FATCA CRS reporting: reporting schemas improving tax transparency

In an era of increased cooperation between worldwide tax authorities, the automatic exchange of information (AEOI) requires financial institutions like banks, insurance companies, trust companies and stockbrokers to report client information to their local tax authority using the appropriate reporting schema. This provides the monitoring bodies with information on the activities and tax compliance of the jurisdictions and their tax resident companies and citizens. CRS & FATCA are two reporting schemas that aim to improve tax transparency and help promote tax compliance by ensuring financial jurisdictions gather and report sufficient information on their clients to the agreed reporting standards. FATCA applies to the United States whilst CRS applies to 120 worldwide reporting jurisdictions.

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What is CRS and FATCA?

The Common Reporting Standard (CRS) is an international framework for exchanging financial information between tax authorities and various countries. Financial institutions will collect information about their clients throughout the year. This includes information like the account holder's name, address, tax identification number, account balance and other financial transactions. Organising the data that needs to be included in the CRS’s full form falls under the financial institution’s responsibility.

Below is an overview of information about the CRS (Common Reporting Standard):

• The Common Reporting Standard (CRS) is an international standard for automatic exchange of information between tax authorities.
• Developed by the OECD, it aims to combat tax evasion by individuals and corporate entities.
• CRS mandates financial institutions and entities to identify and report specific information about account holders to relevant tax authorities.
• Reported details include the account holder's name, address, tax identification number, account balance, and other financial transactions.
• Applicable to various financial institutions such as banks, custodial institutions, specific investment entities, and certain insurance companies.
• Financial institutions must conduct due diligence to identify account holders and report suspicious transactions.
• CRS operates on the principle of reciprocity, where participating jurisdictions automatically exchange information annually.
• Over 100 jurisdictions have committed to implementing CRS with varying degrees of progress.
• CRS is an initiative for combating tax evasion, aiding in tax recovery, and fostering transparency and fairness.

The Foreign Account Tax Compliance Act (FATCA) is a similar framework for exchanging financial information but where CRS applies to 120 jurisdictions, FATCA only applies to the United States.  

Below is an overview of information on the Foreign Account Tax Compliance Act:

• FATCA (Foreign Account Tax Compliance Act) is a U.S. law enacted in 2010 to combat tax evasion by U.S. taxpayers with foreign financial assets.
• It mandates foreign financial institutions and entities to report specific information about their U.S. account holders to the IRS.
• The information includes details such as the account holder's name, address, tax identification number, account balance, and income generated by the account.
• FATCA applies to various financial institutions and entities, like banks, investment entities, insurance companies, and more.
• Due diligence procedures are required to identify U.S. account holders and report suspicious transactions.
• FATCA operates on the principle of reciprocity, with participating jurisdictions exchanging information automatically.
• Over 100 jurisdictions have signed intergovernmental agreements (IGAs) with the U.S. to implement FATCA.
• The law has improved transparency and compliance with U.S. tax regulations, aiding in tax recovery and enhancing available information for tax authorities.
• Financial institutions and entities must be aware of their FATCA obligations and establish compliant systems and processes.
• In the international tax system, awareness of FATCA obligations is essential for financial institutions and entities to ensure regulatory compliance and promote transparency and fairness.  

Who needs to file CRS & FATCA reports?

Financial institutions need to send in their CRS & FATCA submissions to their local tax authority each year. It is crucial for these institutions to keep an accurate and organised record of data to avoid penalties for not submitting the data correctly. The data that financial institutions gather is compiled into a standardised electronic XML report before it gets submitted to local tax authorities. The CRS’s full form requirements can vary throughout the jurisdictions that have adopted this framework and year on year making staying up to date with the requirements of the reporting schemas even more time-consuming.  

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Simplifying CRS & FATCA reporting using AEOI Software  

Report Genie creates schema-compliant submissions for regulatory reporting requirements like CRS & FATCA. The Automatic Exchange of Information software (AEOI) automatically validates the data, supports those jurisdictions that require encryption, uses TIN-validation to minimise errors and is fully enabled for resubmissions and corrections. For more information, visit reportgenie.com.  

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