The US government enacted the Foreign Account Tax Compliance Act (FATCA) in March 2010. FATCA was enacted to fight tax evasion through the use of foreign accounts by US individuals and entities.
FATCA Requires non-US financial institutions to apply a due diligence process on all of its accountholders. The due diligence process should lead to (i) identification of US accountholders (ii) reporting of US accountholders to the IRS (iii) withholding of up to 30% tax on payments to accountholders that could not be identified properly as well as on payments to financial institutions that do not cooperate in the implementation of FATCA
As of January 1, 2014 the registration portal of the IRS went live. Financial institutions that cooperate should have registered on that portal before June 30, 2014.
As of July 1, 2014 policies to identify US persons from new accountholders should have been up and running.
A growing group of countries have entered into an Intergovernmental Agreement (IGA) with the US on the implementation of FATCA.
These IGA require financial institutions operating in the IGA-country to (i) apply a due diligence process on existing and new clients (ii) identify US accountholders and (iii) report on US accountholders to local tax authorities.
Financial institutions in IGA countries should register on the IRS portal prior to June 30, 2014 and have identification processes in place for new accountholders by July 1, 2014
OECD Common Reporting Standards
The Organisation for Economic Cooperation and Development (OECD) is in the process of drafting a Model Treaty that contains the requirement for financial institutions to identify all foreign accountholders.
The Model Treaty is modelled on the FATCA IGA and is expected to be published in February 2014. Guidance notes are expected in the summer of 2014. The expectation of the OECD member countries is that the Common Reporting Standards should be enacted in local legislation as of Jan 1, 2015.
Due to the fact that the Common Reporting Standards affect all foreign accountholders the impact of these Standards may be much bigger than the impact of FATCA.
How can we help?
These new requirements affect each financial institution’s procedures and workflows and specifically with regard to KYC. i-KYC can provide you with assessments on the impact of FATCA, IGA and Common Reporting Standards. We furthermore can assist you in preparing project plan, advice and training concerning the best way for your financial institution to approach client information reporting. We have the breadth and depth of international banking knowledge and experience to provide tailored training courses to assist your financial institution in becoming FATCA-compliant.