Page 1
1
International client tax calculation & reporting:
How to deal with multiple jurisdictions and increasing client demands
Prepared for TCFI - Tax Congress for Financial Institutions – 3 – 4th September 2019
Mathias Wegner - Director at BearingPoint
September, 2019
Page 2
2
Content
C L I E N T D E M A N D
K E Y D R I V E R S F O R T A X R E P O R T I N G
P R E S E N T S T A T U S A N D T R E N D S
S T R A T E G I E S O F F I N A N C I A L I N S T I T U T I O N S
Page 3
3
Client demands and expectations for tax reporting are increasing …
(Almost) onshore tax coverage
Electronic format support (if applicable)
Accurate country-specific tax report
Simulations (if possible in real-time)
Offshore banking clientsare expecting
More and more tax support from the bank
Tax reclaim
Matching tax values with CRS data
Page 4
4
… due to key drivers …
CRS & AEOI
Tax Amnesties and political pressure
Legal changes and obligations
(Almost) onshore tax coverage
Electronic format support (if applicable)
Key drivers
Accurate country-specific tax report
Simulations (if possible in real-time)
Offshore Banking Clients are expecting
More and more tax support from the bank
Tax reclaim
Values of tax reporting inline with CRS data
Page 5
5
… requiring banks and tax solution providers to react
CRS & AEOI
Tax Amnesties and political pressure
Legal changes and obligations
Tax solution providers
needs to deal with bankingclient and banks expections
(Almost) onshore tax coverage
Electronic format support (if applicable)
Key drivers
Accurate country-specific tax report
Simulations (if possible in real-time)
Offshore Banking Clients are expecting
More and more tax support from the bank
Banks
Tune/ adopt theirOperating and IT Model
Tax reclaim
Values of tax reporting inline with CRS data
Need to deal with bankingclient expections
Digitali-sation
Costpressure
Page 6
6
Content
C L I E N T D E M A N D S
K E Y D R I V E R S F O R T A X R E P O R T I N G
P R E S E N T S T A T U S A N D T R E N D S
S T R A T E G I E S O F F I N A N C I A L I N S T I T U T I O N S
Page 7
7
French client
Bank in Singapore
French Tax Authority
Filing of tax declaration
(based on OECD CRS)
French tax report (taxation based on French tax rules)
Tax Authority Singapore
HOW TAX REPORTING WILL WORK
The two main market drivers for taxation on income and wealth – 1. CRS
Consequence:
• Clients are tax transparent
• Client without declaration are
required to react
• Tax honesty is increasing
• Client requests support from
bank to deliver tax reports and
more
Automatic transmission of data
Page 8
8
The two main market drivers for taxation on income and wealth – 2. Tax Amnesties
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Example of a tax amnesty
in Spain• Tax amnesties are arising
globally
• Tax amnesties have
considerable impact on the
percentage of disclosed clients
AnonymousDisclosed
Own calculation comparing disclosed and anonymous assetsin Europe (Base: ESTV EUZ Statistics)
Page 9
9
Source: hhttps://dergipark.org.tr/download/article-file/365354
Tax Amnesties in the world
In the past years, there have been multiple Tax Amnesties carried out in various countries
2010 – 2014
2015 – 2017
After 2017
2000 – 2009
• The chart shows tax
amnesties of the last
twenty years
• Global Possibilities for Self
Declarations
Page 10
10
-8 -6 -4 -2 0 2 4 6 8 10 12
DE
BE
US
IT
CH
DK
ES
FR
NL
PT
AU
AR
FN
ID
[IN]
CL
ZA
LU
GR
MX
BR
TR
IL
RU
Years to Pass until EasyTax Country Module Introduction Log. (Years to Pass until EasyTax Country Module Introduction)
Approx 1 year
2019
2018
2018
2017
2017
2017
2016
2016
2016
2016
2016
2014
2013
2013
2013
2012
2011
2009
2009
2004
2004
Time to market for the implementation of a country specific tax engine
Example BearingPoint’s EasyTax Year of Tax amnesty
Difference - year of tax amnesty compared to year of module implementation
Tax solution speed to market:
1. Timely request for countries when
tax amnesty is occuring
2. Provider become more and more
successful to deliver in a timely
manner
• Delay
• <2010 more than 6 years
• <2014: ~2-4 years
• Fast reactions in the last three
years
Page 11
11
Content
C L I E N T D E M A N D S
K E Y D R I V E R S F O R T A X R E P O R T I N G
P R E S E N T S T A T U S A N D T R E N D S
S T R A T E G I E S O F F I N A N C I A L I N S T I T U T I O N S
Page 12
12
Key questions to be answered by Banks and Financial Institutions when the question of providing tax reporting services is answered
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and − Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands (CRS,
make and buy)
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Page 13
13
Country-specific Reporting versus Generic Reporting
Strategies of Financial Institutions
Transaction list reporting(0% tax law coverage)
Importance of client
(size of clients)
+
+
-- Importance of market
(volume of clients)
Generic Capital Gain Reporting
Country-specific Reporting (>95% tax coerage)
▪ Standard (core markets): Country specific reporting as
▪ competitive advantage and
▪ attractive and valued support for client
▪ Enables additional levels of client tax support
1. Tax reclaim
2. Tax Simulation
▪ after tax performance vs. performance before taxes → only for core markets
▪ Instrument categorization in regards of tax attractiveness
3. Electronic reports
▪ Generic for non-core markets (less operation costs)
1. Tax Reclaim2. Country-spec simulation reports3. Electronic reports
Trend: more and more country-specific tax report based on same interface (fast implementation) and more external data, simulations and tax reclaim
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Page 14
14
BR: the official online service e-CAC for e-filing.
CH: Regional solutions eSteuerauszug enable e-filings.
FN: online tax service portal OmaVero enabling taxpayers to file their statement online.
SE: Skatteverket e-filing creates a prefilled tax statement for the taxpayer to review
DE: ELSTER* enables e-filing for tax payers.
SG: myTax Portal for e-filing
AU: public and a private online tax tool MyTax / Etax making e-filing possible.
Online Tax Tools Worldwide – overview of a selection of solutions
Online systems are
increasingly implemented.
• Enable easy and
• Errorless filing
• Competitive advantage
Trend: Electronic reporting formats and options are more and more introducedaround the world.
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
ES: RENTA WEB
FR: impots.gouv.fr
Source: own research
US: IRS Free File / Commercial solutions
UK: HMRC online services
Page 15
15
Inhouse versus Outsourcing reporting
Strategies of Financial Institutions
+
+
-- Importance of market
InhouseOutsourcing
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Sourcing strategies are frequently validated at many banks. Often partial outsourcingis an option for non-core markets.
Importance of client
Full outsourcing
+ Transparent costs
+ Low operational risk
+ Scalablity
− No internal tax knowhow
− If tax reporting is outsourced → CRS outsourced as well
Full inhouse
+ Data is held within bank
+ Tax knowhow in bank → to decide on make or buy
▪ Standard strategy: currently buy (“make” solutions are more and more replaced)
− High efforts if many markets to be covered
Page 16
16
Hub SatelliteFI
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Tax Team Organisation
Strategies of Financial Institutions
1 Hub (max. one per region) with
• 1 Operations/ Tax Team
• 1 tax reporting system
• 1 Data Center (if possible)
Satellite:
• Only in countries with legal
restrictions for export of
reporting data
• separate software installation
versus delivery from Hub
Trend is going in the direction of centralisation
Page 17
17
Centralised approach with advantages and limits
Advantages markets Disadvantages
Scalability Data obligation of secrecy (working with anonymised data)
Concentration of tax expertise Acceptance of central approach depending of local sites
Standardised reporting quality for the group High workload during the reporting season
Fast implementations
Extension of services to third banks possible
Strategies of Financial Institutions
Client management
Securities processing
Account handling
Cash payments
Loans management
Bank systems (functional architecture)
Tax Data HubTax Reporting
for all countries in one system (on/off-shore)
CRS / Fatca for all ▪ One source for all reports
▪ One interface and easy integration of
additional tax jurisdictions
▪
Entity 2 Tax results, bookings
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Comparability
Page 18
18
Banks core banking
systems
Cloud provider
Tax authorities
Tax reportingTax calculation& booking
Applicationsupport &
management
Strategies of Financial Institutions - Digitalisation
Cost reductions by using Cloud and SaaS
Classical installations locally in the bank versus using cloud
installations and Software as a Service offerings
+ Reduces costs and infrastructure
+ Improves scalability
+ Scope definable varying (from maintenance, incident
management up to full application support and operations)
+ Allow different access options,
▪ Not only by the tax operation team, but
▪ also by relationship managers and in
future maybe clients
→ high quality and clear rules required
− Data may leave bank environment (if not internal)
Tax solutions
Clients
Trend in regards of tax solutions cloud approaches are being evaluated
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Page 19
19
Offshore versus onshore Banking
Strategies of Financial Institutions
▪ Challenge to compete with onshore services
and to offer onshore-capable products
▪ Offshore clients are, depending on importance,
moved onshore.
▪ Core banking systems are tax wise competing
with vendors of specialised tax solutions.
▪ Real-time solutions are also requested for
simulation topics.
Decentralisation Strategy for clients. Consolidation of offshore- and onshore tax reporting, calculation and -booking on
one tax platform.
Core Banking System
+ Deeply implemented in banks systems
+ Performance
− Mainly onshore jurisdictions covered
− Even for one jurisdiction maintaining tax rules is
cost demanding
Specialised Tax Reporting system
+ Covers many different countries on one interface
+ Advantage in coverage of tax rules and accuracy
− Tight integration required
− Performance to be validated (real-time)
What kind of tax reporting support?▪ Country specific versus generic tax
reporting▪ Additional tax support like
− Tax reclaim− Tax simulation and− Electronic reporting
1
Do outsourcing or inhouse in full or partially?▪ Consequences on other demands
2
What is the Operating model / IT Model?▪ Centralised versus decentralised in
regards of− Operation team− Data storage− Functional architecture− Cloud and SaaS− Onshore versus offshore
▪ Relocation of clients▪ Core banking system solution
versus vendor solution
3
Page 20
20
Content
C L I E N T D E M A N D S
K E Y D R I V E R S F O R T A X R E P O R T I N G
P R E S E N T S T A T U S A N D T R E N D S
S T R A T E G I E S O F F I N A N C I A L I N S T I T U T I O N S
Page 21
21
Present status as of today and a lot more challenges to come in the future
Off-shore location of the
bank inCore markets
Non-coremarkets
Operating Model and IT Model
Trends
CH, UK and Europe
▪ Country specificreports
▪ Tax reclaim▪ Partially simulations▪ Inital electronic
reports
▪ Generic reports▪ Rare usage of
country-specificreports
▪ In-house (mainlycentralised) and Outsourcing models
▪ Both mainly with externalvendor solutions
▪ More accurate, timely▪ Digitalisation ▪ Embed Tax reclaim
solutions▪ Simulations▪ Electronic formats
Other Offshore markets
(SG, HK, Bahamas, etc.)
▪ Generic partlycountry specificreports
▪ Tax Reclaim?
▪ Rarelyperformed
▪ Inhouse models and solution
▪ Assumption: development like for CH, UK, Europe banks
▪ 97% * expectingincreased requests of tax reports in Singapore in the next 2 years
Standards for banks located in offshore markets * Asian Private Banking study in 2019 Client Tax Reporting 2019
Page 22
22
Tax Solution Providers react to these challenges – example solution BearingPoint’s EasyTax
Existing Markets off-shore Existing Markets on-shore
Tax rules applied are the same as for offshore, but perhaps with additional rules related to onshore products, the authority reports and bookings.
Monthly reports ** In addition, EasyTax supports specific functionalities like internal transfer, reconciliation etc.
* In developmentSimulation functionalities
Tax Reclaim (partly)
SpainUK USA*
Italy Luxemburg Russia*
Denmark Sweden Mexico
AustriaBelgium China*
Finland USA 871m*France
Australia Indonesia Greece
Argentina Turkey Generic
Germany Norway India*
Portugal Netherlands South Africa
France
Netherlands (client reporting only)
Luxemburg (client reporting only)
Switzerland (client reporting only)
Swiss final withholding tax agreement with Austria
Swiss final withholding tax agreement with UK
Spain
UK (reporting only)
Australia (reporting only)
Chile
Brazil
Israel
Switzerland plus e-Tax*
Corporates
Add. plannedjurisdictions mainly linked to APAC and LatAm:
• Japan• Taiwan• Peru• …
Page 23
23
Ronald G. FreyPartner
BearingPointPfingstweidstrasse 608005 ZurichSwitzerland
[email protected]
T +41 43 299 65 98F +41 43 299 64 65M+41 79 620 52 18
www.bearingpoint.com
Mathias Wegner Director
BearingPointPfingstweidstrasse 608005 ZurichSwitzerland
[email protected]
T +41 43 299 64 14F +41 43 299 64 65M+41 79 744 96 61
www.bearingpoint.com
Your contacts
Barry Smith Senior Manager
BearingPoint100 Lower Thames StreetCentennium HouseGB-EC3R 6DL LondonUnited Kingdom
[email protected]
T +44 20 7337 3085M +44 757 2116425
www.reg.tech
Page 24
24
www.bearingpoint.com
Thank you.From BearingPoint Switzerland