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Common Reporting Standard (CRS) readiness

FATCA IGA versus CRS and key CRS milestones

The Common Reporting Standard is the standard for automatic exchange of financial account information (AEOI) developed by the Organization for Economic Cooperation and Development (OECD). CRS is a broad reporting regime that draws extensively on the intergovernmental approach to implement the Foreign Account Tax Compliance Act (FATCA).

Overview of CRS

Similar to FATCA, CRS requires financial institutions (FIs) resident in Participating Jurisdictions to implement due diligence procedures, to document and identify reportable accounts under CRS, as well as establish a wide-ranging reporting process.

Purpose of CRS:

  • To combat perceived offshore tax evasion
  • Provides minimum set of standards and framework to increase efficiency and decrease cost associated with exchange of information
  • Differs from FATCA given reporting is based upon tax residency and not citizenship status

Typical impacted functions:

  • Front office client facing teams
  • Client onboarding and anti-money laundering (AML)/Know your customer (KYC)
  • Documentation management
  • Reference data services
  • Tax reporting

Impacted financial accounts:

  • Financial accounts are defined broadly and include depository accounts (such as bank accounts), custodial accounts (such as brokerage accounts), maintaining certain types of life insurance contracts or annuities as well as holding equity or debt interests in investment entities.
Although the CRS draws extensively on the Model 1 IGA approach of FATCA, there are key differences that require specific onboarding, remediation, and reporting enhancements in processes.

Key differences between FATCA and CRS

The scope of CRS is broader than FATCA as it aims to identify tax residents in any of the 100+ jurisdictions participating in CRS. Key takeaways of differences in FATCA and CRS requirements are provided in regards to the governing authority, withholding, account scope, thresholds, and documentation requirements.

FATCA IGA vs. CRS

FATCA

CRS

Key takeaways

United States

100+ separate tax jurisdictions
58 early adopters, 35 late adopters

Requires monitoring local jurisdictions enforcement provisions to determine compliance risk—jurisdictions subject to peer review by global forum

30 percent withholding on Non-compliant payees/intermediaries

No withholding

Enforcement by the tax authorities of the signatory jurisdictions. Specific requirement for signatory jurisdictions to establish a penalties scheme

US individual accounts, US entity accounts and passive Non-Financial Foreign Entity (NFFE) accounts held by substantial US owners

Individual and entity accounts held by tax residents of any CRS participating jurisdiction or passive NFEs with controlling persons that are resident in any CRS participating jurisdiction

The number of CRS reportable accounts may be greater than reportable accounts under FATCA

$50,000 and $250,000 applicable

With the exception of preexisting entity accounts, no thresholds applicable

Potentially limited impact for financial institutions that did not apply thresholds

Forms W-8/W-9 may be used to capture all tax data

US tax forms are not acceptable to capture all CRS data (e.g. multiple tax residences, CRS legal entity classification)

Self-cert will be needed to capture CRS specific data such as multiple tax residency, CRS legal entity classification.
Controlling persons required to provide their own self-certification.
All entities will ultimately have controlling persons.

Understanding the differences:
  • CRS implementation is governed by the competent authority of each participating jurisdiction while FATCA is governed by the United States.
  • Similar to FATCA, each participating jurisdiction is expected to release local rules and regulations, and guidance on the implementation of CRS. Therefore, this requires monitoring of local jurisdictions requirements.
  • Local jurisdictions are expected to release their own list of reportable jurisdictions. Therefore, not all the participating jurisdictions are considered reportable jurisdictions. This requires monitoring the information exchange agreements applicable in each jurisdiction.
  • FATCA non-compliance leads to withholding implications, but the CRS is enforced through penalty schemes determined by each local governing authority. Some jurisdictions have approved penalties that may imply criminal prosecution.
  • CRS has stricter rules in regards to the threshold for excepted accounts. Therefore, the accounts in scope for review under CRS is broader than in FATCA.
  • Financial institutions will need to collect specific self-certifications covering the CRS required information in order to identify and report accountholders resident in any of the reportable jurisdictions. Note, all Passive Non-Financial Entities (Passive NFEs) will ultimately have to identify Controlling Persons that are natural persons.

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Key CRS milestones

Browse through the interactive timeline of key milestones for CRS early and non-early adopter jurisdictions. The milestones are the same for both early and non-early adopter jurisdictions, except all deadlines are pushed back one year for non-early adopter jurisdictions.

Activities required for participating jurisdiction FIs include:

  • Enhanced onboarding standards, including the implementation and development of CRS self-certification forms, improved IT systems and processes to capture CRS specific data such as multiple tax residency, CRS legal entity classification, and policies and procedures to capture the additional CRS requirements.
  • There are two remediation deadlines. The first one is for high value individual accounts (with account balances over $1 million), and the second one is for all other accounts (both individuals and entities).
  • The first reporting has begun in 2017. The reporting due dates vary across jurisdictions.
  • Early adopter jurisdictions will exchange information with other participating jurisdictions in September 2017, while non-early adopter jurisdictions will join the information exchange in 2018.

Key milestones for CRS early and non-early adopter jurisdictions

 Onboarding enhancement 

 Remediation   

  Reporting

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