Diasoft Will Support the Automatic Exchange of Information (AEOI) Under the CRS Standard

Tuesday, February 2, 2016

Diasoft, the leading provider of cutting-edge financial technologies, revealed its plans to support the international CRS standard (Common Reporting Standard), also known as GATCA (Global Account Tax Compliance Act) – the EU analog to the FATCA standard.

As of today, more than 40 countries have already committed to support the standard, but it is expected that the total number of participating jurisdictions will exceed 90. The Standard requires financial institutions to report non-residents' financial account information to tax authorities of the account holders’ country of residence. Non-compliance with the data exchange rules may result in tough sanctions against a financial institution, including complete ban on business activities in the participating partner jurisdiction.

New Data Exchange Standard

The CRS data exchange standard is based on the FATCA, but has some important differences, including the following:

  • Method of information exchange. Unlike the FATCA, the information on tax residents will be provided to foreign tax authorities not by banks but by tax bodies of the respective countries within the scope of the multilateral agreement (МСAA).
  • Statuses of legal entities. CRS statuses will differ from FATCA statuses. For example, the CRS will consider an Investment Entity located in a Non-Participating Jurisdiction to be a passive non-financial entity (NFE).
  • Excluded entities and accounts. The FATCA and the CRS use different lists of excluded entities and accounts, with each jurisdiction allowed to issue its specific list of exclusions.
  • Controlling persons. The CRS's term "controlling person" differs from the similar term used in the FATCA.
  • Criteria for identifying tax residents of a specific country. The CRS uses a simplified procedure for identifying individuals as tax residents of a specific country for customers whose account balance is below USD 1 million. The identification is based on the customer's residence address, without taking into account the customer's citizenship.
  • Reports. The structure of СRS reports almost fully coincides with that of the FATCA, but includes additional information on the date and place of birth of the customer. The report format CRS XML Schema is also based on the FATCA XML format.
  • Individual accounts. The CRS does not establish the minimum threshold account balance to determine whether an account must be reviewed and included into the report (in the FATCA, accounts with the balance below 50,000 US dollars are not subject to reporting).
  • Accounts of legal entities. The minimum threshold account balance of 250,000 US dollars is set only for pre-existing accounts. This threshold is not applied for new accounts.
  • Identifying pre-existing accounts. New accounts of pre-existing customers  are considered pre-existing accounts if customer details do not change during account opening and can be used for the review.
  • Closed accounts. Unlike the FATCA, the CRS does not require calculating balances of closed accounts. Financial institutions will only have to report that the account has been closed within the reporting period.

These differences mean that financial institutions will not be able to use the existing FATCA processes to support the new standard.

To support the new standard, Diasoft plans to release a new component based on the FLEXTERA FATCA solution. This component will automatically identify and classify foreign tax residents, identify their accounts, classify their income and generate the required reports. This will significantly reduce the workload associated with compliance with this standard.

About Diasoft

Since 1991 Diasoft has been providing cutting-edge financial software solutions supporting all aspects of retail, wholesale and universal banking, financial market services, and insurance business. The company’s main offering to the financial market is FLEXTERA — a SOA-based universal system comprising a comprehensive suite of modules for front-to-back automation of modern financial services.

The FLEXTERA’s functional scope covers the following areas of financial business:

·       Back Office and Core Banking operations including daily banking transactions processing; product and service management; BI, accounting and reporting;

·       Multichannel Front Office operations and client management;

·       Middle Office risk management and decision making.

The modern technological principles lying at the core of all FLEXTERA solutions in combination with their broadest functionality provide our customers with limitless opportunities for their business development in accord with market trends and clients’ requirements.