Among nations that require Automatic Exchange of Information (AEOI)
reporting, the United States is the only
country that hasn’t signed on to the
Common Reporting Standard (CRS).
That’s not likely to change, but we could
see changes to FATCA once the first
round of CRS reporting is analyzed.
CRS filing deadlines in 2017 ran from
February through September for various
jurisdictions, and financial institutions
and government tax agencies are in
the process of evaluating the standard.
Lessons learned from CRS will surely
find their way to FATCA in one way or
another, but just how that will happen
For now, compliance professionals at
financial institutions need to maintain a
proactive approach, continuing to prepare for a future in which AEOI reporting will become increasingly complex as
FATCA and CRS inform each other of
gaps to be addressed.
As CRS evolves,
so will FATCA
CRS is by no means set in stone, nor is it
as monolithic as it sounds (but perhaps
should be). Each jurisdiction has its
own reporting requirements and deadlines, which is increasingly challenging
to manage and confusing for compliance professionals. The list of countries
adopting CRS is still growing, and late
adopters will likely be stricter with both
requirements and penalties than nations
that signed on early.
FATCA predates CRS but is still very
much subject to change. Prior to the
advent of CRS, the only AEOI report-
ing standards were FATCA, and to a
lesser extent, the corresponding Crown
Dependencies and Overseas Territories
(CDOT) system in the United Kingdom.
FATCA was a de facto standard for the
entire financial services industry, but
CRS has changed that. Governments
around the globe and financial institu-
tions reporting to them, now have the
first wave of CRS reporting as a major
standard to compare against FATCA.
CRS’s relative success in helping to
close tax gaps in jurisdictions around
the world will likely impact FATCA and
vice versa. In any case, the more effec-
tive elements and requirements from
CRS could very well find their way into
FATCA, meaning FATCA compliance
and preparation would become even
more complex for financial institutions.
Potential FATCA adjustments could
include changing deadlines for transmit-
tals, or new requirements for the type of
information to be reported.
between FATCA and
Recently, the 1042-S form, which American financial institutions once used to
report payments to foreign customers,
has become one of the more troublesome forms to navigate in relation to
FATCA. Since institutions that issue
1042-S forms likely have FATCA reporting requirements, understanding exactly
what is required for 1042-S and FATCA
reporting can get confusing.
For instance, consider an American
bank with a branch operating in Toronto.
If the bank manages the Toronto branch
as an American entity operating in Can-
ada, it sends 1042-S forms to the Cana-
dian customers it pays, and reports that
information back to the IRS. If the bank
manages the branch as a Canadian entity
run by an American parent company,
it does not escape reporting mandates,
and it is required to submit informa-
tion to the IRS about payments made to
American customers under FATCA. It is
the FATCA reporting requirements that
financial institutions abroad have trouble
understanding and often overlook.
The burdens of 1042-S and FATCA
reporting compliance will only be com-
pounded for financial institutions that
approach the two reporting entities with
disparate teams using separate processes.
As a proactive approach, large banks
with international operations should
sync 1042-S reporting and FATCA re-
porting processes together into a single
operation. Adopting a more centralized
process will allow financial institutions
to preserve their reputation among cur-
rent and future clients, and prevent in-
ternal inefficiencies that increase the risk
of errors and costly penalties.
FATCA changes ahead
By closely examining form 1042-S and
the information it requires, we can
identify signs of FATCA changes to
come. Data from the W- 8 form, which
financial institutions use to gather
information from customers who are
not U.S. citizens or residents, ultimately
populates form 1042-S. One such sign
is that the IRS now requires customers’
foreign tax information numbers (
FTINs) on W- 8 forms.
The IRS considers W-8s—and, consequently, 1042-S forms—without FTINs
to be invalid. As a result, financial institutions are having to repaper their entire
international client database to ensure
How to Prepare for the (Uncertain)
Future of FATCA
PERSPECTIVES | BY PAUL BANKER
WHILE BANKS SHOULDN’T GET TOO ACCUSTOMED to the Foreign Account Tax Compliance Act (FATCA) as it currently exists, controllers and compliance professionals do need to prepare for how it could evolve.