|Claire Dawson||Diana Torres|
FATCA is a US regulatory requirement that seeks to prevent US taxpayers who hold financial assets in non-US financial institutions (foreign financial institutions or FFIs) and other offshore vehicles from avoiding their US tax obligations. The intention is for FFIs to identify and report to the IRS, any US persons holding assets abroad and for certain non-financial foreign entities (NFFEs) to identify their substantial US owners.
Failure to enter into an agreement or provide required documentation may result in the imposition of a 30% withholding tax on certain payments made to such customers and counterparties.
As the aforementioned countries have agreed in substance, or signed, a Model 1 IGA with the US Government, every entity that meets the FATCA FFI definition, not otherwise exempt under the IGA, will have to comply with the requirements established by the IGA including:
- Register with the IRS and obtain a Global Intermediary Identification Number (GIIN);
- Classify their financial accounts for FATCA purposes; and
- Report US accounts identified (US accounts are financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest)
Financial institutions in these jurisdictions must make sure they meet the reporting deadline set out by the local regulator. Participating FFIs will be required to file information with respect to the 2014 calendar year (that is, for individual financial accounts on boarded after July 1 2014) before September 30 2015 (please note that this is the deadline for the local regulator to report to the IRS; the FFI's deadline is likely to be earlier and will be announced by the local regulator in due course).
The main challenge faced by FFIs in these jurisdictions has been the limited guidance provided by local regulators, particularly with respect to reporting; in certain instances no dates have been provided, nor a portal made available to the FFIs. Some regulators have indicated that a portal will only be made available once the IGA has been signed, which could potentially give FFIs limited time to report. FFIs should ensure they have the reporting data available in extractable format so they are able to meet the reporting deadline once it is announced.
Financial institutions should also be looking to future reporting requirements, namely the OECD's Common Reporting Standard (CRS). The CRS requires the reporting of assets held in one country by residents, nationals or taxpayers of another jurisdiction. More than 90 different countries have now committed to comply with this standard, including KSA, Qatar and the UAE with effect from 2018.
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