With the 2009 protocol to the Swiss-US double tax treaty ratified, the US tax authority (Internal Revenue Service – IRS) can now submit group requests under the US Foreign Account Tax Compliance Act (FATCA). Swiss financial institutions (FIs) should therefore anticipate receiving, at any time, production orders from the Swiss Federal Tax Administration (SFTA).
All affected Swiss FIs should prepare themselves to be able to respond to orders within the 10-day deadline stipulated by the inter-governmental agreement (IGA) and Swiss FATCA Law. However, there are several areas where unexpected issues can arise in this regard and where workload can be underestimated.
One key area is the scope and FATCA classification of pool-reported accounts, which may need to be re-assessed because of three factors. One is the initial decision by some Swiss FIs to not apply thresholds, which is now mandated by the recently published SFTA FAQs. Second is the absence or insufficiency of the pool-reporting audit trail, for example which accounts were reported in which pool and for what reason. Third are uncertainties related to the application of presumption rules for entity accounts, which lead to the default classification as non-participating foreign financial institutions (NPFFIs – financial institutions that are not compliant with FATCA).
Another is repeating US indicia search efforts, especially where the audit trail of indicia triggering pool-reporting is not sufficiently robust. Swiss FIs must identify the strongest US indicium that led to the pool-reporting as well as a document showing the indicium – alternatively, all relevant US indicia may be reported. If a Swiss FI decides to report all relevant US indicia, extra work may be required for the indicia, from the 'US bank programme', which are not also FATCA indicia. Some indicia are not evidenced by any document (for example, when the Swiss FI was informed via phone), which requires explanatory comments or supporting screenshots from IT systems.
The FATCA-XML generation may also require additional work that could include IT development and/or data extractions. In particular, we see complexities in retrieving details about relevant income, gross proceeds and redemptions for non-consenting US accounts, as the pool-reporting only required reporting of the aggregate account balances.
A final consideration is that data unavailability/inaccuracy may impact the workload and timing. This could be because the data required is extensive, for example where it includes the personal details and (non-)US status of persons behind entities. Ensuring the right level of reliability needed for the data to be produced may also require cross-checking structured data against client documentation. When required information is not available in structured format, or not reliable, or when the supporting documentation is missing, the workload will also increase.
Underestimating the workload
There are three big areas where the workload involved in responding to requests can also be easily underestimated. The first is SEI-XML generation, which requires data that is often not readily available and must be retrieved and pre-processed.
This is a very work-intensive process. Mapping all the persons associated with the accounts to the roles used in the reporting (for example, the FATCA account holder, FATCA substantial owner, contracting party, beneficial owner/beneficiary, controlling person, etc.) is no trivial exercise.
Furthermore, data extractions are burdensome because some data is complex to retrieve, namely numbered accounts, and extracted data requires significant data cleansing/pre-processing work. When information is not available as structured data, or when the data is not reliable, populating the SEI-XML becomes fully manual, which may lead to inconsistencies, delays, and human error risk. Finally, certain data elements will not be stored in the CRM systems (for example, what due diligence procedures and definitions were applied), and these would require input from a FATCA expert.
The second area is that PDF documentation preparation is often more significant and slower than expected. Unless robust metadata allow identifying relevant documents automatically, manual reviews of large sets of documents are likely required. Some data items are also complex to document. Also, if a Swiss FI decides to redact personal information of employees and/or unrelated third parties, the associated workload may be significant.
The third is the existence of inconsistencies between prior data productions, in particular to US authorities for example under the Swiss bank programme, and to answer to FATCA group requests which should be avoided; this is not only true for the accounts in scope, but also the associated roles, US indicia, and account classification.
While reasonably straightforward in principle, the SFTA FATCA group requests technical specifications and the recently published FAQs require an adequate implementation. Some extra work is often required, in unexpected areas – as often, the devil lies in the details.
A full understanding of the requirements, adequate assessments, and preparation is required to be able to answer such requests within 10 days and to avoid a last-minute peak of workload with risks of incorrect reporting.
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