In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), which requires US persons to file yearly reports disclosing their non-US financial accounts to the Financial Crimes Enforcement Network (FinCEN). FATCA also requires foreign financial institutions to search their records for “indicia” of U.S. persons and to report those persons to the U.S. Department of the Treasury under the threat of a 30% withholding penalty being imposed on all U.S. dollar transactions.
FATCA’s international counterpart, the Common Reporting Standard (CRS), was introduced by the G20 and the Organization for Economic Cooperation and Development in 2015. In many ways, CRS is broader than FATCA. Like FATCA, CRS is intended to allow tax authorities to obtain a clearer understanding of financial assets being held abroad by their residents for tax purposes. The participating jurisdictions then mutually exchange the information to other participating jurisdictions. Under CRS, some entities that are not considered “reporting financial institutions” under FATCA are required to report under CRS. Also, unlike the $50,000 minimum reporting threshold under FATCA, there are reporting limits under CRS.
Although FATCA is a U.S. initiative and CRS is a broader international initiative, they are typically discussed together and participating jurisdictions typically undertake compliance with both simultaneously. Almost 100 countries have now committed to comply with some variation of FATCA (through intergovernmental agreements) and/or the CRS framework.
As recently reported by STEP (a global group of professionals with expertise related to family-related succession planning), the Cayman Islands and the British Virgin Islands have further extended the deadline for financial institutions to comply with FATCA and CRS. As a result, it appears that a number of countries in the Americas, such as Panama, are ahead of curve of compliance with FATCA and CRS. The delay by the Cayman Islands and British Virgin Islands appears to be due to the plethora and extent of the financial complex in those Caribbean countries.
Many argue that this global framework for tax reporting is necessary due to increases in globalization, international investing and trading, emerging markets, regulation, and cross border payments. This framework will increase the due diligence obligations of financial institutions in terms of both servicing existing clients as well as onboarding new clients. Similarly, it will increase the due diligence obligations in terms of existing and new products at the financial institutions. Others argue that the costs of complying with FATCA outweigh the benefits of increased revenue generation, and that FATCA may lead to possible capital flight from the US.
At Vernon Litigation Group, we recognize that financial litigation involving fraud, negligence, and business disputes cross international lines. The attorneys at the Vernon Litigation Group have conducted aggressive international investigations and investigated widespread wrongdoing related to investments such as hedge funds, structured products, REITs, private equity, venture capital, EB-5 projects, cryptocurrency, carry trade, complex insurance products and strategies, and Ponzi schemes. The firm’s advocacy on behalf of clients have been featured in national publications such as Forbes, Barron’s, and AARP Magazine.
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