has its own penalties and requirements. CRS jurisdictions may have their own reporting languages and portals. FATCA is targeted at US citizens, whereas CRS is much broader, and is based on tax residency. Late adopters should factor in time to ensure that staff that are already familiar with FATCA can learn the new requirements demanded by CRS. Depending on the situation, financial institutions and entities must file both FATCA and CRS reports in each jurisdiction.

Learn more about CRS and FATCA requirements

UBO registers

Another international obligation that’s climbing high on the compliance agenda this year is Ultimate Beneficiary Owner (UBO) registers.

The 4th Anti-Money Laundering (AML) Directive requires European Union member states to maintain a central UBO register that includes information on the UBOs for all entities in these member states. Many jurisdictions require entities to maintain their own UBO register in addition to existing Know Your Customer compliance and AML regulation requirements.

While some countries have already implemented UBO registers, there will be significant updates in Q2/Q3 2018 as the roll-out continues across the EU. There have also been high-profile cases of moving deadlines. For example, there are currently draft bills for UBO registers going through in Luxembourg and the Netherlands. Legal and compliance teams should stay tuned and keep an eye on regulatory announcements in all European countries.

Discover more about UBO registers

Economic substance

The importance of ‘substance’ has also significantly increased since the OECD’s BEPS Action Plan was introduced. One of the goals of the OECD’s BEPS initiative is to prevent the granting of treaty benefits in the case of international corporate structures which have only been set up to reap the beneficial terms of the applicable double taxation treaties.

As such, countries are focusing more on the level of genuine economic activity of a corporate structure within a jurisdiction.

You need to address local substance requirements in all the countries where you conduct business, or else you could be confronted with a higher effective tax burden on your business activity. Requirements are constantly evolving under growing pressure from regulators globally. Today’s obligations aren’t the same as they were three years ago, so it is crucial to reassess the levels of your economic substance. You should perform periodical substance health checks for your entities to make sure that you are fully compliant.

Proactivity and planning will be key

The sheer volume of information that has to be tracked, as deadlines and local filing and reporting requirements vary from country to country, puts more pressure and responsibility on compliance, legal and finance departments. The number of regulations is growing much faster than the capacity of compliance and legal departments, so there is less room for last minute panic when meeting filing and reporting requirements.

Above all, it’s important for you to reassess your situation and obligations periodically and seek input from experts who are tracking developments in each jurisdiction.

Get expert help

It’s never been more important to map your global activities to ensure that you are compliant with the latest regulation.

We can help you to meet the challenges of global reporting compliance through our global reach and local knowledge. Talk to us to find out more.

Predrag Maletic is head of strategic growth and development at TMF Group

This article was originally published on TMF Group’s website