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    FATCA (Foreign Account Tax Compliance Act) & CRS - Declaration, Regulations & Requirements

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    Guy Rider
    This document discusses FATCA and the Common Reporting Standard (CRS) for the automatic exchange of financial account information. It provides background on FATCA, noting that it was enacted by the US in 2010 to address tax evasion through offshore accounts. An intergovernmental agreement between India and the US was signed in 2015 to implement FATCA. It also discusses the development of the CRS by the OECD and G20 as a global standard for automatic information exchange among tax authorities to address offshore tax evasion. The key differences between FATCA and CRS are outlined, with CRS having a broader international scope compared to FATCA which only applies to US persons.

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    FATCA (Foreign Account Tax Compliance Act) & CRS - Declaration, Regulations & Requirements

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    Guy Rider
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    This document discusses FATCA and the Common Reporting Standard (CRS) for the automatic exchange of financial account information. It provides background on FATCA, noting that it was enacted by the US in 2010 to address tax evasion through offshore accounts. An intergovernmental agreement between India and the US was signed in 2015 to implement FATCA. It also discusses the development of the CRS by the OECD and G20 as a global standard for automatic information exchange among tax authorities to address offshore tax evasion. The key differences between FATCA and CRS are outlined, with CRS having a broader international scope compared to FATCA which only applies to US persons.

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    This document discusses FATCA and the Common Reporting Standard (CRS) for the automatic exchange of financial account information. It provides background on FATCA, noting that it was enacted by the US in 2010 to address tax evasion through offshore accounts. An intergovernmental agreement between India and the US was signed in 2015 to implement FATCA. It also discusses the development of the CRS by the OECD and G20 as a global standard for automatic information exchange among tax authorities to address offshore tax evasion. The key differences between FATCA and CRS are outlined, with CRS having a broader international scope compared to FATCA which only applies to US persons.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    38 views7 pages

    FATCA (Foreign Account Tax Compliance Act) & CRS - Declaration, Regulations & Requirements

    Uploaded by

    Guy Rider
    This document discusses FATCA and the Common Reporting Standard (CRS) for the automatic exchange of financial account information. It provides background on FATCA, noting that it was enacted by the US in 2010 to address tax evasion through offshore accounts. An intergovernmental agreement between India and the US was signed in 2015 to implement FATCA. It also discusses the development of the CRS by the OECD and G20 as a global standard for automatic information exchange among tax authorities to address offshore tax evasion. The key differences between FATCA and CRS are outlined, with CRS having a broader international scope compared to FATCA which only applies to US persons.

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    © All Rights Reserved
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    of 7

    FATCA ( Foreign Account Tax Compliance

    Act ) & CRS – Declaration, Regulations &


    Requirements
    Enactment of FATCA and signing of IGA
    In 2010, the USA enacted “Foreign Account Tax Compliance Act” (FATCA) with the objective
    of tackling tax evasion through obtaining information in respect of offshore financial accounts
    maintained by the US residents and citizens. The provisions of FATCA essentially provide for
    30% withholding tax on US source payments made to Foreign Financial Institutions, unless they
    enter into an agreement with the Internal Revenue Service (US IRS) to provide information
    about accounts held with them by USA persons or entities (firms/companies/trusts) controlled by
    USA persons. Since domestic laws of sovereign countries (including India) may not permit
    sharing of client confidential information by FIs directly with the USA. USA has entered into
    Inter-Governmental Agreement (IGA) with various countries. The IGA between India and USA
    was signed on 9th July, 2015. It provides that the Indian FIs will provide necessary information
    to the Indian tax authorities, which will be transmitted to USA periodically. Under the IGA, USA
    will also provide certain information about Indians having financial assets in the USA. 1
    New Global Standards on Automatic Exchange of Information
    To combat the problem of offshore tax evasion and avoidance and stashing of unaccounted
    money abroad requiring cooperation amongst tax authorities, the G20 and OECD countries
    working together developed a Common Reporting Standard (CRS) on Automatic Exchange of
    Information (AEOI). The CRS on AEOI was presented to G20 Leaders in Brisbane on 16th
    November, 2014. The Hon’ble Prime Minister of India, speaking on the occasion, supported the
    new global standard, as it would be instrumental in getting information on unaccounted money
    hoarded abroad and its eventual repatriation. The CRS on AEOI requires the financial
    institutions of the “source” jurisdiction to collect and report information to their tax authorities
    about account holders “resident” in other countries, such information has to be transmitted
    “automatically’ on yearly basis. The information to be exchanged relates not only to individuals
    but also to shell companies and trusts having beneficial ownership or interest in the “resident”
    countries. Further, the reporting needs to be done for a wide range of financial products, by a
    wide variety of financial institutions including banks, depository institutions, collective
    investment vehicles and insurance companies.2

    With new markets emerging each day in this era of globalisation, governments and financial
    institutions around the world are coming up with ways to combat tax evasion. FATCA and CRS
    are two such initiatives. We have covered the following in this article.

    1
    https://www.incometaxindia.gov.in/Pages/eoi/automatic-exchange-of-information.aspx
    2
    Ibid.
    1. What is the difference between FATCA & CRS?
    2. Foreign Account Tax Compliance Act or FATCA
    3. Agreement to implement FATCA between India & US
    4. More About FATCA Declaration
    5. Common Reporting Standard or CRS
    6. CRS Declaration
    7. What are the documents required for FATCA & CRS declarations?

    1. Difference between FATCA & CRS at a


    glance
    The need for a system to validate and improve tax compliance globally has led to the formation
    of FATCA and CRS. Before talking about FATCA-CRS compliance, let us understand the
    difference between the two below:

    a. FATCA
    The United States Tax Department launched FATCA in the year 2010 to promote tax compliance
    and discourage tax evasion. FACTA stands for Foreign Account Tax Compliance Act.

    b. CRS
    On the other hand, CRS is roughly a more international version of FATCA. While the former is
    only for US persons, the latter is applicable for citizens of every registered country.

    Differences Between FATCA and CRS 3


    One of the biggest differences between FATCA and CRS is the breadth of its design. Whereas
    FATCA requires financial institutions to report only those customers who qualify as U.S.
    persons, CRS involves more than 90 countries. Under CRS, virtually all foreign investments
    handled by a financial institution become subject to a CRS report.

    Due in part to CRS’s wider scope, the nature of the relationships between financial institutions’
    country and regulatory authority has also changed. Under FATCA, each country entered into a
    separate bilateral intergovernmental agreement with the United States. These agreements had
    two main objectives:

    3
    https://insights.diligent.com/fatca/fatca-vs-crs-the-difference-is-crucial
     Require local financial institutions to comply with FATCA reporting standards;
     Provide that doing so would not cause financial institutions to breach local data
    protection laws.
    By comparison, CRS represents an international standard, which, by its very nature, is
    multinational. Countries wishing to take part in the CRS can do so in a variety of ways. For
    instance, they might:4

     Ratify a legal instrument, such as a treaty that provides for the automatic, reciprocal
    exchange of information regarding financial accounts. Such instruments might also include a
    double taxation agreement that provides for automatic information exchange between the two
    countries, or a model convention known as the Multilateral Convention on Mutual
    Administrative Assistance on Tax Matters, which is designed to promote international
    cooperation for the betterment of international tax laws;
     Sign an OECD model competence authority agreement, wherein both parties agree to
    abide by CRS standards of due diligence and exchange information; and
     Enact legislation to impose due diligence requirements on all local RFIs.5

    FATCA CRS
    Needs the help of a financial institution to find CRS has 90 countries (except the US)
    US persons committed to it – has a wider scope

    It is not compulsory to report on financial Reporting your financial accounts is mandatory


    accounts always under CRS

    Individual account should have more than No de minimis limit under CRS
    $50,000 balance

    Number of US people reported under Several millions of accounts are reported under
    FATCA are only a few thousands CRS
     
     
    Therefore, both FATCA and CRS prevent offshore investors from avoiding taxes and hoarding
    unaccounted cash overseas. However, it required cooperation from the tax authorities from all
    the G20 and OECD countries. Finally, the Common Reporting Standard or CRS was introduced.
    4
    https://onlinebusiness.northeastern.edu/blog/whats-the-difference-fatca-vs-crs/

    5
    http://www.the-best-of-both-worlds.com/crs-vs-fatca.html
    2. Foreign Account Tax Compliance Act
    FATCA came into existence to fight tax evasion and to ensure strict adherence to tax rules. Its
    main objective is to identify and prevent offshore tax avoidance by US citizens or residents. In
    short, an attempt to track US persons earning from overseas investments and stash assets in other
    countries!
    FATCA enables financial institutions to withhold tax if the US persons refuse to meet the
    documentation requirements. For this, all financial institutions registered under this Act should
    immediately notify the US tax department when they come across US persons attempting to
    evade tax. Hence, all FATCA-registered banks report such account holders (with the available
    information) immediately. This Act has a direct and profound impact on US multinationals and
    Foreign Financial Institutions.6

    3. US-India agreement to implement FATCA 


    FATCA ensures tax compliance and transformation at a global level. It presents foreign financial
    institutions a chance to improve and streamline their tax reporting process. It also gives them
    visibility in the foreign country and gains the trust of investors.
    To accommodate FATCA, the government had inserted Rules 114F to 114H and Form 61B in
    the Income Tax Act in 2014. The Indian Government also signed the Inter-Governmental
    Agreement (IGA) with the United States of America in the year 2015 for the implementation of
    FATCA. According to the agreement, Indian tax officials are required to obtain specific account
    information from US investors. The goal was to ensure tax compliance by the US citizens while
    increasing transparency for their Internal Revenue Service (IRS). This gave a legal basis for the
    Reporting Financial Institutions to maintain and report personal and income details.
     

    6
     "Sec ii B 1 Agreement between the government of the United States of American and the government of the United
    Kingdom of Great Britain and Northern Ireland to improve international tax compliance and to implement FATCA"
    4. FATCA declaration for NRIs
    Effective from January 2016, they made it mandatory for all Indian and NRI investors (existing
    and new) to file a FATCA self-declaration. While the details might be slightly different with
    each financial institution, the standard information they mandate are:  7
    a. Name
    b. Permanent Account Number (PAN)
    c. Address
    d. Place (city/state) of birth
    e. Country of birth
    f. Nationality
    g. Gross Annual Income
    h. Occupation
    i. Whether the resident of another country? If yes, then the country of residence, Tax ID number,
    and type
    The declaration asks explicitly to include the USA as a country of residence if you are a US
    citizen or a green cardholder. This holds even if you have moved to India and are now an Indian
    resident. Further, this declaration specifies that the Central Board of Direct Taxes (CBDT) has
    already covered this issuance in the rules 114F-114H. As a result, the tax authorities will have
    access to all relevant information. Therefore, please intimate the respective financial institution
    within 30 days in case of any change in the above information.

    5. Common Reporting Standard or CRS


    The Organisation for Economic Cooperation and Development (OECD) developed the Common
    Reporting Standard (CRS) for Automatic Exchange of Information (AEoI). CRS mandates
    financial institutions across countries to provide respective tax authorities information about their
    citizens and their wealth overseas. This can help governments in obtaining information about the
    financial assets held by its citizens internationally – for tax reasons. Till now, more than 90
    countries have agreed to follow this global standard.
    India too has signed a multilateral agreement to transfer personal and account information of
    another country’s citizen to their respective tax authority. Article 6 of the Convention on Mutual
    Administrative Assistance in Tax Matters under the CRS rules refers to this.
     

    7
    https://cleartax.in/s/fatca-crs-compliance
    6. CRS Declaration
    Most of the details mandated under CRS self-declaration are similar to that of FATCA.
    However, CRS covers taxpayers from over 90 countries, as opposed to FATCA, which is
    applicable only for the US taxpayers. You can download the CRS self-declaration form from any
    offshore mutual fund website. Alternatively, you may also visit the fund house service centres or
    the Asset Management Company (AMC) office.
     
    Submit the self-declaration either online or offline at any of the fund company branches. For
    instance, Registrar and Transfer Agencies such as CAMS offer this service. To complete the
    registration, you will be required to enter the OTP, generated using your PAN number. CRS
    declaration is nothing but an extension of the Know Your Customer (KYC) documents.
     

    7. Documents for FATCA & CRS declarations 


    All foreign financial institutions in India mandates US persons to submit the following
    documents:
    a. PAN Card
    b. Passport
    c. Government-issued IDs like Voters ID or Aadhaar  
    The Government of India will identify the investor as a resident or an NRI on this declaration.
    Central Board of Direct Taxes (CBDT) will release notifications for all NRI investors on the
    necessary information.
    Tax-evasion is not a problem unique to one country. Therefore, the solutions should be at a
    global level. The focus is more on the global transparency and consistency of compliance among
    the registered nations. In essence, FATCA and CRS have indeed gone a long way in reducing tax
    evasions and non-compliance globally in recent years. Therefore, US individuals, including NRI
    investors, should be aware of these regulations, especially if they are planning to invest in
    offshore funds.8
     

    INTER-GOVERNMENTAL AGREEMENT AND MEMORANDUM OF


    UNDERSTANDING (MOU) BETWEEN GOVERNMENT OF INDIA AND
    GOVERNMENT OF USA TO IMPROVE INTERNATIONAL TAX
    COMPLIANCE AND TO IMPLEMENT FOREIGN ACCOUNT TAX
    COMPLIANCE ACT OF USA9
    8
    https://cleartax.in/MyAccount/start?ref=logo
    9
    https://pib.gov.in/newsite/printrelease.aspx?relid=123113
    Whereas, an Inter-Governmental Agreement and Memorandum of Understanding (MoU)
    between the Government of the Republic of India and the Government of the United States of
    America to improve International Tax Compliance and to implement Foreign Account Tax
    Compliance Act of the United States of America was signed at New Delhi on the 9th day of
    July, 2015 (hereinafter referred to as the said Agreement and enclosed herewith as Annexure);
    And whereas, the date of entry into force of the said Agreement is the 31st day of August, 2015,
    being the date of notifications of completion of necessary internal procedures as required for
    entry into force of the said Agreement in accordance with Paragraph 1 of Article 10 of the said
    Agreement;
    Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961
    (43 of 1961), the Central Government hereby notifies that all the provisions of the said
    Agreement between the Government of the Republic of India and the Government of the United
    States of America for the exchange of information with respect to taxes, as set out in the said
    Agreement, shall be given effect to in the Union of India with effect from the 31st August,
    2015, that is, the date of entry into force of the said Agreement.

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