New reporting will be costly and time consuming
Pretoria – South African financial institutions, which include banks, long-term insurers and asset managers, will have to exchange financial account information in terms of the common reporting standard for the first time this year.
Financial institutions, although having to do similar exchanges in terms of the US’s Foreign Account Tax Compliance Act (Fatca) are, however, experiencing “implementation challenges”.
The common reporting standard was developed by the Organisation for Economic Co-Operation and Development (OECD) and endorsed by the G20 Finance Ministers.
It is the global standard for the automatic exchange of financial account information aimed at greater tax transparency.
It is supposed to assist tax authorities in addressing base erosion and profit shifting (mainly by multinational companies) and to fight tax evasion and improve tax compliance.
The exchange of information is supposed to ensure that taxpayers pay the right amount of tax to the right jurisdiction.
Marlize Loftie-Eaton, the head of external tax reporting at FirstRand Bank, said across the major South African banks they would report on at least 500000 clients for Fatca and the OECD’s common reporting standing.
The SA Revenue Services has sent out a notice to remind financial institutions that the deadline for submissions of all the third party data in terms of Fatca and the common reporting standard looms at the end of this month.
Loftie-Eaton said implementation challenges relating to the common reporting standard include the higher volumes of financial accounts that have to be reported.
“You have the complexity that not all countries issue a taxpayer identification number, and the bulk of the clients do not understand what tax residency mean.”
She adds that most of South Africa’s neighbours do not issue the taxpayer identification numbers, despite the fact that many people banking in South Africa are actually tax resident in our neighbouring countries.
“This has an impact on the migrant workers who have South African bank accounts.”
Banks already had to implement the “know your customer” process of a business identifying and verifying the identity of its clients. The Fatca and common reporting standard due diligence requirements are more detailed, especially for companies (entities), she said.
Keith Engel, the chief executive of the South African Institute of Tax Professionals), concurred. While the various tax and financial regulatory standards on banks and financial institutions were well intended, these compliances were becoming massive, he said.
“These companies are spending increasing amounts on electronic systems and personnel just to comply. Small differences in country rules – such as address and other identification validations create further problems,” said Engel.
With each new account there must be a valid “self-certification” from March 1 last year going forward. A self-certification is a declaration by the client of their tax residency.
Loftie-Eaton said this was not limited to a single tax residency and should include all tax residencies, obligations and liabilities held both locally and internationally.
“With new reporting requirements such as the common reporting standard the effort, time, and money spend by financial institutions [to be compliant] is substantial.”