The US Foreign Account Tax Compliance Act (FATCA) adds another dimension to the reporting landscape for CASPs serving US-person clients. Understanding how DAC8 interacts with FATCA obligations is essential for internationally operating CASPs.
FATCA Overview
FATCA requires foreign financial institutions to report information about financial accounts held by US taxpayers (or entities with substantial US ownership) to the US Internal Revenue Service (IRS). Non-compliance can result in a 30% withholding tax on US-source payments.
When FATCA Applies to CASPs
FATCA may apply to CASPs that are classified as foreign financial institutions under FATCA's broad definitions, hold accounts for US persons, or receive US-source income on behalf of their clients.
The classification of CASPs under FATCA is evolving. Not all CASPs are clearly classified as foreign financial institutions, but those that offer custody services or manage user funds may meet the definition.
Triple Reporting Scenarios
CASPs with both EU and US-person clients may face triple reporting obligations for the same user: CRS reporting for clients tax-resident in CRS-participating jurisdictions, FATCA reporting for US-person clients, and DAC8 reporting for crypto-asset transactions of all EU-resident users.
Ensuring consistency across all three reports for clients who appear in multiple reporting streams is a significant compliance challenge.
US Crypto Reporting Developments
The US is developing its own crypto-asset reporting framework under the Internal Revenue Code (particularly the broker reporting rules introduced by the Infrastructure Investment and Jobs Act). As US reporting requirements mature, CASPs may face parallel obligations from both the EU (DAC8) and the US, requiring careful coordination.
Conclusion
FATCA adds complexity for CASPs with US-person clients. Building a unified reporting architecture that can serve CRS, FATCA, and DAC8 from a single data source is the most efficient approach to managing multiple reporting obligations.
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