What is the difference between FATCA and CRS? Both are often mentioned in the same breath and are in some ways similar, but there are major differences between the two.
FATCA vs. CRS
FATCA (the Foreign Account Tax Compliance Act) was introduced by the U.S. Department of Treasury and Internal Revenue Service in 2010 to encourage better tax compliance by preventing U.S. persons from using banks and other financial organizations to avoid taxation on their income and assets.
CRS (the Common Standard on Reporting and Due Diligence for Financial Account Information) is part of a global standard proposed last year by the OECD, at the request of the G8 and the G20, for the annual cross border exchange of information on financial accounts. Because the standard shares a lot of similarities with FATCA, it is informally referred to as GATCA (the global version of FATCA). So while there is an evolutionary relationship between FATCA and CRS, they certainly are not the same animal.
The three major differences between FATCA and CRS
- FATCA requires a financial institution to find U.S. persons; however, with more than 90 countries currently committed, CRS requires a much broader scope.
- Under CRS, the definition of a “reporting financial institution” is different. So, even if your organization is not required to report on financial accounts under FATCA, it may be under CRS.
- There is currently no de minimis limit under CRS. FATCA, by contrast, only kicks in for individual accounts with balances exceeding $50,000 – companies have different limits.
These add up to significant differences in scale. For example, the volume of U.S. persons reported under FATCA rarely exceeds the low thousands; whereas a major UK bank has estimated that 7% of its customers (several million accounts) will be reportable under CRS.
The implications of FATCA and CRS for tax and compliance departments
What does this mean for your organization? Do not assume that compliance for CRS will come easily if you’re FATCA-compliant. CRS is more wide-reaching than FATCA and will require a unified, cross-team effort to ensure readiness. Also, while CRS is not yet official, it is time to start ensuring you are compliant with the guidance that is available.Undoubtedly, the widespread adoption of the OECD’s proposals will bring about extraordinary change as countries worldwide begin to implement policies to align with the new global guidelines. The focus should be on global transparency, cross-country consistency and in-country certainty—taking into account the fact that CRS may require a bit more attention.
A version of this article was previously published by Economia.