Cats and dogs both have four legs, a tail, and make ideal pets. As we began to discuss the differences, however, we realised the two were not at all the same. Cats can sleep for up to 16 hours a day, while dogs require much more attention, including a daily walk. So, while on the surface the two are alike, underneath there are some real differences.
The same can apply in the tax world. Take the Foreign Account Tax Compliance Act (FATCA) and the Common Standard on Reporting and Due Diligence for Financial Account Information (CRS), for example. They may have similar characteristics, but the two cannot be treated in the same way.
FATCA was introduced by the US Department of Treasury and Internal Revenue Service in 2010 to encourage better tax compliance by preventing US persons from using banks and other financial organisations to avoid taxation on their income and assets.
CRS is part of a global standard proposed last year by the OECD, at the request of the G8 and the G20, for the annual cross border exchange of information on financial accounts. Because the standard shares a lot of similarities with FATCA, it is informally referred to as GATCA (the global version of FATCA). So while there is an evolutionary relationship between FATCA and CRS, they certainly are not the same animal.
There are three major differences between FATCA and CRS
- FATCA requires a financial institution to find US persons; however, with more than 90 countries currently committed, CRS requires a much broader scope.
- Under CRS, the definition of a “reporting financial institution” is different. So, even if you are not required to report on financial accounts under FATCA, you may be under CRS.
- There is currently no de minimis limit under CRS. FATCA, by contrast, only kicks in for individual accounts with balances exceeding $50,000 – companies have different limits.
These add up to significant differences in scale. For example, the volume of US persons reported under FATCA rarely exceeds the low thousands; whereas a UK High Street bank has estimated that 7% of their customers (several million accounts) will be reportable under CRS.
What does this mean for tax and compliance departments? Do not assume that compliance for CRS will come easily if you’re FATCA compliant. CRS is more wide-reaching than FATCA and will require a unified, cross-team effort to ensure readiness. Also, while CRS is not yet official, it is time to start ensuring you are compliant with the guidance that is available.
Undoubtedly, the widespread adoption of the OECD’s proposals will bring about extraordinary change as countries worldwide begin to implement policies to align with the new global guidelines. The focus should be on global transparency, cross-country consistency and in-country certainty—taking into account the fact that CRS, like a dog, may require a bit more attention.
Laurence Kiddle, Managing Director, Corporate Markets, EMEA at Thomson Reuters