Financial institutions

Financial institutions: FBR will conduct a compliance audit, inspections – Business & Finance

ISLAMABAD: The Automatic Exchange of Information (AEOI) Areas of Tax Administration Commissioners will conduct compliance audits and inspections of financial institutions to ensure compliance with the Common Reporting Standard for the Exchange of Taxes information on taxpayers’ financial accounts with other tax jurisdictions.

The Federal Board of Revenue (FBR) on Thursday released Tax Circular Number 14 of 2022 here.

According to the FBR, the Board of Directors, being a signatory to the Multilateral Competent Authority Agreement on the Exchange of Financial Account Information (MCAA), is required to effectively implement the AEOI standards issued by the OECD. .

To standardize and improve the compliance process by Reporting Financial Institutions (RFIs) and the efficient exchange of CRS reciprocal data, FBR has deployed an AEOI Implementation Procedure to guide international taxes, FBR and AEOI zones.

FBR has successfully implemented the Common Reporting Standard (CRS) framework published by the Organization for Economic Co-operation and Development (OECD) for Automatic Exchange of Information (AEOI). The implementation of CRS in signatory countries is periodically reviewed by the OECD against the Core Requirements (CR) issued to assess the effectiveness of the AEOI implementation framework. The three essential requirements are provided in the Terms of Reference (ToR) of the AEOI review process.

Implementation of CRS is a recent phenomenon for IFRs which needs to be facilitated by FBR to inculcate voluntary compliance by IFRs. In view of the above, further steps can be taken by international taxes, FBR and AEOI zones across Pakistan to promote voluntary compliance.

International tax areas, FBR and AEOI should plan communication and outreach activities in a timely manner and periodically over the course of a year to ensure that all financial institutions are well informed and have the necessary guidance to meet their compliance obligations. due diligence and reporting by the CRS deadline of May 30 each year. – return of deposit.

International Taxes, FBR will provide an FAQ section on the International Taxes webpage to provide guidance to financial institutions regarding the implementation of CRS.

As part of the procedure, the CIR AEOI Areas Compliance Audit and Inspections shall conduct compliance audits and inspections against financial institutions under Chapter XIIA of the Income Tax Rules, 2002 (CRS Rules) to ensure compliance with the Common Reporting Standard after seeking Chief Executive’s approval. (International taxes, FBR).

CIR AEOI areas must conduct on-site audits of RFIs prior to the audit and on-site inspections to achieve compliance objectives. AEOI CIR Zones must carry out compliance audits and inspections of Financial Institutions, among other things, to ensure the following:

(i) Financial institutions correctly apply the definitions of reporting financial institutions and non-reporting financial institutions, and report information in accordance with CRS rules.

(ii) Reporting Financial Institutions correctly apply due diligence rules on each type of account and ensure that they correctly report all information in accordance with the CRS Rules.

(iii) Non-reporting financial institutions and excluded accounts are identified and reviewed periodically to ensure that they continue to present a low risk of being used to evade tax.

(iv) Reporting Financial Institutions (RFIs) will always obtain valid self-certifications when opening new accounts.

(v) Reporting financial institutions are monitored when they report undocumented accounts and ensure that they are correctly applying the rules applicable to such accounts.

Financial institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures as set out in the CRS Rules.

In addition, the International Taxes, FBR, and AEOI areas should take a risk-based approach to implementing compliance audit and inspections objectives to prioritize resources in areas of greatest risk by with respect to the effective implementation of the AEOI Standard. The risk assessment should categorize RFIs as high risk, medium risk and low risk based on risk parameters, FBR added.

Copyright Business Recorder, 2022