FATCA/CRS/AEoI: 10 Things You Need to Know

The Organisation for Economic Co-operation and Development (OECD) and the Internal Revenue Service (IRS) implemented the FATCA/CRS regime to identify undisclosed record assets held by citizens in foreign countries. Under the regime, each participating country’s Foreign Financial Institutions (FFIs) were imposed with reporting obligations to prepare their FATCA/CRS reports in XML format every year. Complying with FATCA/CRS requirements can be arduous, and you must know everything about the regime to ensure error-free reports.

10 Things You Must Know About FATCA/CRS/AEoI

The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) are global initiatives designed to ensure that all eligible taxpayers disclose their income and assets held in offshore accounts. These regulations enable tax authorities to detect fraud or discrepancies by uncovering hidden financial activities.

FATCA vs. FBAR: A Comparison

Both FATCA and the Report of Foreign Bank and Financial Accounts (FBAR) aim to identify tax evaders. However, there are key differences:

FBAR Reporting: Requires the disclosure of only foreign bank accounts.
FATCA Reporting: Includes a more comprehensive range of foreign assets such as foreign pensions, stockholdings, financial accounts, partnership interests, life insurance, and mutual funds.

Assets Defined by IRS for FATCA Reporting

FATCA reporting encompasses various foreign assets, including:

Foreign pensions
Foreign stockholdings
Foreign financial accounts
Foreign partnership interests
Foreign-issued life insurance
Foreign mutual funds

FATCA vs. CRS: Scope and Requirements

The primary difference between FATCA and CRS lies in their account scope:

FATCA: Financial institutions report offshore accounts of U.S. persons.
CRS: Requires reporting of financial accounts from over 100 countries, covering a broader range of account holders.

Financial Institutions Under FATCA and CRS

Financial institutions required to comply with FATCA and CRS include:

Depository institutions (e.g., banks)
Custodial institutions
Investment entities (e.g., fund management companies)
Specified insurance companies (e.g., insurance firms, trust managers)

CRS Reporting Details

CRS documentation includes the following information:

Name, address, birthplace, birth date, and taxpayer identification number of the account holder
Name and number of the financial institution
Account number
Account balance
Capital gains

Structure of CRS

CRS is composed of four parts:

Model Competent Authority Agreement (CAA): Provides a legal framework for the automatic exchange of CRS information.
Common Reporting Standard (CRS): Details the reporting requirements.
Commentaries: Offer explanations on the CAA and CRS.
User Guide: Assists financial institutions in implementing the CRS.

Automatic Exchange of Information (AEoI)

Automatic Exchange of Information (AEoI) refers to the exchange of financial information between countries by tax regulators and administrators. AEoI encompasses both FATCA and CRS principles, facilitating international tax compliance.

AEoI vs. FATCA/CRS: Applicability

AEoI: Applies to UK financial institutions and UK residents, including parts of non-resident financial institutions located in the UK.
FATCA/CRS: Applies to financial institutions across Europe, excluding the UK.

Penalties for Non-Compliance with FATCA

Non-compliance with FATCA reporting can result in severe penalties, including:

$10,000 per violation
Additional penalties of up to $50,000 for failure to file FATCA reports after IRS notification
A 40% penalty for understating taxes related to non-disclosed assets

By adhering to these regulations, financial institutions and individuals can ensure they meet global tax compliance standards, avoiding hefty penalties and contributing to the integrity of international financial systems.

Facing Trouble With Your FATCA/CRS/AEoI Reporting?

Foreign financial reporting can feel burdensome. However, you do not need to go through it alone! A trusted vendor like DataTracks can help you meet all your reporting needs of FATCA, CRS, and AEoI. With over 19+ years of experience, the experts at DataTracks leave no room for errors. Moreover, DataTracks can help you file your reports before deadlines. So what are you waiting for? Get in touch with a DataTracks professional at +31202253702 or email @ enquiry@datatracks.eu.

FAQs

What is the main objective of FATCA and CRS?

FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard) aim to ensure that all eligible taxpayers disclose their income and assets in offshore accounts. This allows tax authorities to detect and prevent tax fraud and discrepancies.

How do FATCA and FBAR differ in terms of reporting requirements?

FBAR: Requires reporting only of foreign bank accounts.
FATCA: Requires reporting of a broader range of foreign assets, including pensions, stockholdings, financial accounts, partnership interests, life insurance, and mutual funds.

Who needs to comply with FATCA and CRS reporting requirements?

Financial institutions, including banks, investment funds, insurance companies, and individuals or entities with foreign financial accounts, are required to comply with FATCA and CRS reporting requirements.

What information is required under CRS reporting?

CRS documentation includes:

Name, address, birthplace, birth date, and taxpayer identification number of the account holder
Name and number of the financial institution
Account number
Account balance
Capital gains

What are the penalties for non-compliance with FATCA reporting?