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Compliance Risk

Tax transparency and a focus on MENA financial reporting

Katherine Lee

10 Apr 2018

A general view of the city of the dead as pigeons fly overhead in Cairo, Egypt, March 13, 2017. Photography: Mohamed Abd El Ghany
A general view of the city of the dead as pigeons fly overhead in Cairo, Egypt, March 13, 2017. Photography: Mohamed Abd El Ghany

Tax transparency standards FATCA and CRS require organizations in the Middle East and North Africa (MENA) region to ensure their financial information sharing is robust. How can they achieve timely and accurate reporting?


  1. MENA financial institutions that have not yet commenced their Automatic Exchange of Information (AEOI) CRS implementation should do so now.
  2. Technology designed to FATCA and CRS requirements can provide up-to-date information on regulatory developments and reporting deadlines.
  3. Institutions should view AEOI as an opportunity to enhance technology frameworks, data storage and retrieval systems, and due diligence processes.

The financial reporting landscape is becoming more and more demanding as regulators and global bodies push for greater tax transparency.

While new approaches to financial information sharing have placed a greater compliance burden on the financial services sector, this legislation has emerged in response to continuing tax avoidance and evasion.

Financial information

Estimates of lost tax revenue vary, but most run to hundreds of billions of dollars annually.

Co-operation between tax administrations is critical in protecting the integrity and efficacy of tax systems; and financial information sharing plays a key role in this process.

Automatic Exchange of Information (AEOI)

The Automatic Exchange of Information (AEOI), an approach recommended by the OECD and advocated by G20 countries, facilitates the exchange of non-resident financial account information with the relevant national tax authorities.

Participating countries automatically share pre-determined information on an annual basis, saving them from having to submit or respond to specific data requests.

This approach offers several benefits, including:

  • Flagging tax evasion which may have gone undetected.
  • Encouraging taxpayers to share more comprehensive information.
  • Paving the way towards greater transparency and cooperation between taxpayers, the financial sector and tax authorities.

FATCA and CRS

There have been two notable developments in the reporting landscape in recent years, both with an impact on the MENA region.

  1. In 2010, the U.S. Congress passed the Foreign Account Tax Compliance Act (FATCA) into law. Under FATCA, participating non-U.S. financial institutions are required to report any U.S. account holders that hold assets abroad to the U.S. Internal Revenue Service.
  2. Following on from the introduction of FATCA, the G20 called for a global AEOI standard in 2013. The Common Reporting Standard (CRS) was released and endorsed by the OECD and G20 in 2014 — acting as a catalyst for taxpayers with offshore investments to report their complete income. Financial institutions in participating countries are required to collect and share this information pertaining to all their relevant account holders. This includes taxpayer identification data, account balances, asset composition and income such as interest, dividends and capital gains.

While there are obviously similarities, a major difference between the two regimes involves the volume of data required.

FATCA is focused on U.S. persons only, whereas CRS relates to account holders that are tax residents in the 100+ countries participating in this AEOI agreement.

Suffice it to say, CRS compliance is far more complex and data-heavy.

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AEOI in the MENA region

Several MENA nations have inter-government agreements in place (including agreements in substance) under FATCA.

The full list includes Algeria, Bahrain, Iraq, Kuwait, Malta, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates.

The CRS came into effect for early adopter countries in 2017, including the UK, India, Cyprus and Malta.

A second wave of countries will begin reporting in 2018, including seven in the MENA region — namely: Bahrain, Saudi Arabia, Kuwait, Lebanon, Qatar, the UAE and Turkey.

What can countries in the region learn from CRS early adopters in European countries? Download our white paper to find out what are the key takeaways for MENA’s finance industry during the first year of CRS implementation.

Deadlines for CRS reporting

Even firms with robust due diligence processes in place, that have collected comprehensive account holder information up until now, may find that this has not been carried out sufficiently for CRS compliance.

This means that on top of navigating the new legislation and requirements, these firms will need to go back to their account holders and gather the missing information.

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For some in MENA, the deadlines for CRS reporting are mid-2018. Financial institutions in these jurisdictions that have not yet commenced their AEOI CRS implementation should do so now.

By getting started on reporting and due diligence now will help these firms to identify data gaps while there is still time — avoiding a scramble for information at the eleventh hour.

It’s also worthwhile registering with local tax authorities as soon as possible, as registered reporting entities gain access to information that supports their CRS efforts.

Simultaneously, authorities gain a clearer view on the entities involved, which helps them to understand the landscape — and hopefully its needs and challenges.

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More timely and accurate reporting

Technology designed to FATCA and CRS requirements can provide current, accurate information on regulatory developments, reporting deadlines and submission formats for all relevant jurisdictions.

As MENA prepares for CRS reporting deadlines in 2018, what can countries in the region learn from CRS early adopters in European countries?

These platforms can also support due diligence processes by providing guidance on the type of account holder information that is required to speed up the data collection and verification process. This reduces the need for dedicated compliance teams, who would otherwise do all this work manually.

Katherine Lee quote

When leveraging technology, it’s worthwhile opting for a system that is agile enough to:

  • Securely handle higher volumes and greater complexity of data as the AEOI landscape matures
  • Continue automating report creation and filing based on new country-specific rules
  • Scale as requirements change or new jurisdictions come on board

Future proof AEOI systems

There’s no doubt that the AEOI implementation challenges under FATCA and CRS will continue to put pressure on every regulated institution.

However, there are steps that these firms can take to alleviate this burden, improve their overall regulatory compliance and risk control efforts, and future-proof their AEOI systems.

Proactive institutions could view this as a timely opportunity to enhance technology frameworks, data storage and retrieval systems, and due diligence processes — to enhance business intelligence, manage risk more strategically, and support improved corporate performance.

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