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- What is FATCA? What is CRS? FATCA regulations & requirements
What is FATCA?
What is CRS?
Understanding FATCA regulations and requirements
It’s a new day in tax information reporting. Globalization, emerging markets and increased regulation are transforming the global tax framework and presenting complex and arduous challenges for financial institutions around the world.
The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) present significant structural changes in governments’ efforts to improve global tax compliance.
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What is FATCA?
FATCA promotes cross-border tax compliance by implementing an international standard for the automatic exchange of information related to US taxpayers. FATCA regulations require tax authorities to obtain detailed account information for US taxpayers on an annual basis.
FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to US persons who may be investing and earning income through non-US institutions. While the primary goal is to gain information about US persons, FATCA imposes tax withholding where the applicable documentation and reporting requirements are not met.
What is CRS?
CRS, developed by the Organization for Economic Cooperation and Development (OECD), is a global reporting standard for the automatic exchange of information (AEoI). The goal of CRS is to allow tax authorities to obtain a clearer understanding of financial assets held abroad by their residents, for tax purposes.
More than 96 countries have agreed to share information on residents' assets and incomes in conformation with reporting standards. FATCA and CRS have similar characteristics on the surface, but underneath there are major differences. CRS is more wide reaching and requires a unified, cross-team effort to ensure readiness and compliance.
Who do CRS and FATCA requirements affect?
FATCA requirements affect US withholding agents and US multinational companies, but the greatest impact is on Foreign Financial Institutions (FFIs).
How to overcome challenges with FATCA regulations
Current strategies implemented to tackle FATCA may not be sufficient to handle the increasing volume of tax reporting required moving forward. As a result, financial institutions must expand their tax operations capabilities to meet increasing regulatory demands.
Financial institutions need a market-leading compliance tool that will analyze and monitor local tax laws, compile data from a myriad of sources, produce and validate tax information reports and transmit those reports to the proper tax authorities.
Thomson Reuters ONESOURCE™ FATCA and CRS is a straightforward solution, designed to simplify the tax compliance process and remove the burden of formulating and implementing new compliance policies. Streamline your operational procedures and reduce resource requirements, saving time and money.
What are the opportunities with FATCA and CRS?
Global tax transformation provides an opportunity for FFIs to identify possible improvements to their tax reporting process. The new FATCA regulations allow FFIs to gain visibility into local country and global compliance and reporting so they can streamline processes.
In addition, the regulations help identify local and global tax planning opportunities, ultimately freeing up resources and budget to support more strategic tax activities.
What is a participating FFI?
FATCA requirements affect US withholding agents and US multinational companies, but the greatest impact is on Foreign Financial Institutions (FFIs).
What are the FATCA requirements for withholding?
In general, a withholding agent is required to withhold 30% on a withholdable payment made to a Foreign Financial Institution (FFI) or to a Non-Financial Foreign Entity (NFFE), unless the FFI or NFFE meets certain requirements. In addition, an FFI must withhold 30% on any pass-through payment made to a recalcitrant account holder, as well as on payments made to another FFI unless that FFI meets certain requirements.