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FATCA AND CRS – What’s it all about?

The introduction of FATCA (Foreign Account Tax Compliance Act) with effect from 1 July 2014 is aimed at reducing tax evasion by US citizens on their worldwide income and assets. Although FATCA relates to US citizens you need to understand how it will affect Europe … so read on!

CRS (Common Reporting Standard) is building on FATCA guidelines to promote worldwide tax transparency between all jurisdictions for all nationalities.

Let’s talk a little first about FATCA, which will give a background as to why non US citizens need to understand, before we discuss CRS.

What is the impact of FATCA?

FATCA requires Financial Institutions outside the US to pass information about their US customers to the US tax authorities, the Internal Revenue Service (IRS). A 30% withholding tax is imposed on the US source income of any Financial Institution that fails to comply with this requirement. The US is in a strong position to enforce these guidelines due to its trade agreements.

On an annual basis, banks and other financial organisations will be required to report information on accounts held directly or indirectly by US Persons.

How do I know if I am affected?

FATCA legislation will affect both personal and business customers who are treated as a ‘US Person’ for US tax purposes. The FATCA legislation will also affect certain types of businesses with US owners.

The term US person includes the following (but is not limited to):

  • A citizen of the US, including an individual born in the US but resident in another country (who has not given up their US citizenship)

  • A person residing in the US, including US green card holders

  • Certain persons who spend a significant number of days in the US each year

  • US Corporations, US Partnerships, US estates and US trusts

My country has privacy or secrecy laws that prohibit sharing customer information with the US Government. Will my information be safeguarded and not shared?

No. The FATCA rules require that any US customer is asked to waive their rights under the privacy or secrecy rules so that their information can be reported to the US Government. If they refuse to provide this waiver then the Foreign Financial Institution is required to close the account.

Am I only affected if I am a citizen of the US?

No. If an individual’s account holds any of the following seven criteria, the Foreign Financial Institution (FFI) may request further information/documentation to determine if you are considered a US Person under FATCA:

  • US citizenship or US residence

  • US place of birth

  • US address including US PO boxes

  • US telephone number

  • Repeating payment instructions to pay amounts to a US address or an account maintained in the US

  • Current Power of Attorney or signatory authority granted to a person with a US address

  • A ‘care of’ mail address which is the sole address for the account holder

What information will be reported to the local tax authority or the IRS?

This will depend on the FATCA classification of the customer, but will typically be of a personal nature in relation to the substantial US owners of a business (for example, Name, Address, US Taxpayer Identification Number), and of a financial nature (e.g. Account number, Account balance/Value).

I’m not a US citizen and have no income, interest or growth from the US, so how does FATCA affect me?

For most individuals, FATCA will have minimal impact, and there will be no action required.

However, the sting in the tail here is that the rules introduced under FATCA have served as a catalyst for the Common Reporting Standard (CRS) to be introduced by the Organisation of Economic Co-operation and Development (OECD). The primary goal of which is to facilitate automatic exchange of tax information between non US countries.

The CRS (Common Reporting Standard) is designed to improve exchange of information which so far only occurs via a specific request from one tax authority to another under a bilateral agreement or tax treaty. The intention is to build on both FATCA and the EU Savings Tax Directive, and although the actual requirements have not yet been finalised, there are several details that the OECD considers crucial for inclusion in order to ensure successful implementation, namely:

  • The name, address, and Taxpayer Identification Number (TIN) of each account holder

  • The account number and account balance or value at year end

  • Gross dividends, interest, rents, royalties, salaries, wages, annuities, licensing fees, gains and profits and other income paid or credited to the account

  • Any gross proceeds from the sale or disposition of assets of a type that can produce interest, dividends or capital gains

  • Income from certain insurance products

Are foreign exchange transactions subject to reporting?

We believe that reporting will not include foreign exchange (FX) payments.

When will the Common Reporting Standard (CRS) start?

It is anticipated that collection of information will begin in 2015, and reporting it to the jurisdictional tax authority will commence in 2016.

The Common Reporting Standard has not come as any surprise, the UK adopted a similar effort by entering into agreements with its Crown Dependencies (Isle of Man and Channel Islands) and overseas territories (including Gibraltar) – hence the term ‘UK FATCA’ which you may have heard of. The CRS already has support from over 40 jurisdictions.

Which organisations will be required to report under CRS?

It is anticipated that banks and other financial institutions such as brokers, collective investment vehicles and insurance companies will be required to report.

Will there be jurisdictions who do not exchange information?

Implementation of both FATCA and CRS is a costly exercise for banks and other institutions. Experts believe that some less developed countries will not have the financial resources to implement the required changes. An offshore entity based in Panama would be an example of such a jurisdiction. But it is anticipated that all developed economies seen to be prudent places to hold ones wealth will be supporting the drive for greater worldwide tax transparency.

The Swiss Bankers Association agree that the recommendations from the OECD are a ‘step in the right direction’ but note that the proposal fails to establish a level playing field in all jurisdictions.

What is clear though, is that promoting tax transparency and new international standards is a global priority and finding ‘somewhere to hide’ is becoming increasingly difficult for those who continue to try to outwit the authorities!

At Speed Financial Solutions we specialise in providing bespoke financial planning. We work closely with experienced international tax experts on a case by case basis in order to provide the right solution for our clients. Our Financial Advisers are available for an initial, confidential discussion free of charge either at your home or in our office. Please contact us for an appointment if you would like to check that your existing financial arrangements are future proof and will not leave you exposed under the new tax regime.

Telephone 0034 951315271/951318529, email and visit our website at

Andrea J Speed Principal Speed Financial Solutions 17 April 2014

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