FBR will conduct compliance Audits and Inspections of financial institutions and taxpayers to ensure their compliance with the OECD rules under MCAA.
The Commissioners Inland Revenue (CIR) Automatic Exchange of Information (AEOI) Zones will conduct compliance audits and inspections of financial institutions to ensure their compliance with the Common Reporting Standard for Exchange of Financial Accounts Information (MCAA) of taxpayers with other tax jurisdictions.
The Federal Board of Revenue (FBR) issued income tax circular number 14 of 2022, on Tuesday.
According to the FBR, on account of it being a signatory of the Multilateral Competent Authority Agreement on Exchange of Financial Accounts Information (MCAA), it is required to effectively implement the AEOI standards issued by the Organization of Economic Cooperation and Development (OECD).
To standardize and improve the process of compliance by Reporting Financial Institutions (RFIs) and efficient exchange of CRS reciprocal data, the FBR has rolled out an AEOI implementation procedure to guide International Taxes, the FBR, and the AEOI Zones.
The FBR has successfully implemented the framework of the Common Reporting Standard (CRS) issued by the OECD for the AEOI. The CRS implementation in the signatory countries is periodically reviewed by the OECD in light of the Core Requirements (CR) issued to gauge the effectiveness of the AEOI implementation framework. The three Core Requirements are provided in the Terms of References (TORs) of the AEOI Review Process.
Under the procedure, the compliance Audit and Inspections of the CIR AEOI Zones will conduct compliance Audit and Inspections regarding the Financial Institutions under chapter XIIA of Income Tax Rules, 2002 (CRS Rules) to ensure compliance with the Common Reporting Standard after the approval of the Director-General (International Taxes, FBR).
The CIR AEOI Zones will conduct desk-based audits of the RFIs before onsite audits and inspections to fulfill the compliance objectives. The CIR AEOI Zones will perform compliance audits and inspections of Financial Institutions inter alia to ensure that:
- Financial Institutions apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions correctly and report information as per the CRS Rules.
- Reporting Financial Institutions apply the due diligence rules to each type of account correctly and ensure that they correctly report all information under the CRS Rules.
- Non-Reporting Financial Institutions and Excluded Accounts are identified and periodically reviewed to ensure that they continue to present a low risk of being used to evade tax.
- Reporting Financial Institutions (RFIs) always obtain valid self-certification at the time of opening New Accounts.
- Reporting Financial Institutions are followed up on when they report undocumented accounts and ensure that they apply the rules for such accounts correctly.
Financial Institutions, persons, or intermediaries do not circumvent the due diligence and reporting procedures as enunciated in the CRS Rules. Moreover, the International Taxes, FBR, and AEOI Zones are to adopt a risk-based approach for the 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 will categorize the high risk, medium risk, and low-risk requests for information (RFIs) based on the risk parameters, the FBR added.
