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FATCA - The path forward | Whitepaper


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Foreword

A clearer way ahead for financial institutions as FATCA comes into focus

FATCA - The path forwardThe Foreign Account Tax Compliance Act (FATCA), which became law in 2010, requires foreign financial institutions to provide detailed information about U.S. account holders to the Internal Revenue Service (IRS) and U.S. Withholding Agents with non-U.S. clients to document the FATCA compliance of those entities. On February 8, 2012, the U.S. Treasury Department and the IRS released proposed regulations that provide financial institutions with a clearer road map—though not a final one—to compliance.

While the 388-page document leaves many unanswered questions, FATCA’s central purpose remains simple: to identify U.S. taxpayers who hold financial assets in non-U.S. financial institutions and other offshore accounts, so that they cannot avoid their U.S. tax obligations. FATCA implementation will not be an easy task as it requires changes to systems, operational processes, and customer relationships. The new regulations will interact with regulatory regimes already in place and may create a cascade of secondary effects.

Even with the uncertainty, financial institutions should be encouraged that the picture surrounding FATCA is brightening. The draft regulations released contain numerous modifications that indicate that government officials took public comments into consideration. The U.S. Treasury Department conveyed a clear intent to make the proposed requirements less difficult for institutions. In this context, they have relaxed certain thresholds for affected accounts, eased some timelines, and allowed greater reliance on existing processes and systems.

Although financial institutions will likely welcome this relaxed position, they should also view this as an opportunity to revisit their current approach to implementing the requirements. The scale of implementation can be daunting as the requirements cut across business lines, functions, and geographic locations, but achieving compliance is a manageable task and can be done efficiently. To realise this goal, institutions will likely be required to make strategic choices, leverage existing investments, and thoughtfully coordinate execution.

Financial institutions should greet FATCA with vigilance, scrutiny, and agility. They should not delay in getting started. In this document, Deloitte1 provides a glimpse into specific provisions of the new proposed rules, which are divided into four main areas—pre-existing accounts, new accounts, withholding, and reporting requirements. That is followed by a deeper look into the possible implications FATCA may have on financial institutions and the strategies and policies they can employ to efficiently achieve compliance.

This whitepaper is available in PDF format only.

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