Understanding the Common Reporting Standard (CRS) & XML filing: A Guide for Malaysian Financial Institutions

The Common Reporting Standard (CRS) is a global initiative aimed at promoting tax transparency by facilitating the automatic exchange of financial account information between tax authorities worldwide. Developed by the Organisation for Economic Cooperation and Development (OECD), the CRS helps combat tax evasion and ensures compliance with tax laws across multiple jurisdictions. For Malaysian Financial Institutions (MYFIs), adherence to the CRS is crucial to maintain the country’s commitment to international tax standards and avoid penalties.

In this blog, we’ll break down the key aspects of the CRS and its implications for Malaysian financial institutions, offering a clear and concise guide to what they need to know and do to stay compliant.

What is the Common Reporting Standard (CRS)?

The CRS requires financial institutions in participating countries to collect and report financial account information of non-resident account holders to their local tax authority. These authorities then share the data with their foreign counterparts. The exchange aims to identify individuals or entities potentially evading taxes by hiding assets abroad.

Malaysia, along with over 100 other jurisdictions, has committed to implementing the CRS. The Inland Revenue Board of Malaysia (IRBM) plays a pivotal role in collecting and exchanging the CRS data.

CRS Requirements for Malaysian Financial Institutions (MYFIs)

Under Malaysia’s implementation of the CRS, MYFIs must report information on non-resident account holders to IRBM. These reports are exchanged with tax authorities in the account holders’ respective countries. The information collected includes:

• Account holder’s name, address, and tax identification number (TIN)
• Account number, balance, and interest income
• The account holder’s country of tax residence

MYFIs must also follow due diligence procedures to identify reportable accounts, ensuring they gather the necessary information for IRBM’s CRS reporting.

Key CRS Reporting Timelines for MYFIs

Malaysia’s CRS obligations have been phased in over several years, with key dates to remember for financial institutions:

These deadlines ensure that MYFIs stay up to date with their obligations, ensuring compliance with CRS rules for both pre-existing and new accounts.

What are Reportable Jurisdictions?

The CRS applies to account holders who are tax residents of reportable jurisdictions—countries that have committed to exchanging CRS data. MYFIs are required to collect and report financial account details for individuals and entities that are residents of these jurisdictions. As of 2024, a final list of reportable jurisdictions has been made available, and MYFIs must ensure they collect the necessary information for these jurisdictions.

Special Provisions for Pre-existing Individual Accounts

For pre-existing individual accounts, special provisions apply based on the account’s value and the timeline when it was reviewed. Key points to note are:

• High-value accounts as of 30 June 2017 must be reviewed by 30 June 2018, with reports submitted by 31 July 2018.
• Accounts that are low-value as of 30 June 2017 but meet the high-value threshold at later review points must be reported by the appropriate deadline.

MYFIs must review pre-existing accounts based on these provisions to ensure compliance.

Reporting Format for CRS Information

MYFIs must report CRS data to the IRBM in the OECD’s XML format, which includes specific conventions for naming and structuring the report. Each report must include a DocRefID and MessageRefID for identification purposes. These IDs are unique and follow a specific format to ensure that the data can be correctly tracked and processed by the IRBM.

For example:

• DocRefID: MY1999999920210101F0001 (for a financial institution)
• MessageRefID: MY19999999202101010001 (for a report)

These IDs are essential for ensuring the correct submission and tracking of reports.

Tax Residency and Self-Certification

Under the CRS, self-certification is required from account holders to confirm their tax residency status. This means account holders must certify their tax residency status, and MYFIs are responsible for collecting this certification to ensure that the information provided is accurate and compliant with the CRS requirements.

Tax residency rules can vary, and each jurisdiction has its criteria for determining tax residency, so MYFIs need to be familiar with the specific rules in their jurisdiction and those of the reportable countries.

How Does the CRS Help Combat Tax Evasion?

The CRS serves as a powerful tool for governments worldwide to detect and prevent tax evasion. By automatically sharing account information between tax authorities, the CRS ensures that individuals cannot hide assets or income in foreign countries without detection. This reduces the opportunities for tax avoidance, promotes global tax compliance, and ensures that taxpayers pay the taxes they owe to their home countries.

For Malaysian Financial Institutions, compliance with the CRS is not just about fulfilling legal obligations—it is an integral part of ensuring the integrity of the global tax system. By understanding the key timelines, reporting requirements, and due diligence procedures, MYFIs can navigate the CRS landscape effectively and contribute to Malaysia’s commitment to international tax transparency.

Staying compliant with CRS rules helps to prevent tax evasion and builds trust in Malaysia’s financial sector, supporting its reputation as a responsible global financial hub.

Understanding XML Filing for CRS Reports: Best Practices and Compliance

The Common Reporting Standard (CRS) is a global framework developed by the OECD to combat tax evasion and improve transparency in financial transactions. Financial institutions and relevant entities across participating countries, including Malaysia, are required to report account information on foreign taxpayers to tax authorities, as part of their obligations under the CRS.

In this blog, we’ll explore the CRS XML Schema, its evolution, key features, and best practices for XML filing to ensure smooth transmission and compliance with tax reporting requirements.

What is CRS XML Schema and Why is XML Filing Important?

The CRS XML Schema is a standardized format used to report financial data under the Common Reporting Standard. It specifies the structure and data elements that must be included in the CRS reports. In essence, the XML Schema provides a blueprint for how the information should be structured to ensure it can be processed by the relevant tax authorities (like the Inland Revenue Board of Malaysia (IRBM)).

XML filing is the process of creating and submitting CRS reports in XML format. This format is crucial because it ensures that all data is structured in a way that can be easily validated and processed by tax authorities. If the data is not properly formatted or contains errors, the file may be rejected, causing delays and potential non-compliance.

Key Versions of CRS XML Schema

• CRS XML Schema Version 1.0: This was the initial version of the schema, valid until 31 December 2020.
• CRS XML Schema Version 2.0: From 28 February 2021 onwards, the IRBM adopted Version 2.0, which introduced updates and improvements in line with OECD guidelines.

Entities reporting to tax authorities must ensure they use the correct schema version to maintain compliance with evolving international standards.

Key Features of CRS XML Schema for XML Filing

Data Elements & Reporting Requirements

The CRS XML Schema defines the essential data elements that must be reported, including:

• Account Holder Information: Name, address, tax identification number
• Account Information: Account number, balance, interest earned
• Jurisdiction of Tax Residence: Where the account holder is a tax resident
• Reporting Financial Institution Information: The institution reporting the data

Each of these elements must be correctly formatted in the XML file for proper XML filing. Ensuring that the right data is reported in the correct fields is crucial to prevent errors and rejections.

CRS Metadata Schema

The CRS Metadata Schema provides additional technical guidance on how metadata should be included alongside the core data elements. This ensures that important information about the report—such as the reporting entity’s details and the time of submission—is transmitted correctly, ensuring smooth XML filing.

Character Encoding and Entity References

To ensure that the XML file is valid and properly formatted, certain characters must be replaced by entity references. Common characters such as &, <, and > need to be encoded as follows:

• & (Ampersand) → &amp;
• < (Less Than) → &lt;
• > (Greater Than) → &gt;
• ‘ (Apostrophe) → &apos;
• ” (Quotation Mark) → &quot;

These replacements are necessary for the XML file to conform to XML filing standards and avoid errors like Error Code 50005.

Best Practices for Successful XML Filing of CRS Reports

Ensure Compliance with XML Schema Standards

All XML files must strictly adhere to the CRS XML Schema. This ensures that the structure, elements, and attributes of the file align with the requirements outlined by the OECD and the IRBM. Non-compliance may result in the file being rejected by the tax authority.

Correct Use of Entity References

When preparing the XML file, make sure to replace special characters such as &, <, and > with the appropriate entity references. This will help avoid errors during XML filing and ensure that the data is processed correctly.

Prevent SQL Injection Vulnerabilities

To prevent potential security issues, avoid using prohibited characters like — (Double Dash) and /* (Slash Asterisk). These characters are typically associated with SQL injection attacks and can cause the XML filing to be rejected. Carefully review the file before submission.

Test the XML File

Before submitting the CRS XML file to the tax authority, it’s crucial to test it in a staging or testing environment. This ensures that the file is free of errors and can be processed correctly by the receiving jurisdiction. By doing so, you can avoid delays and ensure timely XML filing.

Version Compliance

Make sure that you are using the correct version of the CRS XML Schema (Version 2.0) if you are submitting reports after 28 February 2021. Verify the required version before filing to avoid errors in your submission.

Common Errors and Troubleshooting Tips for XML Filing

1. Error Code 50005: This error occurs when invalid characters are detected. Make sure to replace special characters like &, <, or > with their corresponding entity references to prevent issues with your XML filing.
2. SQL Injection Attempts: If your file contains characters like — or /*, the system will reject the file for security reasons. Check your data for these characters to avoid errors during XML filing.
3. Missing or Invalid Data Elements: If required fields are missing or incorrectly filled, your report may be rejected. Ensure that all mandatory data elements are included and formatted according to the CRS User Guide.

Conclusion: Best Practices for Ensuring Compliance with XML Filing

The CRS XML Schema is essential for the secure and accurate transmission of financial data under the Common Reporting Standard. By following best practices for XML filing, financial institutions can ensure their reports are processed correctly and comply with international tax reporting standards.

Staying up-to-date with the latest version of the CRS XML Schema, testing your XML files for errors, and adhering to character encoding guidelines are key steps to avoid mistakes and rejections.

For further assistance, the CRS Team at the Inland Revenue Board of Malaysia (IRBM) is available at crs@hasil.gov.my.

By implementing these practices, you can streamline your CRS reporting process and ensure timely and accurate XML filing.

Adhering to the Common Reporting Standard (CRS) is crucial for Malaysian Financial Institutions (MYFIs) to ensure compliance with international tax regulations and avoid penalties. By understanding the CRS requirements, MYFIs can streamline their reporting processes and ensure accurate data submission to the Inland Revenue Board of Malaysia (IRBM).

For institutions seeking comprehensive support in navigating regulatory reporting, DataTracks offers robust solutions. They provide MBRS XBRL solutions, enabling efficient submission of financial reports in Malaysia’s regulatory framework. Additionally, DataTracks offers FATCA and CRS solutions, ensuring that MYFIs can meet their obligations under both the Foreign Account Tax Compliance Act (FATCA) and CRS, facilitating smooth compliance with global tax transparency standards.

With DataTracks’ solutions, financial institutions can confidently manage their reporting requirements, ensuring timely, accurate, and secure submission of data to tax authorities, both locally and internationally.