Over the last few years, a number of initiatives have been undertaken to improve global cross border tax compliance, which led to the development of various reporting regimes relating to the exchange of taxpayer information. Such initiatives include the Foreign Account Tax Compliance Act (‘‘FATCA’’), which focuses on the reporting of financial account information with respect to U.S. taxpayers, and the OECD Common Reporting Standard (“CRS”), a global standard for the automatic exchange of financial account information.
The exchange of taxpayer information under FATCA and CRS is effectively achieved through the imposition of obligations on Financial Institutions – such as banks, custodians, asset managers, certain types of funds and insurance companies – to collect, review and report information about their account holders/investors. Such information will eventually be reported to the tax authorities of the country(ies) of tax residence of each account holder/investor.
FATCA promotes cross border tax compliance by implementing an international standard for the automatic exchange of information related to US taxpayers. FATCA regulations require tax authorities obtain detailed account information for US taxpayers on an annual basis. FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to US persons that may be investing and earning income through non-US financial institutions. While the primary goal is to gain information about US persons, FATCA imposes tax withholding where the applicable documentation and reporting requirements are not met.
The Common Reporting Standard, (“the CRS”) was developed by the OECD and G20 countries in close cooperation with the European Union. Under the CRS, countries obtain detailed account information about financial accounts from their local financial institutions and automatically exchange that information with other countries on an annual basis. Each country will have a “Competent Authority”, a government department responsible for receiving and exchanging information. More than 96 countries have agreed to share information on resident's assets and incomes in conformation with reporting standards. The goal of CRS is to allow tax authorities to obtain a clearer understanding of financial assets held abroad by their residents for tax purposes.
The CRS has much in common with the United States’ Foreign Accounts Tax Compliance Act, (“FATCA”) legislation and with the FATCA Inter-Government Agreements already signed by many countries. FATCA and CRS have similar characteristics on the surface, but underneath there are major differences, CRS is more wide reaching and requires a unified, cross-team effort to ensure readiness and compliance.
|Registration||IRS registration to obtain Global Intermediary Identification Number (GIIN)||No central registration is required but registration with the Competent Authority in each Jurisdiction is required.|
|Withholding||Withholding required on NON Participating Foreign Financial Institutions (NPFFIs) and recalcitrant account holders||Withholding not applicable, however penalties are expected to be introduced for noncompliance|
|Reportable Persons||Based on U.S. citizenship/U.S. residency||Based on residency for tax purposes in a reportable jurisdiction (controlling entities)|
|Thresholds for preexisting accounts||Financial Institutions may choose to apply thresholds in order to minimize due diligence||Threshold does not apply for individuals (may apply for entities). Competent Authorities in each jurisdiction might apply thresholds inside the local implementation plan.|
|Documentation requirements||Forms W-8BEN/W-8BEN-E/W-9 or FATCA assessment forms may be used to capture all required information||Must update and obtain self-certifications to capture the additional required information|
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