Foreign Account Tax Compliance Act (FATCA)

&
Common Reporting Standard (CRS)

Dr. Badrul Hisham Mohd Yusoff

CPC, CFP, CA(M), CMIIA, ASA(AUST), MMIM, CRMA, DBA,
MBA, BACCT (HONS)
FATCA & CRS
• FATCA
• CRS
• Review and comparison of FATCA vs. CRS
• The key steps to compliance

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FATCA
• Background
• It is a new piece of legislation to help counter tax evasion in the US
• These provisions are aimed at US persons who hold offshore accounts.
• FATCA are contained in the Hiring Incentives to Restore Employment (HIRE) Act 2010 and
was signed into law on March 18, 2010.
• Introduced by the United States Department of Treasury (Treasury) and the US Internal
Revenue Service (IRS),
• Purpose of FATCA is to encourage better tax compliance by preventing US persons from
using banks and other financial organisations to avoid US taxation on their income and
assets.

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FATCA
• FATCA came into force on July 1, 2014
• New reporting requirements on Foreign Financial Institutions (FFIs)
throughout the world to the US IRS with respect to certain information on US
persons.

• FFIs include, but are not limited to:

• Depository institutions (for example, banks)
• Custodial institutions (for example, mutual funds)
• Investment entities (for example, hedge funds or private equity funds)
• Certain types of insurance companies that have cash value products or
annuities
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US Person
• The term ‘US person’ includes the following (but is not limited to):
• A citizen of the US, including an individual born in the US but resident in another country (who
has not given up their US citizenship)
• A person residing in the US, including US green card holders
• Certain persons who spend a significant number of days in the US each year
• US corporations, US partnerships, US estates and US trusts.

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US Person
• The U.S IRS has defined the U.S Indicia or Potential U.S Person as below.
• An individual or entity having one of more indicia may potentially be a U.S Person:
• U.S Citizen
• U.S Permanent Resident holding Green Card
• U.S Place of Birth
• U.S Resident / Mailing Address
• U.S Telephone Number
• Has a standing instruction to any U.S Account
• Grant a Power Attorney / Signatory Authority to any U.S Individual
• Subscribed to “Hold Mail” or “Care of “ using a U.S address as a sole address

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US Person
• For Corporate Client, the term “U.S Person” includes the following:
• Entity created, registered or incorporated in U.S or under U.S law
• Entity not created, registered or incorporated in U.S with a U.S Person holding more than
25% of its shares. The U.S Person holding the shares can be an individual or an entity

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Objectives of FATCA
• To increase transparency for the United States (U.S.) Internal Revenue Service (IRS) with
respect to U.S. persons that may be investing and earning income through non-U.S
institutions.
• Primary goal of FATCA is to gain information about U.S. persons

• Goals:
• Identifying unreported income of US persons
• Enlisting non-US financial institutions to report such US persons
• FATCA is not aimed at revenue raising

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Impact of FATCA on the Financial Services Industry
•
• Financial institutions (both US and non-US) to classify all account holders as either US or
non-US and as individuals or entities, which are further broken down as financial and non-
financial.
• On an annual basis, Banks and other Financial Organisations will be required to report
information on financial accounts held directly or indirectly by US Persons.
• Foreign Financial Institutions (FFIs) are asked to enter into agreements with the IRS to
identify US accounts and report certain information about those accounts to the IRS on an
annual basis.
• USFIs and FFIs must report certain information to the IRS about substantial US owners of
non-financial foreign entities (NFFEs).

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What are some impacted business units and functions?
• Investment banking • Information technology (IT)
• Private wealth/banking • Finance
• Retail banking • Relationship management
• Custody • Payment processing settlement
• Prime brokerage
• Corporate tax
• Tax operations
• Compliance (e.g., Anti-Money Laundering/Know Your
Client)
• On-boarding and customer data

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FATCA Registration
• The FATCA Registration system is a secure, web-based system that Financial Institutions (FI)
can use to register under FATCA.
• https://sa.www4.irs.gov/fatca-rup/
• See the FATCA Registration User Guide for instructions on how to register online.
• https://www.irs.gov/pub/irs-pdf/p5118.pdf
• It establishes an online account with a home page and issues Global Intermediary
Identification Numbers (GIINs) to FIs and their branches.

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FATCA Exemption
• The FATCA regulations exempt many categories of FFIs from the
requirement to register and report, including:
• Most governmental entities
• Most non-profit organizations
• Certain small, local financial institutions
• Certain retirement entities

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Documentation Requirement for U.S person/U.S
Company
• The minimum requirement of FATCA for new client is to identify whether the potential
client is a U.S Person or if there are any U.S Indicia (Potential U.S Person) which may
potentially classify the client as a U.S Person.
• This process of identification shall be established by the new client declaring his/her status
in the FATCA Declaration Form (“FATCA Form”).
• Each new client needs to complete and sign the FATCA Form and the questions answered
in the FATCA FORM is part of client due diligence process.

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Documentation Requirement for U.S person/U.S
Company
• The forms are available in the U.S. IRS website.
• i. Form W-9, Request for Taxpayer Identification Number (TIN) and Certification
http://www.irs.gov/pub/irs-pdf/fw9.pdf
• ii. Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
• iii. Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax
Withholding and Reporting (Entities)
• http://www.irs.gov/pub/irs-pdf/fw8bene.pdf

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Non-Compliance with FATCA
• According to the IRS, foreign financial institutions "FFIs that enter into an agreement with
the IRS to report on their account holders may be required to withhold 30% on certain
payments to foreign payees if such payees do not comply with FATCA”.

• Related Video: FATCA Withholding Requirements

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Sample of FATCA Self-Certification Forms
•
• OCBC Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) Self-Certification Form for
Entities
• http://ocbc.com.my/assets/pdf/FATCA%20and%20CRS%20Self%20Certification%20form.pdf
•
• UOB Foreign Account Tax Compliance Act (“FATCA”) - Self-Certification (Entity)
• https://www1.uob.com.my/web-resources/business/pdf/forms/fatca-self-Certification-Non-Ind.pdf
•
• FATCA AND CRS DECLARATION FORM
• http://www.asnb.com.my/v3_/pdf/perkhidmatan/lainlain/FATCA-CRS_DeclarationForm20170628.pdf

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Sample of FATCA Policy
• https://www.ocbc.com.my/personal-banking/fatca_policy.html
•
• FATCA References
• https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca
• https://www.irs.gov/businesses/corporations/fatca-related-forms
• http://www.hasil.gov.my/bt_goindex.php?bt_kump=6&bt_skum=2&bt_posi=1&bt_unit=1&bt_sequ=1

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 CRS

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Common Reporting Standard (CRS)
• CRS is an information gathering and reporting requirement for financial institutions in participating countries,
to help fight against tax evasion and protect the integrity of tax systems.
• CRS is the standard for automatic exchange of financial account information (“AEOI”) developed by the
OECD.
• In addition to FATCA reporting; financial institutions face the CRS reporting challenge starting 2017 if they are
residents in any of the jurisdictions known as “Early Adopters”.

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CRS Adopters / Jurisdictions

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Impact of CRS
• CRS will significantly increase tax reporting for financial institutions located in the 100+
jurisdictions that have adopted CRS.
• Although US is not participating, there may be entities that are treated as participating in a
jurisdiction that participates in Organization for Economic Cooperation and Development
(OECD).
• Financial institutions resident in CRS countries should report account holder information
to their local tax authorities who will then exchange such information with countries
where account holders are tax residents.

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CRS Due Dilligence Procedures
• Similar to FATCA, CRS requires financial institutions resident to the Participating Jurisdictions to implement due diligence
procedures, to document and identify reportable accounts under CRS, as well as establish a wide-ranging reporting
process.

Source: CRS Handbook (http://www.oecd.org/ctp/exchange-of-tax-information/implementation-

handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm Dr Bad Yusoff 24
Reporting Financial Institutions

Source: CRS Handbook (http://www.oecd.org/ctp/exchange-of-tax-information/implementation-

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handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm
Who Is Reportable?

Source: CRS Handbook (http://www.oecd.org/ctp/exchange-of-tax-information/implementation-

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handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm
What information gets reported?

Source: CRS Handbook (http://www.oecd.org/ctp/exchange-of-tax-information/implementation- Dr Bad Yusoff 27

handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm
Who Reports?

Source: CRS Handbook (http://www.oecd.org/ctp/exchange-of-tax-information/implementation- Dr Bad Yusoff 28

handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm
Due-Diligence Procedures

Source: CRS Handbook (http://www.oecd.org/ctp/exchange-of-tax-information/implementation-

handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm
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CRS Self-Certification Form.
Individual Entity Controlling Person*

1) Name 1) Name 1) Name

2) NRIC No./Passport No. 2) Address 2) NRIC No./Passport No.
3) Passport Expiry Date 3) Country of tax residency 3) Passport Expiry Date
4) Date of Birth 4) Taxpayers Identification 4) Date of Birth
5) Place of Birth Number 5) Place of Birth
6)Residential Address / Mailing 5) Place of registration 6)Residential Address / Mailing
Address 6) Entity type Address
7)Country(ies) of tax residency 7)Country(ies) of tax residency
8)Taxpayer Identification 8)Taxpayer Identification
Number(s) Number(s)

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Verbal Self- Certification
• Provided a self-certification contains all the required information and the self-certification is signed or positively affirmed
by the customer, the Standard foresees that a Financial Institution may gather verbally the information required to
populate or otherwise obtain the self-certification.
• In all cases, the positive affirmation is expected to be captured by the Financial Institution in a manner such that it can
credibly demonstrate that the self-certification was positively affirmed (e.g., voice recording, digital footprint, etc.).

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• Sample CRS Certification Forms
• https://www.ocbc.com.my/assets/pdf/Help_and_support/self_certification_fatca_crs.pdf
•
• CRS Handbook and References
• http://www.oecd.org/ctp/exchange-of-tax-information/implementation-handbook-standard-for-automatic-exchange-of-
financial-account-information-in-tax-matters.htm
•
• http://www.hasil.gov.my/bt_goindex.php?bt_kump=6&bt_skum=2&bt_posi=1&bt_unit=2&bt_sequ=1&bt_lgv=2

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CRS vs FATCA

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Review and comparison of FATCA vs. CRS
FATCA CRS
Governing Authority United States 100+ separate tax jurisdictions

Registration IRS registration to obtain Global Intermediary Identification No registration required

Number (GIIN)

Withholding Withholding required on Non Withholding not applicable,

Participating Foreign Financial however penalties are expected to be introduced for non-
Institutions (NPFFIs) and compliance
recalcitrant account holders

30% withholding on non-compliant payees / Intermediaries No withholding

Account Scope US Individual Accounts, Individual and Entity accounts held by tax residents of any
US Entity Accounts and CRS participating jurisdiction or Passive NFEs with
Passive NFFE accounts held by substantial US owners controlling persons that are resident in any CRS
participating jurisdiction
Reportable persons US persons, including US citizens and US tax residents living Non-residents of the jurisdiction (residence address test)
overseas

Thresholds New Individual:$50,000 With the exception of pre-existing entity accounts, no

(Applicability of De Minimis Thresholds) thresholds applicable
New Entity: N/A

Pre-existing Individual: $50,000 (generally) and $250,000

(cash value insurance)

Pre-existing Entity: $250,000

Documentation Requirements Forms W-8/W-9 may be used to capture all tax data CRS self-certifications must be developed
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US tax forms are not acceptable to capture all CRS data.
CRS –Key differences from FATCA
• More countries
• More financial accounts
• Entity re-classification, particularly for Investment Entities
• More self-certification
• Limited use of de minimis thresholds
• Residence based criteria
• Different information to be reported
• Distinction between a Reportable and Participating jurisdiction.

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The key steps to compliance
• 1.Entity Classification–determine the classification of all relevant entities to see how FATCA
and CRS will impact them.
• 2.Identify Financial Accounts–for entities that are FIs, determine what the financial
accounts are and whether exemptions apply that will mean some are not treated as
financial accounts.
• 3.Identify Account Holders–this will determine who to perform due diligence and reporting
on. Issues to consider include whether they are your account holder, what their FATCA /
CRS status is and whether you need a self certification from them.
• 4.Due diligence–perform due diligence and onboarding procedures for relevant financial
accounts and consider use of exemption thresholds to reduce administrative burden.
• 5.Reporting–if an account holder has been identified as a reportable person, systems and
procedures should be in place to enable reporting.

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What should you be doing now?

• Project approach –Securing project resources and determining global governance and
structure. Local laws require local expertise.
• Effective gap analysis between CRS and FATCA and lessons learnt from FATCA
implementation. How do the differences impact and how are they dealt with?
• Information technology and systems changes -are existing IT systems up to speed or are
additional resources needed?
• Amending documentation–Do procedures/legal/regulatory documents need to be
amended and how long will this take?
• Compliance assurance -implementation, testing and on-going monitoring.
• The customer experience –ensuring that the client relationship is suitably handled.
• Training and communications -internal and external. Consider challenges associated with
understanding of terminology, requirements and implementation impact.

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Suggested Project Phases
• Phase 1: Completing CRS Gap Assessment
• •Review existing policies, processes and procedures
• •Identify enhancements required for CRS
• •Update existing requirements documents
• •Conduct business level walkthroughs
• Phase 2: Implementation
• •Refreshing policies and procedures to capture CRS compliance efforts
• •Drafting relevant requirements documents for CRS implementation
• •Updating systems and manual processes to capture incremental CRS requirements
• Phase 3: Building a strategic view
• •Planning for regulatory changes beyond FATCA and CRS (e.g. GDPR)
• •Standardizing and centralizing collection, validation and monitoring of customer information
• •Developing a consistent onboarding experience with flexibility for local requirement

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Sample Combined FATCA & CRS Forms
•
• OCBC Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) Self-Certification Form for
Entities
• http://ocbc.com.my/assets/pdf/FATCA%20and%20CRS%20Self%20Certification%20form.pdf

• FATCA AND CRS DECLARATION FORM

• http://www.asnb.com.my/v3_/pdf/perkhidmatan/lainlain/FATCA-CRS_DeclarationForm20170628.pdf

• OCBC Common Reporting Standards (CRS) Self-Certification Form

• https://www.ocbc.com.my/assets/pdf/Help_and_support/self_certification_fatca_crs.pdf

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Thank
You
FB: Dr Bad Yusoff
+012-3124466
badrulhishamyusoff@gmail.com
www.drbadyusoff.com