Financial institutions: FBR to conduct compliance audit, inspections

ISLAMABAD: The Commissioners Inland Revenue (IR) Automatic Exchange of Information (AEOI) Zones would conduct compliance audit and inspections of financial institutions to ensure their compliance with common reporting standard for exchange of financial accounts information of taxpayers with other tax jurisdictions.

The Federal Board of Revenue (FBR) has issued income tax circular number 14 of 2022 here on Thursday.

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

To standardize and improve the process of compliance by Reporting Financial Institutions (RFIs) and efficient exchange of CRS reciprocal data, FBR has roll out AEOI implementation procedure for guidance of International Taxes, FBR, and AEOI Zones.

The FBR has successfully implemented the framework of Common Reporting Standard (CRS) issued by Organization of Economic Cooperation and Development (OECD) for Automatic Exchange of Information (AEOI). The CRS implementation in signatory countries is periodically reviewed by OECD in the light of Core Requirements (CR) issued to gauge the effectiveness of AEOI implementation framework. The three Core Requirements are provided in Terms of References (TORs) of AEOI Review Process.

The implementation of CRS is recent phenomenon for RFIs that needs facilitation by FBR to inculcate voluntary compliance by RFIs. In view of forgoing, new measures may be undertaken by International taxes, FBR and AEOI zones across Pakistan to promote voluntary compliance.

International Taxes, FBR and AEOI Zones shall plan communication and outreach activities timely and periodically in a year to ensure that all Financial Institutions are well informed and have necessary guidance to fulfil their due diligence and reporting obligations before the deadline of 30th May every year for CRS-return filing.

International Taxes, FBR shall provide FAQs section on international taxes webpage to provide guidance to Financial Institutions regarding the CRS implementation.

Under the procedure, the compliance Audit and Inspections of CIR AEOI Zones shall conduct compliance Audit and Inspections in respect of Financial Institutions under chapter XIIA of Income Tax Rules, 2002 (CRS Rules) to ensure compliance with Common Reporting Standard after seeking approval of Director General (International Taxes, FBR).

The CIR AEOI Zones shall conduct Desk-based audits of the RFIs prior to onsite audit and inspections to fulfil the compliance objectives. The CIR AEOI Zones shall perform compliance audit and inspections of Financial Institutions, inter alia to ensure the following:

(i) Financial Institutions are correctly applying the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions, and report information as per CRS Rules.

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

(iii) Non-Reporting Financial Institutions and Excluded Accounts are identified and periodically reviewed to ensure that these continue to present a low risk of being used to evade tax.

(iv) Reporting Financial Institutions (RFIs) will always obtain valid self-certifications at the time of opening of New Accounts.

(v) Reporting Financial Institutions are followed up on when they report undocumented accounts and ensure that they are correctly applying the rules for such accounts.

Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures as enunciated in CRS Rules.

Moreover, the International Taxes, FBR and AEOI Zones shall adopt risk-based approach for implementation of objectives of compliance audit and inspections to prioritize resources to the areas of greater risk in relation to the effective implementation of the AEOI Standard. The risk assessment shall categorize the high risk, medium risk and low risk RFIs based on the risk parameters, FBR added.

Copyright Business Recorder, 2022