Despite the fact that the Common Reporting Standard (CRS) draws extensively on the Model 1 Intergovernmental Agreement (Model 1 IGA) approach of The Foreign Account Tax Compliance Act (FATCA), there are key differences that require specific onboarding, remediation, and reporting enhancements and processes. For example, the scope of CRS is broader than FATCA as it aims to identify tax residents in any of the 95-plus jurisdictions participating in CRS.
Furthermore, the account scope may be significantly greater than FATCA's because most thresholds applicable under FATCA are not applicable within CRS, and the categories of entities that have to provide information on controlling persons are broader.
IRS forms (e.g., Forms W-8 and W-9) are generally not acceptable, and reporting financial institutions will need to collect specific self-certifications covering the CRS requirements (e.g., CRS self-certifications need to allow the account holders to certify multiple tax residencies or provide CRS classifications that differ from FATCA).
Another key difference between FATCA and CRS is that CRS legal entity classifications can vary significantly from FATCA legal entity classifications. This difference may require a significant effort in the financial and nonfinancial services industries as they will need to confirm the classification of entities within their affiliated group, substantially increasing the cost of legal management of classifications and documentation.
Finally, unlike FATCA, CRS does not impose a withholding requirement. Instead, CRS enforcement will be handled by each of the jurisdictions adopting CRS that will be required to establish an audit and penalty regime for lack of compliance with the rules.
One important challenge associated with CRS is that even though the standard intends to impose uniform requirements across the jurisdictions adopting this new global information reporting regime, the reality is that each jurisdiction is entitled to exercise different options and expand the minimum requirements established in the standard.
In addition, the residency definitions and data privacy and protection rules can vary from country to country.