27 May

Understanding how the major UK and European banks are implementing the latest regulations and assisting clients

Industry solutions for the latest regulatory and operational tax challenges for banks. This event aimed to tackle many tax related topics that are still on the table of every financial institution and this already for years now: benchmarking the preparedness for DAC 6, DAC 6 & OECD MDR implementation in the UK, DAC 7 & DAC 8, how to stay ahead of developments in European Transaction Taxes, Withholding Taxes, Making Tax Digital, EU Financial Transaction Tax (FTT), Double Tax Treaty (DTT) changes across various jurisdictions and more.

In the lights of pandemics this event has been held as an online-only event, thus unfortunately without physical booths and physical contact opportunities.

Chairperson’s Opening Remarks by Peter GrantPartner at KPMG UK provided an overview on how many topics are still continuously increasing the pressure on the industry and tied up resources. He stated that the share volume of operational tax developments and changes that are still taking place had been astounding. His list of the top 10 of what we are seeing at the moment comprises DAC 6, OECD MDR starting to pick up in the UK, South Africa, the Channel Islands, Mexico and so on, DAC 7 & DAC 8 on the way, over 200 changes related to FATCA and CRS in the last months, TRACE in Finland, Germany’s plans to introduce a similar but different regime to TRACE, new FTT in Spain, over 300 DTT changes across various jurisdictions, increased technology impact to tax, rules impacting IRS QIs and Brexit continuing to impact the whole UK market and at the end tax authorities asking banks more and more difficult questions.

Hereafter I wanted to reference to some of the most interesting sessions which covered the newest developments and at the same time gave us a short- to mid-term outlook of the future challenges.

James Marshall from HMRC provided an HMRC Update on DAC 6 and Mandatory Disclosure Rules. UK has implemented DAC 6, and is in the process of introducing MDR. Both regimes require reporting of certain types of arrangements and structures with some differences in what has to be reported and both regimes rely on exchange of information between implementing jurisdictions. The first reports under the DAC 6 regime were due in January 2021. MDR is announced and expected to come into effect in 2022. There are a lot of similarities between the rules, but also a number of important differences. Primary reporting obligation is on “intermediaries”. If no intermediary has to report the information, the obligation fails on the “relevant taxpayer”. Reports can be sent to HMRC via the portal on gov.uk. Current status is ongoing reporting, monitoring and governance and preparation for MDR.

Financial Transactions Tax implications have been explained in a very pictorial language by Mark Huyan, Executive Director Tax at JP Morgan in London, based on the Spanish Financial Transactions Tax. At the time the Spanish parliament approved the FTT legislation in 2020 we had a global pandemic and US elections on the horizon, thus at that time there was one key message that industry gave to the Spanish authorities and it was “give us time”, since operational processes are technology driven and they just take time. The Spanish authorities gave the industry three times three months time to implement the legislation instead to say from the day one “you have nine months”. This would lead to more strategic decisions within the industry and at the end of the day all financial institutions would have better systems and processes in place. That would ultimately not only benefit financial industry but also the tax authorities as well.

Tom Howgate, Director at Deloitte explained us the recent changes to FATCA reporting requirements in relation to missing US TINs which have caused some operational issues. He also updated us on the ongoing consultation in relation to potential future changes to CRS reporting. The cnsultation is currently being given to whether other information, which is expected to be held by a financial institution, could be reported under CRS to help tax authorities better understand the context of the information they are provided. Tom also reported that OECD peer reviews were placing pressure on tax authorities around enforcement of compliance and requirements to review compliance periodically. The concequence of all these expansive requirements is that the cost of compliance is rising.

In the next session Gohar Kahn, Tax Partner at KPMG provided an update on withholding tax and potential post-brexit impact. He brought us two examples: Indian withholding tax and South Korea treaty reclaims for mutual funds. EU withholding tax reclaims had been tackled with an emphasis on the different rules and different treatment in different countries what leads to unequal treatment and discrimination and affects the EU principal of the free movement of capital which is the key element of the European Union. Talking about the impact of Brexit for UK funds in summary it could be said that withholding tax exemptions in some EU countries, e.g. Italy, Poland, Spain and Sweden, may be lost. This was a very insightful overview of withholding tax treatments internationally and within EU.

The panel discussion as an update about the TRACE implementation, chaired by Peter Grant from KPMG and atttended by Katja Pussila, Risk Manager at Finnish Tax Administration, Rupert Brandstetter, Product Manager at SDS and Paul Radcliffe, Partner at EY was a very insightful exchange of practical information between very experienced industry experts. Katja gave us a context and background on TRACE and the perspective how the journey to the implementation in Finland had been for the Finnish Tax Administration. It is very important to understand that TRACE was codeveloped by OECD, business and member states as a unique standardised model. The biggest benefit of TRACE is that it comprises all the elements of what you have to do when you have identified the investor and beneficial owner, what is the role of the AI (Authorised Intermediary) and reporting – and reporting is actually the key. With other words TRACE is about a standardised, international model for implementing treaty relief at source. In the long term the success would mean that the majority of investors would get the treaty benefits at source. Paul added his perspectives on the development of TRACE and in his view TRACE has been developing relatively slow. And the reason for that is in timing. If we go back in time at the very beginning of TRACE in January 2013 when OECD approved the TRACE Implementation Package, the focus of governments and authorities in the aftermath of the financial crisis 2007/2008 was on compliance and AEoI. At that time the FATCA regime has just started, followed by CRS and an absolute shift in focus was the main reason for TRACE to develop so slowly. Rupert gave us the technology view on TRACE and especially on reporting part of it. From technology point of view much of that is already on place for other regimes like e.g. QI. It’s just additional information you have to retrieve. For the reporting part many financial institutions are still in the process of making decisions whether to buy a standard solution or build something on their own. TRACE is similar to FATCA and CRS with regard to the XML schema, but it’s to expect that there will be a lot of country-specific deviations like we have seen them for CRS. Let’s assume that TRACE will be adopted in all EU countries. In that case the difference to CRS would be that with TRACE there would be 27 different files to 27 different authorities with 27 different rules (timelines, scope etc.). This adds huge complexity to TRACE reporting, thus TRACE will be a game changer and many banks are currently considering to change their reporting landscape, especially to abandon their tactical solutions developed on their own and to search for a standard vendor solution which plays all pieces.

Despite the fact that it was an online-only event all sessions and especially panel discussions were very dynamic and vivid. The sessions provided us a fantastic overview of the current and future tax challenges in different tax regimes and led us through tax reporting landscape of three, four and five letters abbreviations like DAC 6/7/8, FTT, DTT, FATCA, CRS and TRACE. We have seen that on the one hand reporting regimes are getting more and more complex and on the other hand the scrutiny of tax authorities is getting more sofisticated and the question they ask more difficult to answer. Thus, there is an obvious trend on the market towards standardised technology-supported solutions which are capable of dealing with today’s reporting obligations and flexible and scalable enough for the challenges of tomorrow. This is where SDS can help – as one of the leading standard software vendors with a longstanding expertise in providing automated reporting solutions for OECD CRS, FATCA, QI, and TRACE.

Observation by:
Hrvoje Kajzer

Feel free to contact me for further information, an expert chat or any discussion about above-mentioned topics.


Panel discussion “TRACE – Implementation Update & Industry Views.”
Rupert Brandstetter from SDS participated at the panel chaired by Peter Grant from KPMG and attended by Katja Pussila from Finnish Tax Administration and Paul Radcliffe from EY.

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Hrvoje Kajzer
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