Top 14 Common FATCA/ CRS Reporting Issues & Solutions

Meeting the constantly evolving regulatory requirements of the tax authorities presents a significant problem for financial institutions. The need for tax returns has surged among many banks’ clientele who have assets everywhere. The number of transactions is rising, new guidance is being released often, and it is getting harder to comply with standards, which further adds to the difficulty of the situation.

Here are MG’s view on the most common reporting standard errors identified by STEP that occur during the CRS reporting process. Let's deep dive into each of them.

  1. The financial institution (FI) must re-register, and it is unable to access previous returns on the portal since its login information has changed due to employee turnover. Login information for the Automatic Exchange of Information (AEOI) portal should be kept private and shared only with those who require it. The financial institution should ensure that there is a reliable method of maintaining access to its portal. A phoney email account could be a good alternative if the FI has robust security and data protection safeguards in place.
  2. The FI has the wrong idea of what an undocumented account is. HMRC has told FIs that they are wrongly reporting accounts as “undocumented” when an account holder has not filled out a self-certification that was asked of them. This has caused a lot of accounts to be reported with the wrong country code for GB residents. This is only applicable to Pre-Existing Individual accounts and not applicable to entities and New Individual accounts.Undocumented lower-value accounts only exist if all three of the following criteria are met:
    • The Financial Institution’s only signals from their electronic record search are a “hold mail” instruction or an “in-care-of” address in a CRS Reportable Jurisdiction.
    • There is no other address or indicia of residency for the Account Holder.
    • The financial institution has, in the sequence that best suits the situation:
      • attempted to get a self-certification or other documented evidence from the Account Holder to demonstrate the jurisdiction of tax residence of the Account Holder but was unsuccessful in doing so; or
      • conducted a paper record search for indicia but no indicia were located.
     A high-value undocumented account only exists when all three of the following conditions are satisfied:
    • Only a “hold mail” instruction or an “in-care-of” address in a CRS Reportable Jurisdiction are the only signs that the Financial Institution has from their paper record search and electronic record search.
    • There is no additional address or indication of residency for the Account Holder.
    • To determine the Account Holder’s jurisdiction of tax residence, the Financial Institution has attempted to get a self-certification or other documentary evidence from the Account Holder but has been unsuccessful.
     Evaluating and reporting unauthorised accounts – In these situations, the Financial Institution must treat the Account Holder as an undocumented account and report it as such to HMRC using the country code GB. The Financial Institution must perform the enhanced evaluation for high-value individual accounts every year until the account stops being undocumented in cases where it has recognised and reported an account as undocumented.Our CRS Stride reports all the undocumented accounts in the audit report for screening. The banks have to review the undocumented accounts before submitting the CRS data to HMRC.
  3. The FIs submit using the XML schema. The submission is turned down because MessageRef, FIReturnRef, and AccountRef were used in the wrong way.HMRC published Schema and supporting documents for software developers who use the AEOI service. The schema guidance tells you everything you need to know about how to use references. You can find it here.Our CRS Stride populates the XML schema which contains the above-said parameters.
  4. The FI reports accounts for which the account holder does not live in a jurisdiction are subject to reporting.It is not appropriate to report people who do not reside in a reportable jurisdiction. Some jurisdictions that have signed up for CRS are not yet prepared to receive exchanges, while some of those that have signed up are not reciprocal. It is important to note that the reportable jurisdictions are updated frequently, and the notification will be given by HMRC. Refer to IEIM402340.Our CRS FATCA tax consultants follow the HMRC updates on the jurisdictions and add or remove the jurisdiction in the CRS Stride solution for effective CRS/FATCA reporting.
  5. Although the resident country code is not the US, the FI reports accounts as NPFFIs.Concerning years up to 2016, the phrase “non-participating foreign financial institution” (NPFFI) solely applies to FATCA and is not relevant to CRS. The resident country code, if applicable, should be US.Our CRS Stride can identify and segregate the NPFFIs in the exclusive audit reports we generate.
  6. The FI reports accounts that are not reportable because they are excluded, such as registered pension plans.IEIM 401720 provides a detailed definition of undesignated and designated accounts.Undesignated accounts: When a financial account (owned by a non-financial intermediary, such as a solicitor) is a pooled account that holds the funds of underlying clients of the non-financial intermediary and does not meet the requirements of IEIM401860, where:
    • If the non-financial intermediary is the only person listed or identified on the financial account with the financial institution, and
    • If the non-financial intermediary is not required to disclose or pass on their underlying client or clients’ information to the financial institution to comply with AML/KYC requirements or other regulatory requirements, then, provided both of these conditions are met, the financial institution is only required to carry out the due diligence procedures concerning the financial account.
     Designated Accounts: A designated client account is a financial institution-held account run by a non-financial intermediary where the financial institution can identify or list the underlying client or clients of the intermediary. The Financial Institution must submit the pertinent account information when the underlying client is recognised as a Reportable Person [see IEIM403440].
  7. The FI reports non-individuals who should not be reported.Governmental organisations, international organisations, central banks, and financial institutions are not reportable account holders under CRS, nor are firms with regularly traded stock and similar entities. Article 1 (gg) of the UK-US Intergovernmental Agreement contains a list of exceptions to the phrase “specified US person” as used in FATCA (IGA).
  8. The FI submitted the CRS XML which does not adhere to XML schema definitions (XSD) published by HMRC.An XML schema definition (XSD) is a framework document that defines the rules and constraints for XML documents. The generated CRS XML must fully adhere to the rules of the XSD document published by the HMRC.
  9. The Entity’s account holder type is set as Reportable Entity with Controlling Person, but controlling person(s) is not provided in the XML.If the account holder type is set as “Reportable Entity with Controlling Person” then at least one controlling person must be provided for the entity.
  10. The entity must be reportable even though the entity’s jurisdiction is not reportable and any one of the controlling persons is in reportable jurisdictions.As per the HMRC guidelines, if any one of the controlling person’s jurisdictions is reportable and belongs to the particular entity, then entity details are also reportable.
  11. TIN (Tax Identification Number) is not provided for the US customer.As per the HMRC guidelines, the TIN for US Tax residence is mandatory. If the customer does not provide the TIN, then the default TIN value of nine-zero must be populated. If possible FIs can populate the TIN values provided in the link instead if nine-zero.
  12. Void Submission File generation to delete the submitted CRS file from the HMRC portal.If FIs identified an issue in the previously submitted CRS file, then void submission XML file needs to be generated which should adhere to XML Schema and Specification given by HMRC.
  13. Only financial institutions are permitted to use the AEOI enquiry helpline.HMRC requires that you refrain from providing your account holders with information about the AEOI enquiry lines. This overwhelms its AEOI filing crew and makes it unable to help FIs with their reporting requirements.
  14. The FI waits until the last minute to file.When submissions are made far in advance of the deadline of May 31, every year, FIs have more opportunity to address any unforeseen problems, such as missing data or incorrect XML structure, which could result in the application being denied.

Click here to learn how MG’s “CRS Stride” can satisfy your need for an optimal CRS solution. Our product and services cover all aspects of your CRS reporting obligation, but you can cancel at any time.


CRS Stride - HMRC CRS & FATCA Reporting Solution