Portfolio managers have specific reporting obligations under FATCA and CRS. This article explains the requirements and compliance obligations.
What is FATCA?
Definition
FATCA (Foreign Account Tax Compliance Act) is a US law that requires foreign financial institutions to report information about financial accounts held by US persons to the IRS.
Purpose
FATCA aims to prevent tax evasion by US persons using foreign accounts.
What is CRS?
Definition
CRS (Common Reporting Standard) is a global standard for the automatic exchange of financial account information developed by the OECD.
Purpose
CRS aims to combat tax evasion through the automatic exchange of information between jurisdictions.
Reporting Obligations
Self-Certification
All financial institutions must collect FATCA and CRS self-certification from clients.
Documentation
Portfolio managers must:
- Obtain valid self-certifications/FATCA and CRS declaration forms with documentary evidence as part of the account opening documentation
- Collect FATCA/CRS declaration forms
Reporting
Financial institutions are required to certify to SEBI on an annual basis regarding compliance with FATCA/CRS requirements.
Due Diligence
New Accounts
FATCA/CRS due diligence will be directed at each investor/unit holder (including joint investor).
Existing Accounts
Portfolio managers must conduct due diligence on existing accounts.
Reportable Persons
On being identified as a reportable person/specified US person, all the folios will be reported.
Compliance Requirements
Account Opening
Portfolio managers must:
- Obtain FATCA/CRS declaration as part of account opening
- Verify the declaration
- Maintain records
Annual Certification
Portfolio managers must:
- Certify to SEBI on an annual basis
- Ensure compliance with Rules 114F to 114H of Income-tax rules relating to FATCA/CRS
Record Keeping
Maintain records of all FATCA/CRS declarations and reporting.
Centralisation of Certifications
KRA Centralisation
There has been centralization of certifications under FATCA and CRS at KRAs.
APMI Guidance
APMI has issued guidance notes for FATCA and CRS submission.
Consequences of Non-Compliance
Regulatory Action
Non-compliance with FATCA/CRS requirements can result in enforcement action by SEBI.
Penalties
FATCA non-compliance can result in withholding tax penalties.
Reputational Damage
FATCA/CRS non-compliance can cause reputational damage.
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on FATCA and CRS compliance for portfolio managers. Our securities law experts help clients implement compliant processes, collect required declarations, and ensure regulatory compliance. Contact us for guidance on FATCA and CRS and other regulatory matters.