Differences between FATCA and CRS

FATCA: Foreign Account Tax Compliance Act

FACTA was enacted by the Congress of the United States on 2010 and is an Act that intends to identify US persons and residents that have money outside the country, thus achieving control over the compliance of tax obligations of US taxpayers. The implementation of this law is made through the adoption of Inter Governmental Agreements (“IGA”) with other jurisdictions for easier exchange of information regarding the accounts of US citizens.

Withholding agents of the United States, foreign financial institutions (“FFI”), non financial foreign entities (“NFFE”) and US citizens are the ones called to comply with this law.

FATCA sets forth a system to withhold 30% over payments that must be made when financial institutions do not comply with FATCA requirements or in cases when clients fail to file the documents indicated in the dispositions of the referred norms.

CRS: Common Reporting Standard

It is a global reporting standard for the automatic exchange of information on financial accounts prepared by the OECD together with the G20 that was published in July 2014.

The implementation of the exchange of information was made among the jurisdictions that have ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Under said framework, the exchange of information will be made on a yearly basis.

CRS affects persons and entities (trusts for example) that keep their accounts subject to filings in financial institutions located in jurisdictions that form part of the Convention.

The CRS, as opposed to the FATCA, does not set a withholding system.

The main differences among both systems are:

• FATCA is bilateral, while CRS is multilateral.
• FATCA is based on nationality and residence; on the other hand CRS is based on tax residence.
• FATCA sets forth a withholding system, as opposed to CRS that does not set forth any kind of withholdings.
• FATCA sets an exemption threshold that could be applied as decided by the financial institutions for the identification and classification of the accounts; on the contrary, CRS eliminates any exemption threshold of identification and review of accounts opened in financial institutions.
• FATCA sets forth that in order to file a report the account must exceed the limit of USD 1.000.000; while in CRS it must exceed the amount of USD 250.000.

Based on the above indicated, it can be assured that since both FACTA and CRS are initiatives that intend to ease the exchange of information in order to avoid the non compliance of tax obligations that are independently of each other, financial institutions must implement both at the same time according to their dispositions.