Guernsey introduces new compliance measures for exchange of information

Guernsey’s parliament approved the Income Tax (Guernsey) (Amendment) Ordinance in July, which was designed to strengthen Guernsey’s compliance framework for automatic exchange of information for tax purposes (AEOI) based on the OECD’s common reporting standard (CRS) and the US Foreign Account Taxes Compliance Act (FATCA).

Now that Guernsey is into its fifth annual cycle of information exchange under AEOI, it is moving to the next phase of the implementation process by enhancing the Revenue Service’s ability to monitor and audit compliance within the finance industry.

Both the CRS and FATCA regimes require Guernsey financial institutions (FIs) to undertake due diligence procedures that are designed to determine whether the holder of a financial account is a ‘reportable person’ – a person who is tax resident in a foreign jurisdiction with which Guernsey has agreed to exchange information.

Where a FI is unable to obtain a valid self-certification under the CRS/FATCA regime, or having obtained a self-certification, has reasonable grounds to suspect that the self-certification is or has subsequently become incorrect or unreliable, the FI must immediately notify the Revenue Service.

On receipt of such a notification, the Revenue Service has the power to require the FI to provide further information and documents or to make further enquiries. Where appropriate, the Revenue Service can issue a freezing order prohibiting the FI from making any transfer, withdrawal or payment from, or otherwise dealing with, the account, except under the authority of, and in accordance with, the prior written permission of the Director of the Revenue Service. Any interest or increment accruing to the frozen account will be frozen and added to the account on its release.

The introduction of this additional power is intended to support FIs and their efforts to obtain full and accurate self-certifications from account holders. It is understood that the notification obligation will be enforced from January 2022 and further information regarding how notice can be given and what information will be required by the Revenue Service, will be published in December 2021.

Previously, only FIs that have CRS and / or FATCA reporting obligations were required to register on the Revenue Service’s online reporting system, the Information Gateway Online Reporter (IGOR). This obligation is now extended to all FIs, whether they have a reporting obligation or not, to capture those FIs that have not registered because they have been classified as non-reporting FIs or so-called ‘Ghost FIs’ that they have simply failed to engage with the reporting system.

It is understood that Revenue Service is currently updating its IGOR system and the intention is for the enhanced registration process to commence no earlier than 2022, with the deadline for registration being 28 February 2022.

The Ordinance also introduces amendments to enable the Revenue Service to conduct on-site visits at the business premises of FIs to review relevant records in situ and discuss any immediately identified concerns. The amendments provide a legislative basis for the Revenue Service to carry out such site visits with seven days’ written notice.

If serious failings in compliance are discovered, the amendments provide for the Director of the Revenue Service to issue directions to non-compliant FIs to secure compliance and to appoint inspectors to investigate and oversee the remediation of any significant failings. The costs, fees and expenses of an investigation and report by an inspector will be met by the FI under investigation.

As part of the new compliance measures, new regulations were brought into operation on 29 April to apply enhanced sanctions for failure to comply with CRS and FATCA obligations. These regulations increase daily penalties for failure to submit either a CRS or FATCA report by the due deadline and introduce a new basis for calculating penalties in the case of failure due to negligence or fraud.

The increased daily penalty of up to £1,000 per day will apply where there has been 30 days of continual failure, following the imposition of an initial penalty of £300 and daily penalties of £50, to submit a report by the reporting deadline, which is set at 30 June of each year.

Where CRS or FATCA reports have been found to be incorrect or incomplete owing to negligence or fraud, a penalty calculated by reference to the value of the account(s) affected may be applied. In the case of negligence, the maximum penalty will be 0.5% of the balance or value of the account(s); in the case of fraud, the maximum penalty will be 1% of the balance or value of the account(s) to which the failure relates.

It is anticipated that any additional compliance burden on Guernsey’s FIs will have limited impact for those who are already engaged with AEOI. Certainly, the exchange of information based on accurate data is in stakeholders’ interests and ultimately assists with Guernsey retaining its reputation as a centre of excellence for financial services.