Difference Between FATCA and CRS Compliance

In today's interconnected world, to improve transparency and prevent tax evasion in global financial transactions, governments are increasing efforts. In this, the two major initiatives are designed, i.e., FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standards), to combat this. While both CRS and FATCA work towards achieving the same goals. However, they have different scopes, jurisdictions, and implementations.

Confused? This blog will explain the key differences between FATCA and CRS compliance and their impact on financial institutions. So read on and gather all the information. 

Difference Between FATCA & CRS At a Glance

To validate and improve tax compliance globally, FATCA and CRS were designed by the government. However, before understanding the key difference between these two, let's first understand what FATCA and CRS mean.

FATCA

Foreign Account Tax Compliance Act or FATCA, under the Hiring Incentives to Restore Employment (HIRE) Act, was enacted by the US federal law in 2010. The primary goal of it is to determine and prevent tax evasion by US taxpayers and US citizens with financial assets held overseas. 

CRS

CRS, or the Common Reporting Standard, is an information standard for the automatic exchange of tax-associated financial information globally. CRS is a global tax initiative launched by the Organisation for Economic Co-operation and Development (OECD). In simple words, it is a rougher, more global version of FATCA. 

Further, both CRS and FATCA prevent investors from avoiding taxes and hiding uncounted cash abroad. However, both of them need cooperation from the tax officials from all the OECD and G20 countries. 

This was all about the key difference between FATCA and CRS. Moving ahead, let's know about FATCA in more detail. 

FATCA- Foreign Account Tax Compliance Act

FATCA was introduced by the US government to avoid tax evasion and provide strict adherence to tax rules. The main aim of it is to determine and prevent offshore tax avoidance by US residents and taxpayers. In simple words, it is a way to track US individuals earning income from their overseas investments and stash assets in foreign nations.

It enables financial institutions the right to withhold tax if the US individuals do not fulfill the document requirements. For this under this act, all registered financial institutions should notify the US tax department immediately when they find out the person in the country is trying to evade tax. 

Considering this, all FATCA-registered banks need to report such account holders immediately with available information. Further, FATCA has a profound and direct effect on US multinationals and Foreign financial institutions.

This was all about FATCA. Moving further, let's know about the US-India agreement to implement this act. 

US-India Agreement to Implement FATCA

FATCA, at the global level, certifies tax transformation and compliance. It provides foreign financial institutions with the option to streamline and improve their tax reporting process. Additionally, offers them visibility in the foreign nation and earns the trust of investors.

Considering this, to regulate FATCA, in 2014, the Indian government, in the Income Tax Act, issued Rules 114F to 114H and Form 61B. Additionally, for the implementation of FATCA, in 2015, the government of India, along with the USA, signed the Inter-Government Agreement (IGA). 

Further, under the agreement, the Indian tax authorities need to obtain specific account details from US investors. The key aim behind it was certify tax compliance by the US taxpayers while boosting transparency for their Internal Revenue Service (IRS). To report and maintain personal and income details, it provided a legal basis to financial institutions. 

So, this is how FATCA was implemented in India. Moving forward, let's discuss the FATCA declaration for NRIs. 

FATCA Declaration for NRIs

Came into effect from January 2016, for all Indian and NRI investors, whether new or existing, to file a FATCA self-declaration. However, with each financial institution, the details might be different. Further, the following standard information is needed:

• Name
• Permanent Account Number (PAN) card
• Address
• Place (city/ state) of birth
• Country of birth
• Gross Annual Income
• Nationality
• Occupation
• If you are a resident of another country, you also need to mention your tax ID and type

The declaration asks specifically to include the US as your resident country if you are a US citizen or green cardholder. It is even more vital when you move to India and again become an Indian resident. Further, this declaration states that under the Central Board of Direct Taxes (CBDT), this issuance is already mentioned in the rules 114F- 114H. 

As a result, the tax officials will have all the relevant information. Hence, within 30 days, please connect with the relevant financial institution in case of changes in the provided information. 

This was all about the FATCA declaration for NRIs. Moving ahead, let's know about CRS in detail. 

Common Reporting Standards or CRS

For Automatic Exchange of Information (AEol), the Organisation for Economic Cooperation and Development (OECD) introduced the Common Reporting Standard (CRS). Under this, all the financial institutions across countries must provide information to tax officials about their citizens and their overseas wealth.

This helps the government for tax purposes in obtaining information about the financial assets held by its citizens globally. At present, more than 90 countries follow CRS. Considering this, India has also signed mutlilateral agreement with other countries. Under it, the country will transfer personal and account details of foreign citizens to their respective tax officials. Under the CRS rules, Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters states it. 

So, this was all about CRS. Moving further, let's know about the information declared in it. 

CRS Declaration

Generally, most of the information asked in the CRS is the same stated in FATCA. However, compared to FATCA, which is imposed only on US citizens and taxpayers, CRS covers taxpayers from more than 90 countries. From any offshore mutual fund websites, you can download the CRS self-declaration form. 

Additionally, you can also visit the Asset Management Company (AMC) office or fund house service centres to get the self-declaration form. Further, you can submit it either online or offline at any of your fund house branches. To complete the registration, you need to mention the OTP generated using your PAN card number. In simple words, the CRS declaration is nothing but an additional document for KYC.

This was all about the information stated in the CRS declaration. Moving ahead, let's know the documents you require to submit with FATCA & CRS declarations. 

Documents for FATCA & CRS Declarations

You need to submit the following documents for FATCA & CRS declarations:

• PAN Card
• Passport
• Government-issued IDs like Aadhaar or voter IDs

Further, the Indian government on this declaration identify the investors as an Indian resident or an NRI. 

Final Thoughts

Lastly, the differences between FATCA and CRS showcase the diverse ways to achieve the same global tax transparency goal. By staying compliant and informed, account holders and financial institutions can assist the government in offering a fairer and more transparent global financial system.

Further, at Savetaxs, we understand the complexities faced by individuals with FATCA and CRS, and fulfilling their tax obligations. Connect with us. Our team of financial tax experts will help you navigate these tax regulations and ensure complete compliance.