In February 2012 draft FATCA regulations were released by the US Internal Revenue Service (IRS). Relief provisions have been included in certain areas to ease the administrative burden of FATCA, which are likely to be welcomed by many affected companies. Despite these allowances businesses should not sit back. Given that foreign financial institutions (FFIs) will want to submit their FATCA application to the IRS by 30 June 2013, institutions need to act now.
The regulations released by US regulators on 8 February 2012 provided 388 pages of detailed guidance on the FATCA rules. As widely anticipated, IRS has responded to representations received during previous rounds of consultation by including relief provisions for certain aspects of FATCA. Businesses are now invited to provide further comments by 30 April 2012.
Below are some of the key changes introduced by the updated regulations:
Our team of FATCA specialists has in-depth knowledge of the proposed guidance and their practical implications for industry. We are able to provide additional insight on what the changes mean for businesses affected by FATCA through a number of channels.
FATCA will require foreign financial institutions (FFIs) that enter into an agreement with the IRS to identify their US account holders and report them annually to the IRS. The definition of an FFI is very broad and includes banks, custodians, brokers, many types of funds and insurance companies.
If FFIs choose not to enter into such an agreement with the IRS they will suffer a 30% withholding tax on payments of US source income or capital into the institution, irrespective of whether payments are made to the FFI itself or on behalf of the FFI’s clients.
FATCA is a tax measure but its impact on FFIs stretches far beyond the obvious tax and reporting obligations to require major changes in technology, operations and customer contact. The challenge of compliance is magnified by the number of jurisdictions in which FFIs operate and the variety of products they offer.
Compliance will be a complex and costly process for many FFIs and institutions should act now to ensure that they are ready to submit their FATCA applications by the 30 June 2013 deadline.
Faced with evolving requirements that span the business, FFIs preparing for FATCA should:
A key challenge will be sourcing and updating all know-your-customer processes to identify clients who could potentially be classed as US persons. Specific systems and process changes will likely include:
FFIs will also need to educate customer-facing staff and customers on how FATCA will affect them.
Deloitte has built a global cross-functional FATCA team comprising advisory and implementation skills that is already helping clients to become FATCA compliant with this complex, high-impact change to their businesses.