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AUTOMATIC EXCHANGE OF BANKING INFORMATION

Posted by Beatrice Bianchi Fasani | Jun 27, 2020 | 0 Comments

In 2010, the U.S. Congress enacted FATCA, the Foreign Account Tax Compliance Act. The structure of FATCA is two-fold. First, U.S individuals must report some of the income they earned abroad to the Internal Revenue Service (IRS). At the same time, certain banks (referred to as “Foreign Financial Institutions”) that hold that income must report the identity of their U.S.  clients to the United States.

FATCA's main purpose was to collect information concerning the bank accounts of U.S. taxpayers from banks and financial institutions located abroad. Initially, this relationship was entirely one-sided, a collection imposed by the US and not an exchange. In subsequent years, FATCA has modified its position, but it is still not an equal exchange.

To note, under FATCA stipulations, the IRS is still NOT obligated to share with the foreign country information pertaining to:

  • Cash accounts held by entities (Corporations, Limited liability companies, Partnership, etc.);
  • Non-cash accounts, whether held by individuals or entities, unless the accounts earn interests, dividends, or other income in the US.

Years later, the Organization for Economic Co-Operation and Development (OECD) proposed similar regulations under the name CRS, or Common Standard on Reporting and Due Diligence for Financial Account Information. 

While FATCA requires financial institutions to report information related ONLY to account holders from the US (individual or businesses), CRS involves an exchange of information among more than 90 countries. Under CRS, virtually all foreign investments handled by a financial institution become subject to a CRS report and are AUTOMATICALLY EXCHANGED every year.

Below, it's a list of the countries that signed the CRS (Note: the United States is NOT part of the CRS).

Albania, Andorra, Anguilla, Antigua and Barbuda, Argentina, Aruba, Australia, Austria, Azerbaijan, The Bahamas, Bahrain, Barbados, Belgium, Belize, Bermuda, Brazil, British Virgin Islands, Brunei, Bulgaria, Canada, Cayman Islands, Chile, China, Colombia, Cook Islands, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Ecuador,  Estonia, Faroe Islands, Finland, France, Germany, Ghana, Gibraltar, Greece, Greenland, Grenada, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Korea, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Macau, Malaysia, Maldives, Malta, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, Nauru, Netherlands, New Zealand, Nigeria, Niue, Norway, Oman, Pakistan, Panama, Peru, Poland, Portugal, Qatar, Romania, Russia, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Saudi Arabia, Singapore, Seychelles, Sint Maarten, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Trinidad and Tobago, Turkey, Turks and Caicos Islands, United Arab Emirates, United Kingdom, Uruguay, Vanuatu.

What does that mean?

Here is an example: if you are an Italian resident and hold an account at a bank in Switzerland, the Swiss bank is OBLIGATED every year to exchange information related to such account to the Italian tax authorities. On the other hand, if that Italian resident holds a BUSINESS account in the US, that account would NOT be subject to the automatic exchange of information

About the Author

Beatrice Bianchi Fasani

Beatrice Bianchi Fasani is a Florida licensed attorney and one of the founding members of the firm. She currently focuses her practice on inbound and outbound tax planning, pre-immigration tax planning, estate planning, real property transactions and corporate law.

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