There is no doubt that the current Covid-19 crisis has hit the world hard. The impact has been felt in all parts of the world and in almost every industry sector. It’s changing almost too quickly to keep up with. Many businesses are falling back on business continuity plans, yet are finding even these are struggling to fully address the fast-moving and unknown variables of an outbreak like Covid-19.
But while all industries are suffering in their own way, the Covid-19 pandemic could easily be the most serious challenge to financial institutions in nearly a century. As the economic fallout spreads, banks and other financial bodies are finding themselves juggling some big priorities, many of which require some concrete steps to consolidate and reposition now, while also recalibrating for the future. But what does the landscape look like for financial institutions right now, particularly where tax is concerned?
Tax Administration Responses
Obviously, there are numerous tax administrations across the globe, and each will have their own approach to responding to Covid-19, and how to handle taxation during an unprecedented time in our history. However, what we are seeing is a lot of similarities in the way many tax administrations are handling the crisis.
What we need to remember above all is that tax administrations still need to gather revenue, even though the number of active taxpayers is going down through unemployment, furlough or death. So at their core, they cannot change their activities. But what they can do – and what many (but not all) have done – is to defer some of their international obligations under FATCA, AEoI and similar. This is not surprising, as they have other priorities at this point in time. Some administrations have taken it a step further, and have handed down those deferrals to their regulated financial institutions. At this stage, life for tier 1 multinational financial firms is starting to get difficult.
On the other hand, some administrations – notably the US – have not deferred any of their reporting deadlines, even though requests for extensions have been overwhelming. American forms are calling for a second extension on 1042-S reporting (which has only been granted once before, during the Fukishima disaster), and are even asking for an extension on their QI certifications, simply because it’s near impossible to get independent reviewers on site during the Covid-19 crisis, and they are a critical part of the process.
The Impact On Financial Institutions
For financial institutions, the impact of Covid-19 has been widespread. Like every other business, they are having to learn and adapt to a completely new way of working, face challenges they had never even considered before, all while still meeting the rigorous standards required of working in a regulated environment. And while a lot of the focus is on data security (particularly with staff logging in from home and finding ways to ensure no sensitive information is downloaded to personal, non-controlled devices), the tax implications are bubbling away as well. A lot of the tax work staff would normally be doing now, and are still trying to complete, requires strong interdisciplinary efforts, and the effects of Covid-19 are putting even more of a strain on what would normally be a tough time of year.
There have also been a lot of new issues cropping up across the board for financial institutions, from crisis management and response, workforce adjustments, operational supply chain problems, new challenges around finance and liquidity, and, of course, tax.
When all is said and done, the financial industry is facing a world of changes. But eventually everything needs to get paid for, including all the support being provided by various governments during the pandemic. When that happens, tax evasion will become even more of a focus area for tax administrations, as they look for every possible source of income – and for a source of blame. The line where tax avoidance becomes aggressive tax avoidance or even tax evasion will shift – being tightened up all around the world so that as much income can be reclaimed as possible.
Overall, a confusing and challenging time for financial institutions the world over. If you have any questions or concerns about your financial institutions ability to prove compliance, or to handle reporting deadlines effectively, we can help. TConsult provides a wide range of consultancy, training and support services designed to provide everything you need to comply with your regulatory obligations, and we are here to support you through this difficult time. If you would like to know more, please just get in touch with the team today.