FATCA, FBAR and global regulatory legislation trends impacting your HR function October 2014

Transcription

1 FATCA, FBAR and global regulatory legislation trends impacting your HR function October 2014

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a clientserving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2014 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2

3 Presenters Mark Fitzgerald, Partner Ernst & Young LLP (UK) Meghan Cerretani, Senior Manager Ernst & Young LLP (UK) Page 3

4 Customer tax transparency: the regulatory landscape Overview Delivered a report outlining all tax crimes as predicate offense for money laundering Impact Periodic review of country implementation Overview Foreign Account Tax Compliance Act (FATCA) targets tax non-compliance by US persons with foreign accounts. Impact All financial institutions are required to identify new and existing US persons. Information must be reported to either the Internal Revenue Service (IRS) or national revenue authority. Overview National revenue authorities are targeting tax evaders, targeting domestic and offshore assets. Impact Financial institutions need to remain close to domestic authorities to understand, lobby and participate in consultation for impending legislation as well as consider the impact on their customers. Financial Action Task Force (FATF) on money laundering Qualified Intermediary (QI) system and US FATCA Breadth of national measures Customer tax transparency G5/G8/OECD Automatic Exchange of Information Overview A multilateral exchange of information between nominated countries in order to facilitate the identification of tax evaders outside their national jurisdiction is required. Impact Financial institutions will be required to identify residency of customers and annually report financial account information to national revenue authorities for them to exchange. EU Savings Directive (EUSD) Final withholding tax agreements Double Taxation Conventions (DTCs)/Tax Information Exchange Agreements (TIEAs) Overview Proposed to expand scope regarding coverage and to eliminate opportunities to circumvent Impact More scrutiny required of payees; more products in scope for reporting Overview Withholds tax on certain undisclosed accounts but preserves anonymity of taxpayer Impact This is out of line with general transparency agenda. Are they sustainable? Overview OECD Template contains exchange of information, approximately 6,800 DTCs more than 50% with an end of life (EoI) clause Impact Provides a legal basis for EoI envisaged under OECD plans Page 4

5 Key developments: a matching mechanism Information provider Financial institutions "Forms" Banks Investment funds Employers Insurance companies Brokers Matching mechanism Tax return Taxpayer Investors Salary/wage Income from investments Income from selfemployment Emoluments For US persons: Report of Foreign Bank and Financial Accounts (FBAR) Page 5

6 Individual responsibilities What is FBAR? FBAR is one specific piece of US legislation Reverse side of FATCA Anti-money laundering (AML) law requiring information return on non- US financial accounts Individual filing Institutional responsibility to provide certain information to its employees You may be aware of these forms from an individual perspective. FBAR impacts mobility but also local hires. How many US/Green Card holders do you have? Page 6

7 FBAR: technical overview Page 7

8 FBAR: technical overview US persons with a financial interest in or signature authority over a foreign bank, brokerage or other financial account are required to report it on Financial Crimes Enforcement Network (FinCEN) Form 114 (formerly Form TD F ) (FBAR) if the aggregate value of accounts exceeds $10,000 during the calendar year. A Treasury Department form implemented pursuant to the Bank Secrecy Act (31 U.S.C. 5314) Form administered by the IRS for reasons of confidentiality Data collected for the FINCEN FBAR must be e-filed by 30 June of each year. There are no extensions. FBAR is a penalty driver behind tax enforcement. Page 8

9 FBAR: key terminology Who is a US person? $10,000 aggregate value US citizens or residents (including substantial presence test) Entities created or organized in the US or under the laws of the US and trusts or estates formed under the laws of the US What is a financial account? Includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit or other account maintained with a financial institution or other person performing the services of a financial institution Determined by aggregating the highest value at any time during the year of each foreign financial account Includes the total value of accounts in which the filer holds a financial interest, or signature or other authority over the account Converts the aggregate maximum value of the foreign currency by using the Treasury s Financial Management Service rate from the last day of the calendar year, if the account is not maintained in US dollars FBAR filed if the aggregate of the maximum account values exceeds $10,000 at any time during the year Page 9

10 What is signature authority? Signature authority is the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communications (whether in writing or otherwise) to the person with whom the financial account is maintained. Only individuals, not entities, capable of possessing signature or other authority Only individuals who can give instructions directly to the financial institution (alone or jointly) Merely being in the chain of command is not signature authority Application to users of electronic systems generating instructions Application to signature cards/checks Application to officers of entities Page 10

11 Scary stuff: let s talk about penalties Penalties: civil Failure to file an FBAR can carry a civil penalty of up to $10,000 for each non-willful violation. If the violation is found to be willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation. Each year of non-filing is a separate violation. Page 11

12 Scary stuff: the punch line Penalties: criminal Penalties include a fine of up to $250,000 and five years of imprisonment. If the FBAR violation occurs while violating another law (such as federal tax law or money-laundering law), the penalties may be increased to up to $500,000 in fines and/or 10 years of imprisonment. Signature authority: Institutional bank accounts are covered. Institutions have responsibility under the law to provide the relevant information to employees. Page 12

13 FBAR: case studies Page 13

14 What is HR s role? Mobile employees Maria, an executive employed at US Sub, is moving to the UK. Institution organization Maria is a US citizen. EMEA HQ As part of her new position, Maria will have signature authority over UK Sub s bank accounts (in the UK) and Portuguese Sub s bank accounts (in Portugal). Questions: US Sub UK Sub Does Maria know about FBAR? Does the business know she is a US citizen? Are they providing data? Is EMEA HQ paying for Maria s US tax returns and FBAR to be prepared? Portuguese Sub Page 14

15 Not just a mobility issue, locals FBAR also applies to: US persons outside US with current reporting requirement, including: Dual citizens who are also holders of US passport living abroad Non-US citizens who are also holders of US Green Cards Non-US citizens who meet the substantial presence test Maria holds dual nationality in the US and the UK. She is employed by UK Sub and has never required a work permit. She has accepted a new position with Portuguese Sub and does not need a work permit in Portugal under EU rules. She will have signature authority over Portuguese Sub s accounts. Page 15

16 Signature authority Signature authority Maria is a US citizen and works in back office treasury in UK Sub. Maria cuts employee salary checks and pays invoices of creditors. Maria also has control over petty cash disbursements. Does Maria have signature authority? Over what? Maria is promoted and no longer performs back office financial functions. Does she still have signature authority? Page 16

17 Signature authority Signature authority Maria is a US citizen and an executive of UK Sub, which is a financing business. She regularly arranges and approves loan contracts with third parties, and the loan contracts are not valid until she executes the documentation. Once Maria has signed, funds may move out of UK Sub s accounts. Does Maria have signature authority? Page 17

18 Former employees Maria left the institution to work for a hedge fund. Institution organization Maria owns an interest in UK Sub s pension plan (a UK vehicle). Maria s signature authority over UK Sub s accounts and Portuguese Sub s accounts has never been rescinded. US Sub EMEA HQ UK Sub Portuguese Sub Page 18

19 FBAR: questions and takeaways Page 19

20 Practical questions Identification of US persons how does the institution know whether any given employee falls under the definition? Can current HR systems track nationality? What about dual nationals or substantial presence in the US? Signatory authority how does the institution track signature authority? Does HR have the capability? Communication how does the institution communicate both the requirement and the relevant information to employees? Page 20

21 How to tackle the problem Develop processes to track status of a US person: Intake forms Update current data Data process to track signatories: Cleaning up former employee authority Tracking future authority Clear policies: Education modules Methods of reaching current and former employees Sensitivity and confidentiality of data Document process and reasoning Page 21

22 Takeaways Who owns the FBAR process internally? Do your systems accurately record US citizenship and green card holder information? Is there a central list of signing authorities? What is the process if the person leaves or moves? Do you own the communication process? How is account data managed and shared? Page 22

23 Questions? Page 23