The world is increasingly turning to a transparent tax system, in which there is no room for tax evasion, tax abuse, or aggressive tax planning, even if this behavior complies with applicable laws. Events such as Panama Papers and WikiLeaks have captured the world’s attention and put the issue of tax transparency and tax havens at the center of the discussion.
In their efforts against tax evasion, major powers and economic centers have aggressively imposed their rules on smaller financial centers. Switzerland, which manages around 25% of the world’s offshore fortunes (that is, assets located in a country other than the taxpayer’s country of residence) is particularly affected. The proliferation of multiple tax regulations such as the final withholding tax agreement with the UK and Austria, the OECD CRS on Automatic Exchange of Information, the FATCA program, and new taxes planned on, for example, financial transactions and services have a big impact on the financial industry.
Investors/wealth owners who do not comply with these new regulations could face additional taxes, penalties, or violations of their privacy rights, as financial centers may be forced to reveal their financial information.
All these developments in tax and regulatory matters underline the importance of having in-depth knowledge in the field of tax compliance for financial service providers and thus the need to put in place adequate training for their employees.
Levels of training
For financial service providers, a tax compliance strategy needs to be quickly adopted. This requires technical knowledge and adequate training on the following three levels.
The first level covers the tax implications at the level of the company itself, i.e. ensuring that the institution itself fulfills its fiscal and regulatory obligations. This may include issues such as transfer pricing, the reporting of information from one country to another, the documentation to be collected, the substance of the business itself as well as the structures to be put in place to assess the tax risks.
At a second level, it is important to ensure compliance with legal requirements to also ensure tax transparency on the customer side. For financial institutions, this means that they have to take into account many international laws and regulations. This includes for example the FATCA program and the US tax amnesty, voluntary disclosure programs in other countries such as Germany and France, and internal banking measures to ensure tax compliance. Finally, at the local level, certain taxes, such as stamp duty, must be collected and paid on customer transactions.
The third level concerns the adaptation of products and services offered by financial institutions. Demand will focus on tax-optimized discretionary mandates as well as consideration by advisers of all relevant tax aspects when it comes to investments. Additionally, clients require their financial institutions to provide them with country-specific tax reports and support for possible tax claims or possible tax recovery. Clients also expect their financial advisers to document transactions and brief them on voluntary disclosure programs. If financial institutions want to remain competitive, they must offer these services.
The complexity of the legal framework and the consequences of non-compliance demonstrate that financial institutions must ensure their compliance by constantly updating their procedures and the training of their employees. It has become vital to examine these challenges in-depth in relation to the three levels described above. By examining these challenges on the three levels and taking action where necessary, financial institutions should be able to survive and remain competitive in the face of the new realities of wealth management. In order to learn more about telecom tax and how you can get help to deal with it, visit Telecompliance.