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Foreign Account Tax Compliance Act (FATCA) - regulation memo
Foreign Account Tax Compliance Act (FATCA) - regulation memo
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Foreign Account Tax Compliance Act (FATCA) - regulation memo

13/03/2018

The Foreign Account Tax Compliance Act (FATCA) is a US tax regulation, implemented since 2014, that aims at preventing tax evasion by US investors

About FATCA

  • The Foreign Account Tax Compliance Act (FATCA) is a US tax regulation aimed at preventing tax evasion by US investors, who are liable to pay US taxes irrespective of their domicile
  • Its objective is to request non-US “Foreign Financial Institutions” (FFIs) to identify US account holders as well as entities under US control and provide the IRS with information on their assets, income payments and trade flows during the fiscal year
  • FFI definition includes almost all non-US financial entities: retail and private banks, custodians, broker dealers, investment banks, standard funds, hedge funds, private equity funds, collective investment schemes, insurance, CSDs and ICSDs
  • An intergovernmental approach (IGA) for implementing FATCA has become the major legal basis for FATCA implementation worldwide. More than 50 countries have negotiated an IGA. Two models of the IGA have in the meantime been developed:
    • Under model 1, FATCA partner FI will be required to collect and report information required by FATCA to their local tax authorities, who will then pass that information to the IRS. Reciprocity is an option
    • Under the IGA model 2 (Japan, Hong Kong and Switzerland), FI will report information directly to the IRS
  • FFIs were required to start due diligence on the 1 July 2014 for new and existing accounts

Industry implications of FATCA

  • FATCA compliance is required at group level. Non-compliance by one entity could make the entire group non-compliant

Scope

  • Identification of the accounts of US account holders and patrimonial entities under US control
  • Implementation of related due diligence and controls
  • FFIs incorporated in a Non Intergovernmental Agreement country or in a IGA model 2 country must obtain a waiver to be signed by account holders, relinquishing banking secrecy rights in connection with the reporting requirements imposed by FATCA
  • Annual reporting on all compliant US accounts to the national tax authorities/IRS and compliance with requests for additional information with respect to any US account maintained
  • Application of a 30% penalty tax on US revenues (dividends, interests, fees and US sales proceeds) paid to “non-compliant FFIs” or “recalcitrant” account holders (i.e. those not willing to disclose to the IRS)

BNP Paribas Securities Services’ view

The InterGovernmental Agreement approach was a FATCA game-changer as it added an important territorial dimension to the roll-out of FATCA and has become the major legal basis for FATCA implementation worldwide. It has eased program implementations and lowered running costs. Withholding tax should be marginal to apply.

Adapting and achieving tax compliance in a cost efficient manner through the tides of changing regulatory impediments are both the challenge and contribution of the FATCA community.

We registered with the IRS prior to April 2014 to be in the first IRS list and we are FATCA compliant within IGA and non-IGA countries.

We offer a complete range of services to assist our clients for which we are their transfer agent (such as provide raw extractions or assist in pre-qualification of existing investors to ease the registration process; provide reporting on status; calculation of the tax and transfer to IRS or local tax authorities).

Key dates

March 2010 - President Obama signs the ‘Hiring Incentives to Restore Employment Act’, which includes the FATCA regime

Second semester 2012 - Publication of the IGA model 1 and model 2 templates

August 2013 - IRS registration portal opens

1 July 2014 - Entry into force – FFIs required to start the due diligence for new clients

2015 - Reporting on positions on US reportable accounts and due diligence completed for pre-existing high value individual accounts

2016 - Reporting on positions and income and due diligence completed for all pre-existing accounts

2017 - Reporting on positions, income and gross proceeds

January 2019 - Begin to withhold on US gross proceeds

Download the regulatory memo:

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