FATCA and Common Reporting Standards

To facilitate FATCA, certain foreign entities must report their US clients or owners directly (or indirectly, through their local tax authorities) to the IRS. FATCA has classed all non-US entities into two categories: foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) i.e. any entity not classified as an FFI. 

The definition of an FFI, like your local banks, stockbrokers, pension and hedge funds, insurance companies and trusts, encompasses a range of financial institutions or entities that qualify with one or more of the following:

• Accept deposits in the ordinary course of business
• Hold financial assets for others (e.g. custody or nominee services)
• Are primarily engaged in investing, reinvesting or trading in securities or commodities
• Certain types of insurance companies
• Holding company/treasury centers

When an FFI/NFFE identifies their US persons in accordance with FATCA, they report them to the IRS. The IRS will then check its systems to see if the US person has filed a properly completed FBAR (Foreign Bank Account Report FinCEN 114), income tax and informational returns.

If a taxpayer’s US tax returns or information reports have not been filed, or incorrectly filed, the US taxpayer could be subject to civil penalties and possible criminal charges, and the bank may be fined. 

The Common Reporting Standard, or CRS, approved by the OECD (Organisation for Economic Co-operation and Development) Council in 2014, calls on jurisdictions around the world to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.  This is called the Automatic Exchange of Information (AEOI).

Our Advisory Services

• Analysis for tax treaty relief
• Entity classification analysis
• Withholding Tax analysis

Our Compliance Services

Failure to comply with these reporting rules by either FFIs or NFFEs will result in the imposition of a 30% penalty withholding tax on their US-sourced income or gains. This penalty does not offset any income tax dues. 

We can help you bring yourself successfully up to date and avoid non-compliance penalties. See voluntary disclosure.

Get up to date with FATCA compliance.

These forms, especially the one for entities (W-8Ben-E) are complex and will often require professional assistance to complete. Our team is here to help you or your advisors to complete the paperwork correctly and navigate you through the complex rules to claim tax treaty relief if the entity meets various strict requirements.  Contact us to discuss how we can help.