FATCA is not going away - it’s for ever, & is part of global regulatory increase

The Foreign Account Tax Compliance Act (FATCA), which is designed to combat income tax avoidance by US nationals, became effective from 1 July 2014. Financial institutions, governments and corporates have and are struggling to put everything in place to meet the new FATCA requirements which are part of a global move towards greater transparency and putting an end to banking secrecy in tax matters. Fortunately there some good news - the introduction of inter-government exchange standards, and the increasing availability of FATCA support services for financial institutions and corporates.

Global standard for automatic exchange of information

Although FATCA became effective from 1 July 2014, the Organisation for Economic Co-operation and Development (OECD) only published the new standards for governments to automatically exchange information on bank accounts between tax authorities on July 21. The new Standard for Automatic Exchange of Financial Account Information in Tax Matters calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis. The new rules give:

details of the annual automatic exchange required between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations
commentary and guidance for implementation by governments and financial institutions
detailed model agreements, as well as standards for harmonised technical and information technology solutions, including the standard format and requirements for secure transmission of data.

The new standard will be implemented globally, as it was developed at the OECD under a mandate from the G20, endorsed by G20 Finance Ministers in February 2014, and approved by the OECD Council.

Although, most of the FATCA compliance burden will fall on Foreign Financial Institutions (FFIs), it also has a major impact on corporates. The impact on corporate varies depending upon on the corporate’s type of business, in pension and insurance companies the FATCA impact is huge. Specialist FATCA support services and companies are now available.

Thomson Reuters FATCA support services

The FATCA compliance solution from Thomson Reuters, which they describe as ‘complexity made simple’, integrates with existing processes and provides:

Onboarding of customers: using rule-based FATCA client classification and identification as part of the on-boarding process with the ability to track changes of circumstance to keep client profiles up to date. Plus managing complex income beneficiary hierarchies and pass-through structures. Testing for US Indicia with a rule and data engine that analyses customer data and combines market leading information and complex matching rules to identify a US connection. Collecting W-8, W-9 and future IGA forms through our online tax documentation solution for obtaining, updating and reporting tax and self-certification forms.
Reporting: tax information reporting module automates creating, printing and distributing the complete range of 1099 and 1042-S forms. The new FATCA and IGA reporting tools and forms are being introduced within the FATCA platform. Electronic filing is supported where required. Plus filtering and flagging over 8 million active records to identify those securities that are Grandfathered Obligations (GO) under the FATCA regulations.
Knowledge: eLearning solution support for enterprise-wide FATCA education as well as specific jurisdictional and departmental programs. Plus an online knowledge solutions track relevant regulatory changes from national tax bodies, streamlining tax research and providing expert analysis.

A particularly difficult and onerous task in FATCA compliance is the gathering of IRS Forms W-8 and W-9 which is time-consuming, prone to inaccuracies, and intrusive to customers and employees. Thomson Reuters has developed an electronic service, Identity, see below.

Thomson Reuters Identity service

The Identity service is classic example of the specialist services now available, that save busy clients time and admin, and reduce costs.

Implementation

Thomson Reuters FATCA service is a deployed software solution - the software is installed on the client’s servers (to overcome privacy issues). The full implementation of the solution with user’s own internal processes and systems varies but typically takes 2-6 months.

This item appears in the following sections:: Operations; Control & Compliance in Operations