Millions of taxpayer records are going to be collected by banks and distributed across the globe by tax authorities to enforce tax laws. One question on everyone´s mind is how to ensure that the data collected by banks are useable for taxation. A bank account information that cannot be attributed to an individual however is useless. This problem is compounded by the fact that the tax payer identification number is an optional field. Financial Institutions are not compelled to provide tax payer identification numbers.
Financial institutions do not have an incentive to provide usable data, except when faced with fines. When rejecting or admonishing financial institutions to deliver more and better data, the response simply might be that any efffort beyond compliance with the CRS will be billed at an hourly rate of X.The interest of the sending competent authority is comparatively aligned with this attitude, since no additional revenue to the coffers can be expected by delivering squeaky clean data.
Hence, the entity that has the highest interest in the process is the receiving authority which is the only institution equipped to validate TINs.After all the Financial Institution provides information regarding taxpayers also resident in the jurisdiction of the receiving authority.
Valid Taxpayer ID and the OECD portal
Without a valid taxpayer ID (TIN) all account information is useless. To improve the understanding how a jurisdiction generates TINs, the OECD has established a web portal . I am highly doubtful that all of the OECD published TIN information will be usable for validation purposes. Among 80 signatories there will be several who can only describe in vague terms what the components of their domestic TINs are. Imagine a small country that randomly allocates a 15 digit number to its citizens; the only check being made is that it has not been previously issued. Maybe, in an attempt to confuse illegal immigrants, certain parts of the number are a check number; however, this information is not publicly disclosed as not to alert criminals. A check against such a validation rule would be rather meaningless. The issue might be complicated by introduction of new and improved TIN schemes (now your welfare benefit/health benefits and your tax ID are linked …).
Attempts to implement a validation scheme based on the OECD portal information is a major undertaking, since 80 schemes, one for each signatory, need to be maintained. Software engineers always have questions; in this case however, no one will be able to provide additional advice beyond what is published on the website.The OECD does not really know and further contact information is not provided.
Once a signatory has received information purportedly relating to a tax dodging individual it will attempt to ascertain who the individual is. Failing the TIN validation it now needs to go back to the sending Competent Authority to request additional information. If this is done in an automated fashion, which an automated exchange of data certainly suggests doing, the sending CA will be swamped with requests for administrative assistance. The ensuing red tape for the chain CA->FI->customer can only be hinted at.
The problem of TIN verification is by no means simple and I consider it one of the weaker points of CRS. Unfortunately, no easy fix is discernible which means that the TIN probably is going to be checked by the receiving competent authority. In case the receiving competent authority cannot validate the TIN, only under exceptional circumstances additional steps will be undertaken.
FATCA imposed order by the mere might of the US government. This advantage is however lacking in a multilateral agreement like the CRS.
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