Financial Asset: Common Reporting Standard (CRS) vs. FATCA

Konrad K. Häuptli
Konrad K. Häuptli
Of Counsel (AEoI, CRS, FATCA)
Financial Asset: Common Reporting Standard (CRS) vs. FATCA

Find out more about the difference between the categorization of "Financial Asset" in the Common Reporting Standard (CRS) and FATCA.

There is a difference between the categorization of "Financial Asset" in the CRS and FATCA. This may result in some entities being classified as Passive Non-Financial Entity (pNFE) under CRS rather than as investment entities.

Under the Common Reporting Standard (CRS) the term “Financial Asset” doesn’t address cash, whereas under FATCA, cash is expressly categorized as “financial asset”. This may result in some entities being classified as Passive Non-Financial Entity (pNFE) under CRS rather than as investment entities; e.g. a company that holds cash and no other assets would be a Financial Institution (FI) under FATCA. If cash is not considered a financial asset for the purpose of the CRS, the company may be pNFE under CRS.

It does not help either that some jurisdictions have been working on the basis that cash can be included in “Financial Assets” while others have been working on the basis that it should not be included, and the remainder are sitting on the fence. In view of that it is to be hoped the OECD will issue clarifying supplementary guidelines soon, just as they attempted to provide guidance in e.g. FAQ April 2017 p. 18 (D) (2) “Passive Non-Financial Entities” and in the CRS Implementation Handbook (p. 87) to clarify that “the Standard was designed to achieve an equivalent outcome to that achieved through the Model 1 FATCA IGA”. Nevertheless, neither the CRS Implementation Handbook nor the CRS FAQs have the force of law. It is the participating jurisdiction itself that has to issue guidance.  

Source: CRS Standard, taxnotes.com and STEP

Commentary

In the absence of clear guidelines issued by the OECD on cash treatment it is up to the industry, e.g. TrustCos to issue internal policy to consider cash as financial asset. This decision may lead to more FI classifications and increased reporting as well as controlling of the respective TrustCo. Example: A trust that is an FI holds its cash in an underlying company (ULC) with no other assets. The ULC is generally regarded as FI under FATCA but may be regarded by some as a pNFE under CRS. Under the mentioned internal policy the ULC would be regarded as FI under both FATCA and CRS.

If you have any questions, please reach out to our CRS and FATCA experts.