Verification Process for FATCA Reporting

The verification process for FATCA reporting involves several key steps to ensure compliance with regulatory requirements and prevent tax evasion:

1. Identification of U.S. Persons: Financial institutions (FIs) must identify account holders who are considered U.S. persons or foreign persons according to FATCA and CRS definitions. This includes individuals who are U.S. citizens /residents or foreign persons, as well as certain entities with U.S. ownership/ control or foreign ownership /control.

2. Documentation Collection: FIs must collect appropriate documentation from their account holders to verify their FATCA/CRS status. This may involve obtaining IRS forms such as W-9 for US individuals or W-8 series forms for non-U.S. persons or self-declaration with tax residency details.

3. Due Diligence Procedures: FIs are required to implement due diligence procedures to identify any indicia of U.S./foreign residency status among their account holders. This can include reviewing account records, conducting interviews, or using electronic systems to screen for U.S. /foreign countries indicia.

4. Reporting to the IRS: Once account holders have been identified and verified, participating FIs must report relevant information directly to the IRS on an annual basis. But FIs situated in Jurisdictions which have signed Inter Governmental Agreement (IGA) with US-IRS have to submit the statement to local regulatory authority. In the case of CRS, the report has to be submitted to local regulatory authority, who will exchange such data with respective jurisdictions. The data will include details about the accounts held by U.S. persons/Foreign persons, such as name, address, Tax Identification Number (TIN), balances, income etc.

5. Compliance Reviews and Audits: FIs may be subject to compliance reviews and audits by tax authorities to ensure accurate and effective FATCA and CRS reporting. Non-compliance can lead to penalties and other sanctions.

6. Customer Due Diligence (CDD) Process:FIs must implement robust Customer Due Diligence (CDD) processes to identify and verify the identities of their customers, which is essential for FATCA and CRS reporting.

7. Ongoing Monitoring: FIs must continuously monitor their accounts for any changes in account holder status or other relevant information that may impact FATCA and CRS reporting requirements.

8. Remediation and Corrective Actions: In cases where issues or discrepancies are identified during the verification process, FIs must take appropriate remediation and corrective actions to address them and ensure compliance with FATCA and CRS regulations.

The verification process for FATCA and CRS reporting is comprehensive, involving thorough identification, documentation, due diligence, reporting, and ongoing monitoring to meet regulatory requirements and prevent tax evasion. In the case of Indian FIs, reports have to be uploaded onto Central Board of Direct Taxes (CBDT) website for both FATCA and CRS compliance.