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Home » Tax » Overcoming the challenges of global tax regimes

Christopher Craddock

Product Specialist Risk and Regulatory Compliance, IHS Markit

The number of global tax regimes are still increasing. As they are being implemented and refined at a jurisdictional level, they are becoming increasingly fragmented. Tax professionals have the challenge of monitoring and operationalising these requirements.

The end goal of most of these regimes is the reporting of a wide range of tax-related data to tax authorities. This requires strong data sourcing, validation and data management practices.

The next wave of global tax regulation

The impending introduction of the sixth revision of the EU Directive on Administrative Cooperation (DAC6) on 1 July 2020, the EU’s implementation of the OECD’s Mandatory Disclosure Rules (MDR) initiative, presents the next wave of global tax regulation that financial institutions need to consider.

This is in addition to compliance with other global tax regimes such as Common Reporting Standard (CRS) and FATCA, two other data intensive regulations.

There’s significant overlap and dependencies between these regulations and a strong awareness of these intersections is important for an efficient compliance process.

Regimes to combat offshore tax evasion

The OECD and G20 governments have been influential in spearheading new global tax regimes with the aim of combatting offshore tax evasion, such as CRS.

The focus for many financial institutions in 2020 will be the implementation of MDR; in the EU this will be implemented via the DAC6.

This requires intermediaries to report to tax authorities information concerning certain cross-border arrangements that meet specific hallmarks. The aim of this is to provide tax authorities with more transparency into tax arrangements and to combat aggressive tax planning.

Challenges to the financial community

But the financial community is not out of the water with other global tax regulations. The volume of reporting required for FATCA and CRS has made the annual tax reporting calendar extremely congested.

This presents a number of challenges:

  • Overlaps with other tax regimes – for example, the MDR rules have strong ties to CRS. Operationally, the CRS has strong ties to the FATCA IGAs.
  • Hallmark A of the DAC6 has strongly overlaps with HMRC’s Disclosure of Tax Avoidance Schemes (DOTAS)rules, and so on. Very quickly you are in a tangled web of complex tax regulation. Understanding intersections becomes very important
  • Local deviations from global standards – as been seen with FATCA and CRS, many jurisdictions adopt their own local flavour when implementing and jurisdictions are continuing to tweak their specific requirements for reporting. We are also seeing EU jurisdictions add to the DAC6 standard when implementing into local law (e.g. Poland). Although these are global frameworks, the reality is a disparate set of requirements with subtle differences between jurisdictions, which makes compliance challenging and increases the risk of missing something.

In addition, there is the need to keep up to date with the ever-changing regulatory landscape. This all creates a challenging environment to operate in. It’s no wonder tax operations professionals are in high demand.

Data Management

Strong data management practices are important for operating compliance with these regulations. This includes collecting the right data, validation, processing and the ability to extract for reporting.

Therefore, having the right technology is important, whether your teams operate it, or you leave it to the right third party to manage on your behalf.

Increasingly the financial community is leaning on third party specialists to provide technology and/or managed services to help manage compliance. As the more regulations are introduced and existing regulations become more refined, we expect this trend to continue.

For more information about our Tax Solution services, please get in touch.

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