EY tax partner, Wendy Martin, has urged Channel Islands businesses to prepare immediately for the introduction of the global tax common reporting standards (CRS) or face significant compliance challenges next year.

Mrs Martin said although businesses could rely on some of the work already undertaken for US FATCA reporting there were some significant differences under US FATCA (CDOT) and CRS.

Globally, financial institutions will need to collect and validate tax documentation, classify customers’ tax residencies and produce and transmit reports to many different local authorities based on evolving and varying rules.

57 countries are ‘early adopters’ of CRS and these jurisdictions, which include the Channel Islands, the UK and much of Europe, will be required to begin gathering information from 1 January 2016.

Speaking at breakfast briefings held by EY in Guernsey and Jersey in recent days, Mrs Martin set out the requirements for both CRS and CDOT.

She warned the audiences that CDOT (which was introduced in 2014 and will be phased out in favour of CRS in 2016) and CRS will result in a significantly increased volume of review, data collection and reporting compared to FATCA and businesses will not be able to apply a quick fix as they may have done to date.

“Some businesses may use some of the work we have all done to comply with FATCA reporting which will go some way towards helping with CRS but it is worth bearing in mind that over 60% of FATCA do not translate directly into CRS,” Mrs Martin said.

“There are also some 56 areas under which local authorities can use discretion which means businesses need to regularly monitor each one to ensure they understand the different approaches (which may alter over time) – there goes the ‘common’ element of CRS.”

EY business tax advisory partner Jim Wilson, who is based in the London office, outlined the HMRC position on CRS and noted that the number of enquiries into offshore structures was likely to increase significantly as new risks were identified.

“It is likely that most corporate trustees will be deemed financial intermediaries (FIs) and required to comply with CRS,” he said.

“Increasingly HMRC will be identifying more technical issues and will not necessarily be focussed solely on tax evasion; as well as identifying previously undisclosed income, it is likely that HMRC will want to review in detail the nature and substance of offshore trusts and holding entities. It is important that FIs conduct periodic reviews to minimise risk.

“HMRC will be receiving a raft of information during 2016 in relation to the years ended 31 December 2014 and 2015.

“We would strongly recommend FIs undertake a detailed review of their client portfolios now in the context of key potential UK tax risks and the HMRC’s known areas of focus with a view to developing an action list and minimising risk.  With a number of the formal UK disclosure opportunities closing from 31 December 2015, it is important that any errors or issues for past periods – in particular regarding inheritance tax – are identified now, so they can be resolved in the most cost-efficient manner.”

Mrs Martin continued to highlight the risks involved with the new reporting standards.

“Businesses need to have robust processes in place to identify reportable information, monitor local changes and properly manage the risk of incorrect reporting which could have significant consequences not only for the business but for their clients as well. They need to pick up the pace again; they cannot underestimate the work that needs to go into this reporting. There is a lot to do in the next few years.”

“As a result we have seen an increase in businesses seeking to outsource either part or all of their CRS programme, recognising that the sheer scope of CRS and the likelihood of inconsistent approaches by each jurisdiction introduces a risk that they no longer wish to bear in-house.”