The Differences in the Automatic Exchange of Financial Account Information in Tax Matters between FATCA and CRS

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http://urn.fi/URN:NBN:fi:hulib-201606182458
Title: The Differences in the Automatic Exchange of Financial Account Information in Tax Matters between FATCA and CRS
Author: Arkiomaa, Minea
Contributor: University of Helsinki, Faculty of Law
Publisher: Helsingfors universitet
Date: 2016
Language: eng
URI: http://urn.fi/URN:NBN:fi:hulib-201606182458
http://hdl.handle.net/10138/164909
Thesis level: master's thesis
Discipline: Finanssioikeus
Fiscal law
Finansrätt
Abstract: In my pro gradu thesis, I introduce the applicable principles of automatic exchange of account information in international tax matters in the context of the United States’ Foreign Account Tax Compliance Act, or FATCA, regulation and contrast this with the OECD's Global Forum drafted Common Reporting Standard, or CRS. The recently implemented policies require that certain actors in the financial sector, such as banks and investment entities report their foreign clients and their account information to their respective tax residence jurisdictions, and with FATCA that they report to the United States of America. I describe some of the practical application problems, that these requirements regarding financial account information may cause in the private sector and at the administrative level, especially with respect to these two different automatic exchange of financial account information systems, FATCA and CRS. I focus on the differences between these two systems by comparing them to one another. The chosen perspective is global compliance and application, instead of any particular jurisdiction applying FATCA and/or CRS. I use certain jurisdictions as examples of the treaty implementation to further demonstrate the differences between the two systems. The main research method is a fiscal policy approach with a socio-economic focus as well as some methods of comparative law. The key sources are the applicable treaties and the material containing the detailed rules for the application of the systems. As additional source material I also use academic articles and government announcements, which specify the interpretation of the applicable rules. I approach the subject by dividing the pro gradu thesis into chapters that cover the principle of automatic exchange of information or AEoI focusing on the financial account information exchange in the two major applicable treaties. The main chapters of this thesis introduce the implemented practices from these agreements by emphasizing their significant differences and their possible effects in practice. In the early chapters, I briefly introduce the EU legislation about AEoI as a reference point. The first chapter of this thesis introduces the scope of the topic of AEoI and the interdisciplinary connections to other fields of international tax law. I give some background information about the history of AEoI legislation process and explain the international public pressure for the agreements. The next chapter briefly describes the legislation process of FATCA and the overall system of AEoI in FATCA. Later, I examine the specifics of the agreement focusing on the obligated parties and financial accounts. The second main chapter is a similar description of the multilateral CRS and its background. This leads to the main chapter of this thesis and the further analysis of the research question: What are the main differences between FATCA and the CRS and how will the differences affect the practical applicability of the principle of AEoI for financial accounts in tax matters? The final chapter binds together specific differences between of the application of the automatic exchange of financial account information principles based on the treaties and introduced academic material as well as speculation about the future of AEoI in the light of these agreements and their differences reflecting on global fiscal policy. Finally, I summarize my arguments in the Conclusion chapter. From the technical perspective, the most significant areas of divergence include the option to use account balance de minimis thresholds for identification and reporting purposes to exclude or lighten the due diligence requirements of the financial institutions under FATCA but not under CRS. This has led to implementation, cost and system design issues for many jurisdictions. The treaties have a large amount of very specific definitions, which are used for the implementation of the AEoI, some of these terms do not correspond to one another in the two systems. CRS relies primarily on domestic legislation and practices, whereas FATCA refers mostly to US policy. Additionally, FATCA has a broader set of excluded accounts compared to CRS. Finally, one of the most important differences is the extent of reciprocity in the automatic exchange of financial account information between FATCA and the CRS. FATCA is not truly reciprocal but has a strong economic incentive for compliance. CRS, on the other hand, is truly reciprocal, but lacks efficient compliance incentives and enforcement of sanctions. Neither of the systems do a very good job of regulating trusts and seem to leave them outside of the general reporting requirements, if they are carefully set up in a way to circumvent both systems.


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