Where CRS & FATCA Intersect, and How They Differ

Updated on: March 19, 2024

The Common Reporting Standard (CRS), established by the OECD Council, and the Foreign Account Tax Compliance Act (FATCA) are two pivotal frameworks in the international finance and taxation realm.

What is CRS?

CRS is an information standard for the automatic exchange of tax-related financial information globally. It mandates financial institutions to report account information, including account holders' tax residency, to local tax authorities, which is then exchanged annually with tax authorities in other jurisdictions.

Purpose of CRS

CRS aims to combat offshore tax evasion. It provides a standardized framework enhancing efficiency and reducing costs in the exchange of tax information. Unlike FATCA, which is based on citizenship, CRS focuses on tax residency.

Reportable Entities Under CRS

Financial institutions are required to identify customers’ tax residency status and report accounts held by non-residents. This involves a self-certification process where customers declare their tax residency details.

Difference Between FATCA & CRS

• Scope and Participation: FATCA targets U.S. persons, while CRS involves over 100 countries and encompasses virtually all foreign investments.
• Bilateral vs. Multilateral Approach: FATCA operates through bilateral agreements with the U.S., whereas CRS is an international standard with various participation methods, including treaties and legal instruments.
• Exemptions and Limits: FATCA has exemptions and a minimum limit for reporting ($50,000), while CRS sets no minimum limits except for pre-existing accounts before 2015 with a value up to $250,000.

Information Reporting

The self-certification form provided to financial institutions includes information such as account balance, interest, and payment credits.

Compliance

All financial institutions in participating countries, including banks, insurers, and asset management firms, must comply with CRS.

Submission Frequency

The CRS form is valid until there's a change in tax residence status or if the provided information becomes incorrect. Account holders must inform their bank within 30 days of such changes.

CRS enhances global tax transparency by requiring financial institutions to identify and report accounts held by non-residents. Its comprehensive approach differs significantly from FATCA, mainly in its broader scope and the lack of exemptions, underscoring the need for distinct compliance strategies for each standard.

To learn more, contact your Gen II Client Service Manager or email tax@gen2fund.com

Published on: March 5, 2024