FinTech: Are You Subject to FATCA/CRS as a QCCI?

The U.S. Foreign Account Tax Compliance Act (FATCA) requires that Foreign Financial Institutions (FFIs) establish a compliance program consistent with the U.S. Internal Revenue Service’s (IRS) goal of detecting U.S. tax evaders who maintain certain financial accounts either directly in offshore accounts and investments or indirectly through ownership of foreign entities. The Organization of Economic Cooperation and Development (OECD) developed the Standard for Automatic Exchange of Financial Account Information in Finance Matters (The Common Reporting Standard (CRS)) to establish a global framework for detecting tax evaders. Over one hundred jurisdictions around the world have committed to participating in CRS.

FATCA and CRS view credit card issuers as Depository Institutions and, therefore, Financial Institutions. However, there is a way for credit card issuers to reduce their obligations under FATCA and CRS. If the entity fits the Qualified Credit Card Issuer (QCCI) category, it faces a smaller regulatory burden under FATCA and CRS.

Qualified Credit Card Issuer 

Generally speaking, a QCCI is an entity that:

• Is a Financial Institution solely because it is an issuer of credit cards that accepts deposits only when the customer makes a payment in excess of the outstanding balance on the card due and does not immediately return the overpayment to the customer; and

• Implements policies and procedures

  • To prevent the customer from making an overpayment in excess of US$50,000; or

  • To ensure that any customer overpayment in excess of US$50,000 is refunded to the customer within 60 days.

Additional details apply such as the FATCA regulations (as opposed to the Intergovernmental Agreements (IGAs)) including servicers of credit cards and some jurisdictions’ local implementing legislation including other card and electronic money issuers under the QCCI umbrella. Both FATCA and CRS require the entity to aggregate card/app accounts when viewing the total amount held by an Account Holder.

QCCI FATCA/CRS Obligations

• Name a FATCA Responsible Officer (RO) and Points of Contact (POC). Note, the IRS ordinarily only sends routine emails to the Responsible Officer (RO).

• Register for a Global Intermediary Identification Number (GIIN) in the IRS FATCA portal as a “Registered deemed-compliant FFI (other than a reporting Model 1 FFI, sponsored FFI, or nonreporting IGA FFI)”. The GIIN will not show up in the IRS GIIN database until the IRS does its monthly update. Counterparties will usually accept a screenshot of the home page of the IRS FATCA account to validate the GIIN until it appears on the next IRS FFI List.

• Classify the QCCI under CRS as a Non-Reporting Financial Institution if the QCCI maintains its status as a QCCI.

• Complete IRS withholding form and/or counterparty (e.g., bank, asset manager) FATCA / CRS self-certifications.

• Conduct customer due diligence and employee training.

• Submit a Periodic Certification to the IRS every 3 years. It is an e-filing process but this pdf shows the questions posed.

• Add FATCA/CRS to your written compliance policies and procedures.

A QCCI does not have annual reporting for FATCA or CRS. If you expand your product offerings, review the FATCA/CRS classification of the existing or new entity to determine if your classification changes to Reporting Financial Institution.

Avoidance

The reason credit card and similar products are pulled into FATCA/CRS is to capture the instances where large sums are parked on the credit card as a means to avoid detection by tax authorities. (There are also anti-money laundering (AML) implications but for FATCA/CRS it is about tax avoidance.) The OECD’s CRS anti-avoidance rule prohibits schemes that intend to circumvent reporting under CRS. For example, the CRS Commentary states:

The following are examples of situations where it is expected that an anti-avoidance rule would apply:

Example 3 (Park Money with Qualified Credit Card Issuers): Individuals or Entities park balances from other Reportable Accounts with Qualified Credit Card Issuers for a short period at the end of the year to avoid reporting.

In order to assist participating CRS jurisdictions in detecting such schemes, the OECD set up an online system through which anyone can anonymously report abuses. Similarly, the IRS is part of the U.S. Department of Treasury and U.S. Treasury has been expanding and actively promoting its whistleblower programs.

For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.