What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a U.S. Law introduced as a deterrent to US citizens, and green card holders who are living abroad, from avoiding paying US tax on global earnings. To ensure that its citizens are not avoiding tax, the IRS – under FATCA, require yearly reports from Foreign Financial Institutions (FFIs) containing the details of accounts held abroad by US taxpayers.
What are the timeframes?
FATCA was intended to come into effect from 1 January 2014. By this date it was expected that all affected institutions would have implemented new account opening procedures. Initially it was expected that certain information would be available by the end of March 2015.
However, following the recent introduction of a ‘transition period’ extending to the end of 2015, within which enforcement of FATCA due diligence withholding and reporting requirements will be relaxed, in-scope entities have more time to become FATCA compliant. During this period the IRS will take into account the degree to which the in-scope entity has made ‘good faith efforts’ to become compliant with the obligations imposed. Also FATCA withholding has been pushed out until 1 January 2017. As a result FFIs may feel they have more time. However, as the scope of FATCA is so vast background work cannot be ignored. We list below five areas FFIs should consider now.
5 areas to consider
- Client Outreach – FFIs must determine how to obtain and gather the requisite information from their clients. On a global basis this has broad implications. An FFI must consider how to best to manage client outreach on a country-by-country basis. Local rules surrounding data security can make it difficult to obtain key information.
- Data – FFIs will have to analyse their legal entity structures to determine whether they are affected by FATCA. As such FFIs must amend on boarding procedures, internal processes, and control frameworks to capture the new data requirements. These changes will need to be planned and project managed.
- Internal technology – FFIs should examine their existing technology systems in relation to data acquisition, storage, distribution and record retention due to the front to back changes required to support FATCA compliance.
- Industry Solutions – FFIs must consider whether to outsource data capture to industry utilities or do it themselves to optimise their investment in being FATCA compliant.
- Build internal training and awareness campaigns – FFIs should conduct the necessary internal training and education across the multiple stakeholders impacted by FATCA so they get early buy in to streamline the process.
The timeframes may have been relaxed, but the consensus across the market is that there is still much or all to do. The 2014 deadline was not achievable, but one year’s respite leaves no time for any FFI to rest upon its laurels. There is much still to be done. It’s time to keep driving.