Understanding the roles of FATCA and CRS in international tax compliance

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In the current environment, there are staunch tax rules and regulations, both for individuals and businesses, that financial professionals must observe. Many of these standards are focused on ensuring visibility and preventing tax fraud in the U.S. Others have a wider scope, and can help mitigate issues with overseas transactions and financial earnings.

Two passports on a world map, with fiscal documents on top.

Two of these rules include the Foreign Account Tax Compliance Act, or FATCA, and the Common Reporting Standard, (CRS). These regulations are among the most prevalent when it comes to governing taxes around foreign income.

International tax accounting professionals must have a robust understanding of these standards to support clients’ global transaction and income activity. Students working toward their master’s degree in accounting, such as in the University of Alabama at Birmingham Collat School of Business online MAc program, will learn about FATCA and CRS during their advanced curriculum, and potentially in their elective coursework.

Let’s take a closer look at FATCA and CRS, the purpose of these regulations, and why they are important for international tax law compliance.

CRS and FATCA regulations explained

While CRS and FATCA are similar in their overarching goal, there are subtle differences between these two standards. Thomas Reuters defines these regulations as follows:

  • The Fair Accounting Tax Compliance Act creates cross-border compliance requirements for U.S. taxpayer information exchange. In other words, this standard means that tax authorities and other regulating bodies must obtain detailed account information for American citizen taxpayers every year. The purpose of this standard is to ensure visibility and transparency for the Internal Revenue Service, especially as it pertains to U.S. citizens’ foreign investments and income resulting from non-U.S. organizations. As Thomas Reuters notes in its explanation, FATCA also includes a tax withholdings component on foreign investments and income, in cases where documentation and reporting standards fall short.
  • The Common Reporting Standard is also a global initiative to support visibility and transparency for foreign-held accounts, and supports automatic information exchange for tax authorities. In this way, governing bodies are able to have the clearest picture possible when it comes to citizens’ financial assets and accounts held by organizations outside of their resident country. Unlike FATCA, which focuses on U.S. taxpayers, the CRS regulation impacts more than 100 countries across the globe, all of which have committed to upholding and supporting the standard’s reporting requirements.

New international tax laws

In terms of tax and accounting requirements, FATCA and CRS are both relatively new standards. According to a FATCA Frequently Asked Questions document from Deloitte, this regulation was signed into law in March 2010 and went into effect in 2013, with additional requirements going into effect in 2014. CRS, on the other hand, was initially adopted in 2016 in the Cayman Islands and the U.K., with other nations including the UAE, Kuwait, Lebanon, and others adopting in 2017. As Deloitte researchers point, as of early 2017, more than 100 countries and jurisdictions have committed to following the CRS standard.

In the accounting and finance industries, this means that FATCA and CRS are still in their early stages of implementation and compliance. This makes them a critical part of higher education for professionals seeking careers in international tax law. For CRS especially, as more regional jurisdictions agree to uphold the standard, it will only become more pertinent for tax and accounting professionals to ensure alignment and compliance.

Rethinking international tax law: Tech systems required

As FATCA remains an important reporting standard and the scope of CRS continues to grow with additional committing jurisdictions, tax professionals will need to use technology solutions to help ensure their compliance. It’s difficult to keep pace and support alignment with these and other financial standards through a manual strategy. In this way, a knowledge of accounting information systems is critical for MAc students and finance professionals.

“Financial institutions need a market-leading compliance tool that will analyze and monitor local tax laws, compile data from a myriad of sources, produce and validate tax information reports, and transmit those reports to the proper tax authorities,” Thomas Reuters states.

How a MAc degree prepares you for international tax accounting

Students enrolled in the online Master of Accounting program at the University of Alabama at Birmingham Collat School of Business can gain the key skills they need to navigate long-held and new international tax laws.

Through courses like Business Law for Accountants, Advanced Financial Accounting, and Tax Entities, students will learn about the regulations and standards that govern compliance in the accounting and finance industry. Students can also choose electives like Income Taxation I and International Accounting: From a User’s Perspective to expand their knowledge of international tax law. And with the option for electives including Accounting Information Systems and Technology-based Business Process Engineering, students can gain the skills they need to properly leverage accounting technology and digital systems.

To find out more about how a master’s degree in accounting can prepare you to work compliantly under international tax laws, connect with one of our expert enrollment advisors today.

Recommended Reading:

Forensic accountant: Explore careers and the value of an online BACC

Tax accountant: Explore careers and the value of an online accounting degree

Sources:

Thomas Reuters Deloitte compliance document

Deloitte FATCA FAQs