The Foreign Accounts Tax Compliance Act (“FATCA”) is a U.S. law created to enforce tax compliance by US Persons holding banking and financial assets and accounts outside the USA.
Intergovernmental agreements (IGAs) have been signed or agreed by the U.S. with many non-U.S. jurisdictions to roll out FATCA.
- Under FATCA and IGAs non-US financial institutions will have to identify and report to tax authorities all the US Persons who directly or indirectly hold financial accounts, which will exchange this info to the US IRS.
- All other legal entities worldwide have to disclose its FATCA status to the banks and other FIs where they hold accounts, including disclosure of any US owners or US Controlling Persons.
FATCA paved the way for introducing a global standard, endorsed by G20 and developed by the OECD.
The Common Reporting Standards (“CRS”) and Competent Authority Agreement (CAA) is the new global Standard, also called the Global FATCA, or GATCA.
- It provides for annual automatic exchange between governments of information on financial accounts (dividends, interest, sales proceeds) held with financial institutions by residents of participating jurisdictions. It includes accounts held by individuals and entities, including trusts and foundations.
- Already 74 jurisdictions have signed and in total 96 jurisdictions are committed to introduce CRS and it is set to effectively begin in January 2016 for a large group of early adopters, while many other jurisdictions start in 2017.
The impact of both FACTA and CRS create severe impacts not only upon high net worth individuals whom financial account information will be reported and exchanged. As a result of the required increased diligence on customers, banks and financial institutions face ongoing scrutiny from governments due to newly imposed compliance reporting systems.