Ensuring compliance with CRS and the FATCA regulations can often feel like navigating a regulatory maze fraught with potential pitfalls, claimed MAPFinTech in a recent post.
The company explained that both the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) aim to increase global tax transparency and minimise offshore tax evasion. However, the path to compliance can be complex and filled with potential risks.
FATCA is legislation crafted to improve tax compliance among US citizens. Its key provisions require foreign financial institutions to identify their clients who are “US persons” and report pertinent financial account information to the US Internal Revenue Service (IRS). Failure to comply with these regulations can lead to hefty penalties.
In a similar vein, CRS works to uphold the transparency of the international tax system. Financial institutions operating within participating jurisdictions are obligated to discern their clients’ tax residencies and report financial accounts belonging to foreign tax residents to local tax authorities. This information is then exchanged with the tax authorities of the respective jurisdictions.
The time for annual FATCA and CRS reporting is approaching or has already commenced in certain jurisdictions. The deadlines for these are critical to meet for financial institutions, MAPFinTech drived home.
However, this journey is not without its hurdles. According to MAPFinTech, financial institutions often grapple with the interpretation and analysis of the regulations, which span over 300 pages of guidelines. On top of this, the requirement to complete more than 65 fields per record and handle complicated multi-layered XML files can prove to be formidable challenges. Furthermore, each jurisdiction comes with its own unique intricacies, adding another layer of complexity.
The risks of non-compliance or inaccurate reporting are steep. Missteps in CRS and FATCA reporting or failure to meet the reporting deadline and its many stipulations can lead to penalties, reputational harm, and legal implications. Moreover, the process demands a substantial investment in resources to file relevant submissions, potentially straining budgets and disrupting daily operations. Finally, incorrect or false submissions can trigger withholding penalties for certain payments.
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