How is AEoI Different from FATCA and CRS?

FATCA and CRS are the two warriors of the government fighting to eradicate tax evasion. 

But so is AEoI. So what’s the difference?

The problem is that compliance in the EU market gets overly complicated when it is compared to Automatic Exchange of Information (AEoI). And, no matter how good the initiative seems, from the viewpoint of financial institutions, it just means more compliance requirements to be fulfilled. 

What’s more, as new market regulations emerge each day, it becomes all the more challenging to stay up to date with the government’s requirements.

However, the biggest challenge eligible entities face is determining the difference between Automatic Exchange of Information (AEoI) from FATCA and CRS. So let’s lay down these key differences clearly. 

Let’s begin by understanding what AEoI is.

An Introduction to AEoI

The term AEoI refers to the cross-border sharing of financial information by tax regulators and administrations. 

Automatic Exchange of Information includes:-

● Foreign Account Tax Compliance (FATCA) for US Persons

● Crown Dependencies and Overseas Territories 

● Common Reporting Standard (CRS)

That’s right. AEoI is the umbrella concept introduced by the UK government and tax administrators and regulatory authority for the financial institutions, which is a combination of both FATCA & CRS.

The primary difference between AEoI and FATCA/CRS is their applicability. 

AEoI applies to UK financial institutions and residents of the UK or any part of a non-resident financial institution located in the UK. On the other hand, FATCA and CRS apply to the rest of Europe’s financial institutions, except the UK.

Aim of AEoI

Simply put, the AEoI regulations are designed to increase the level of tax compliance across the world. The implementation of which is complicated, particularly since there are two similar but not entirely compatible components: FATCA and the CRS. 

While we are at it, let’s also explore the fundamental differences between FATCA and CRS.

Difference Between Exchange of Information for FATCA and CRS

The requirements laid down under FATCA and CRS are applicable to all financial institutions based in Europe, except the UK.

●      Purpose of FATCA and CRS

Both FATCA and CRS aim to ensure that all eligible taxpayers disclose all their income and assets held in offshore accounts via their tax returns, allowing tax authorities to identify discrepancies or fraud. 

●      Scope

Simply put, FATCA requires assistance from financial institutions to locate offshore accounts of US persons. CRS also requires financial institutions to report offshore accounts but has a much broader scope as it includes tax residence and reporting financial accounts from over 100 countries.

●      Requirements Under FATCA and CRS

Both FATCA and CRS regulations require global financial institutions to identify customers who directly or indirectly hold accounts in countries where they are not tax residents. Financial institutions are required to do this by asking customers to complete and submit a document known as a self-certificate. 

After submitting this certificate, financial institutions then report requisite information to their local tax authority, who pass it to the concerned country’s tax authority.

Facing Challenges with AEoI or FATCA/CRS Reporting?

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FAQs on Understanding AEoI, FATCA, and CRS

What does AEoI stand for?

AEoI, or Automatic Exchange of Information, refers to international agreements that enable countries to exchange financial account information automatically, aiming to enhance tax compliance and combat tax evasion.

Can you explain FATCA and CRS?

  • FATCA (Foreign Account Tax Compliance Act): A US initiative requiring foreign financial institutions to report financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest.
  • CRS (Common Reporting Standard): Developed by the OECD, CRS is a global standard for the automatic exchange of financial account information between countries, targeting a broader range of tax residents.

How do AEoI, FATCA, and CRS differ?

  • AEoI (Automatic Exchange of Information) serves as an umbrella term for various international agreements enabling the automatic exchange of financial account information between countries. The scope of AEoI agreements can vary significantly, covering a wide range of jurisdictions and regulatory frameworks.
  • FATCA (Foreign Account Tax Compliance Act) has a more targeted approach, focusing specifically on US persons holding accounts overseas. The primary goal of FATCA is to ensure that US taxpayers are accurately reporting their foreign financial assets and paying any owed taxes. FATCA reporting requirements are critical for financial institutions worldwide, which must identify and report accounts held by US persons.
  • CRS (Common Reporting Standard), on the other hand, applies to tax residents of over 100 participating countries. It aims to facilitate a more comprehensive exchange of financial information to prevent tax evasion on a global scale. CRS reporting involves a broader set of data and affects a wider array of account holders compared to FATCA.

Which countries are involved in these initiatives?

Over 100 countries participate in each of these initiatives, with specific countries involved in AEoI depending on bilateral or multilateral agreements, FATCA through agreements with the US, and CRS under the OECD framework.

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