Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) have been implemented since 2014 and 2017 respectively. Both FATCA and CRS are on-going legal obligations for your entities, rather than a one-off compliance event. To help you understand more about FATCA/CRS compliance, we summarised 3 common questions below.
1. What happens now that I have submitted my CRS reporting?
In 2020, the BVI International Tax Authority (ITA) started issuing “Notice to produce” requests to BVI entities for the first time, requiring them to produce copies of their written policies and procedures (i.e. internal processes; roles and responsibilities; and due diligence applied to pre-existing and new reportable accounts, etc.).
Entities that are unable to produce policies and procedures within the deadline (10 working days), are potentially liable for penalties up to US$100,000.
2. We are required to do a CRS audit with regulators, what are the areas to focus on in order to pass the assessment?
The focus areas for assessment would include the following:
- Pre-existing accounts (confirmation that processes exist to review indicia and obtain self-certificates with complete information on controlling persons)
- Self-certifications (or word form in the case of FATCA)
- Change in circumstances (procedures in place/ impact on existing filing/ reportage obligations)
- Undocumented accounts (raising remediation issues/ obligations to terminate accounts)
- CRS-related training (regular training to ensure that internal teams know the processes)
- Retention of records
- Policies and procedures (compliant with CRS and OECD protocols)
3. What are the consequences if our entity is non-compliant with FATCA/CRS?
In line with international regulatory compliance obligations for Automatic Exchange of Information (AEOI), there is increased scrutiny on entities to be fully compliant with applicable laws. As such, for CRS purposes, Financial Institutions are required to:
- Identify customers or clients who are tax resident in foreign jurisdictions; and who would have obligations arising to report certain information to the local tax authority.
- Review and collect financial account information.
- Identify the tax residency of the holders or controlling persons of financial accounts and submit relevant information on ‘reportable accounts’ to the applicable tax authority on an annual basis.
Non-compliance with the AEOI regulations may expose an entity, its Beneficial Owners and controlling persons to obligations and liabilities, including financial or criminal penalties.
Any submission of incorrect returns might also be viewed as defrauding with intent, and, therefore, face the same penalties as above.
What we can help you?
- Determining the CRS/FATCA classification based on information furnished by the client, as sought in our data request template;
- Generation of a classification report based on our understanding of the facts using in-house classification tool;
- Advice of corresponding FATCA/CRS obligations of the entity based on the classification result.