1. FATCA to CRS:
How Tax Reporting became Big Data
Data Management and Regulatory Reporting for Investment Firms
7 July 2016 - London

2. BREXIT
Keep calm and carry on...
"Firms must continue to abide by their obligations
under UK law, including those derived from EU
law and continue with implementation plans for
legislation that is still to come into effect," the
statement from the FCA.

3. Agenda
 Tax Regulation: Past and Present
 What was FATCA and What is CRS
 Impact on Investment Firms
 Industry Response – Our Findings
 What next
 Supervisory Action
 Managing Financial and Reputation Risk
 Governance and Controls

4. Tax Regulation: Past & Present
Optimisation
Techniques
Money on
the Table
Operational
Excellence

5. Tax Regulation: Past & Present
 HMRC’s Connect program went live in 2010
 Designed by the defence contractor BAE Systems
 Pressure to fix UK’s estimated £40bn per year “tax gap”
 HMRC headcount cuts, meant technology needed to be deployed for
investigative work
 Connect came with an initial price tag of £45m
 Connect had delivered £1.4bn of additional revenues by 2011
 Won major industry awards, including: ‘IT outsourcing project of the
year’; the British Computer Society ‘Big Data project of the year’;
and the ‘Civil Service Science and Technology Award’

6. Tax Regulation: Past & Present
 Connect is based on Social Network Analysis (SNA)
 SNA is a mathematical technique used to investigate social
structures employing network and graph theories.
 SNA’s theoretical roots lie in the work of early sociologists such
as Georg Simmel and Émile Durkheim, who highlighted the
importance of studying patterns of relationships that connect
social actors.
 With Connect, a trained HMRC investigator has on-screen
access to see the interconnecting lines and relationships a
taxpayer has across business, employment, property interests
and bank accounts.

7. Tax Regulation: Past & Present
 Connect contains more than a billion records, including taxpayer
records as well as information from third parties and the internet
 Connect detects links and identifies anomalies between a taxpayer’s
declared resources and those shown by other sources of information
 Using Connect, HMRC interrogates Land Registry data, information from
Companies House, bank account details, credit card statements, voting
and council tax registers, and data from tax authorities in other
countries.
 Information from diverse sources is then compared with the self-
assessment returns to identify taxpayers data anomalies.

8. Tax Regulation: Past & Present

9. FATCA
 FATCA is a US measure which imposes an international standard
for the Automatic Exchange of Information (AEOI)
 FATCA regulations require IGA tax authorities to obtain detailed
account information for US taxpayers on an annual basis and then
forward this to the IRS
 For non-IGA jurisdictions, FATCA imposes punitive withholding tax
where the financial institution has not ‘voluntarily’ agreed to
participate in the FATCA regime

10. FATCA obligations
 Registration and entity classification
 Due-diligence of account-holders
 Pre-existing
 New upgraded on-boarding procedures
 Classification of account-holders
 Indicia checks and change of status monitoring
 Reporting
 Governance/Policies & Procedures

11. FATCA experience
 Unrealistic deadlines (moved many times)
 Level of compliance mixed
 Localised businesses excluded
 Tactical solutions….MS Excel
 UK took the lead and pushed for UK FATCA (also known as ‘CDOT’)

12. CRS vs FATCA
 Broadly similar methodology….but SCALE
 Over 100 jurisdictions
 Static (citizenship) vs Dynamic (tax residency)
 De minimis levels removed
 Less generous exemptions includes charities, local institutions

13. Impact on FIs
 Tactical solutions will not work given the scale and complexity
 Unrealistic deadlines
 Lack of guidance by tax authorities
 Legal hurdles
 Problem of outsourcing
 Cyber security…sitting ducks

14. Our findings
“Legacy systems are inadequate in
meeting the demands of the modern
day data hungry systems”
- Ali Kazimi

15. Our Findings – not data driven
 Data extraction and uploads
 excessive manual interventions
 data contamination and absence of integrity controls
 Processing capability
 income records (155,000 stock lines) take 48 hours to extract (not process!)
 Audit trail
 must be able to substantiate the work undertaken
 compliance records must be ready for external audit scrutiny
 Unified view of compliance
 Visualisation/analytical techniques to have a single view of compliance across
business/product lines and geographies
 Tax and Regulatory compliance need to be consistent

16. What next
 Customers, Regulator and Tax Authorities
 Must avoid tax authority audits – cost, complexity and frequency
of audits
 Documentation and building of audit trails
 Mock audits – testing and highlighting the systematic deficiencies
 Remediation of records
 Ramping off projects to BAU
 Governance frameworks, delineation of responsibility, service
level agreements

17. Take away points
 World of big data has hit Tax
 Big gap between tax authority and tax payer capabilities
 Tax authority investment is yielding results and is about to take off
 FATCA must not give you false sense of security
 CRS is enormous and will test the best of players
 Must be ready for tax authority audit….

18. Contact
Ali Kazimi
Hansuke Consulting
United House, North Road, London N7 9DP
alikazimi@hansukeconsulting.co.uk
uk.linkedin.com/in/securitiestax
+44 7818 522 779