eFAC – electronic FATCA & CRS Compliance
The Foreign Account Tax Compliance Act (FATCA) is a US law that was passed in March 2010 to discourage “US Persons”1 from evading US tax by using financial accounts held outside the US. FATCA requires the identification and reporting of information to the US Internal Revenue Service (IRS) on certain financial accounts held outside the US by US Persons. The US has signed a number of agreements with other countries to implement FATCA, including Canada. The requirement for Canadian taxpayers, including financial institutions, to comply with FATCA has been incorporated into Part XVIII of Canada’s Income Tax Act. Since 2014, Canadian financial institutions are required under Canadian law to identify and report information to the CRA on reportable financial accounts held in Canada by US Persons. The CRA then exchanges this information with the IRS.
The CRS is an international standard for the automatic exchange of information on “Financial Accounts” between CRS participating countries, which includes Canada. The CRS is very similar to FATCA, except the exchange of Financial Account information under the CRS is between countries other than the US. It was developed by the Organization for Economic Co-operation and Development (OECD), with the support of Canada and the other G20 industrialized countries, to reduce tax evasion and improve tax compliance around the world.
One hundred countries have agreed to exchange information under the CRS. The CRS requires financial institutions to request the tax residency of their clients and provide information to their local tax authority about any accounts held by tax residents of other countries. The local tax authority will then share the information with the tax authorities of the country or other countries where the taxpayer is considered to be a tax resident. The CRS describes the information to be exchanged, the different types of accounts and account holders covered, the types of financial institutions that are required to report, and procedures that financial institutions must follow to identify reportable accounts.
Canada has passed legislation (Part XIX of Canada’s Income Tax Act) requiring Canadian financial institutions to gather tax residency information from account holders for the purpose of identifying reportable accounts. This requirement began on July 1, 2017, and information relating to reportable accounts and account holders has been reported annually to the CRA beginning in May 2018. The CRA exchanges this information with countries with which Canada has an agreement. Canada has committed to ensuring countries it exchanges information with have safeguards to protect privacy and ensure the information is used only for tax purposes.
eFAC is an enterprise-wide software product to help Financial Institutions comply with FATCA and CRS regulations. The main features are it’s seamless integration with institutions’ client onboarding and other systems through API, easy navigation for users and electronic due diligence. For ONE-STOP-SHOP solution for FATCA and CRS regulatory requirements, contact SHIV today to learn more details!