The Final FATCA Regulations Are Out What Does It Mean for the Swiss Economy

Transcription

1 The Final FATCA Regulations Are Out What Does It Mean for the Swiss Economy Erick C. Christensen Capgemini Financial Services Alan Winston Granwell DLA Piper This presentation is offered for information purposes only and should not be construed as legal advice on any matter.

2 Agenda Alan Winston Granwell The Swiss IGA Headline Change Swiss IGA Objectives What Does a Swiss FI Do? Swiss IGA Consequences FATCA Developments Final Regulations Local Law Conflicts Interaction of Regulations and IGAs EAG Rule under Regulations and IGAs Erick C. Christensen What Needs to be Done Now Preparation for FATCA Compliance - Compliance Program & Verification - Due Diligence - Registration - Reporting & Withholding Project Planning - Minimize FATCA impact - Automation - FATCA benefits enterprise compliance - Future proofing March 12, 2013 Swiss American Chamber of Commerce 2

3 The Swiss IGA Headline Change Swiss bank secrecy will no longer apply to US account holders that have financial accounts with Swiss financial institutions. US account holder information will have to be reported to the US Internal Revenue Service (IRS) on an annual basis. If a US account holder refuses to provide the requested information or provide the required consent to report the US account holder information, the Swiss FI must report aggregate information with respect to these Non-Consenting US Accounts, which may give rise to a group request by the IRS to the Swiss Federal Tax Administration with respect to specific information about the account. Compare this result to that under the Swiss Tax Agreement with Austria and the UK where Swiss bank secrecy with account holders from those countries is maintained but local withholding tax is collected. March 12, 2013 Swiss American Chamber of Commerce 3

4 Swiss IGA Objectives Implement FATCA with respect to all Swiss FIs. Ensure that all required information about US Accounts will be reported to the IRS. Remove legal impediments to compliance. Increase legal certainty by clarifying which Swiss FIs are subject to FATCA implementation. Reduce implementation costs by suspending, under certain circumstances, certain withholding and account closing obligations. Simplify the necessary due diligence. March 12, 2013 Swiss American Chamber of Commerce 4

5 Swiss IGA What Must a Swiss FI Do? Swiss FIs must determine whether it is a: Reporting Swiss FI. Non-Reporting Swiss FI (Deemed Compliant). An Exempt Beneficial Owner. An Excepted FFI under US Treasury Regulations. Reporting Swiss FIs must register with the IRS by January1, 2014 and agree to comply with the requirements of an FFI Agreement with respect to due diligence, reporting, withholding and verification. Under FFI Agreement, perform: Due Diligence. Reporting. Withholding. Verification. March 12, 2013 Swiss American Chamber of Commerce 5

6 Swiss IGA Consequences US Consequences. General. Each Reporting Swiss FI that registers with the IRS and complies with the terms of an FFI Agreement shall be treated as complying with the requirements of, and not subject to withholding under, FATCA. Specific. No FATCA withholding tax. Swiss FIs not required to withhold on recalcitrant account holders or close account. No passthru or gross proceeds withholding. Treated as compliant even if related entities in non-iga countries are not compliant after Swiss Consequences. Not liable to any penalty under Article271 of the Swiss Criminal Code. March 12, 2013 Swiss American Chamber of Commerce 6

7 FATCA Developments Final Regulations issued. Final Regulation revisions. Issuance of FFI Agreement. Issuance of Forms and Instructions. Revision of additional regulations related to FATCA. IRS Portal. IGAs. To date, nine IGAs signed or initialed; viz., UK, Denmark, Mexico, Spain, Switzerland, Ireland, Norway, Italy and Germany. Stand alone IGAs. New Model1 and Model 2IGAs to be issued. Diminished importance of Annex II. March 12, 2013 Swiss American Chamber of Commerce 7

8 Final Regulations Issued On January17, 2013, the US Treasury Department issued final FATCA Regulations ( Regulations ). The Regulations, although simplified and clarified, are lengthy (544pages) and over 150pages longer than the Proposed Regulations. March 12, 2013 Swiss American Chamber of Commerce 8

9 Regulatory Approach Approach: Targeted and risk-based. Balance policy considerations and administrative burdens; more fully incorporate existing local AML/KYC, documentation practices. The Regulations detail: Operational aspects of implementing FATCA. Reduce administrative burdens. Clarify interaction of the unilateral regulatory regime with the bilateral IGA regime. Regulations fill in many of the gaps regarding how foreign financial institutions ( FFIs ) should implement FATCA. March 12, 2013 Swiss American Chamber of Commerce 9

10 Headline Changes Withholding: grandfathered date extended for obligations outstanding on January1, 2014, and for gross proceeds and foreign passthru payments occurring before January 1, Covered FFIs: clarified and scope limited; non-professionally managed passive entities now are non-financial foreign entities ( NFFEs ), not FFIs; clarification of scope of depository institutions, insurance companies and investment funds. Financial Account: clarified and scope limited. Deemed Compliant: current category requirements relaxed and several new categories added. Retirement funds: exempted categories expanded and relaxed. Due Diligence/Documentation Rules: calibrated, based on value, risk profile; greater reliance on currently existing information, AML/KYC and local statements and self-certifications. March 12, 2013 Swiss American Chamber of Commerce 10

11 Headline Changes (cont'd) Timing: delay timeframes to review existing accounts and implement FATCA s obligations in stages. Compliance and Verification: FFI obligations detailed with respect to establishing, reviewing and remediating compliance program detailed. Local Law Conflicts with FFI Agreement: FFIs withholding and reporting obligations under an FFI Agreement and local law conflicts clarified. Regulation and IGA/Definitional Conformance: numerous definition variances and other items under Proposed Regulations and IGAs conformed. IGAs: detail provided as to interaction of Regulations and IGAs. IRS Portal: details provided, including with respect to registration and applicable dates. March 12, 2013 Swiss American Chamber of Commerce 11

12 Local Law Conflicts The information gathering, reporting and withholding obligations imposed on a compliant foreign financial institution may conflict with local law and expose the foreign financial institution to regulatory sanctions, civil suits or criminal prosecution. Local law conflicts: Data protection. Consumer protection. Anti-discrimination. Account opening/account closing laws or regulations. Withholding of US tax on income or gross proceeds paid to an account holder. Local law may be violated, even if an account holder provides a waiver consenting to such actions; for example, on the basis of duress. Local law conflicts place a foreign financial institution in an impossible position: either comply with FATCA and violate local or do not comply with FATCA and be subject to the FATCA withholding tax. The existence of local law conflicts is a principal reason for the bilateral IGA approach. March 12, 2013 Swiss American Chamber of Commerce 12

13 Interaction of Regulations and IGAs Use of Annex I or Final Regulations. Use of Regulatory Definitions. When can an FI follow an IGA? March 12, 2013 Swiss American Chamber of Commerce 13

14 EAG Rule under Regulations and IGAs Under FATCA, all FIs in EAG must be compliant. Under IGA, FI in an IGA country will not be prevented from becoming compliant as a result of being related to entities or braches that are Nonparticipating FIs if such related entities/branches operate in jurisdictions that prevent them from becoming a Participating or a Deemed-Compliant FI, provided certain procedures are followed. However, that is not the case under the IRS Proposed Regulations, at least after Thus, a Global FI that has FFIs in non-iga countries that are not compliant after 2016 due to local law conflicts, will all become noncompliant, while FFIs in IGA countries will remain compliant. IGA FFI will be compliant but non-iga FIs will not be under rule. Non IGA IGA FFI Non IGA March 12, 2013 Swiss American Chamber of Commerce 14

15 What Needs to be Done Now? FATCA requirements will phase in starting January1, 2014, with due diligence, reporting, withholding, verification and record-keeping requirements Multi-national FIs will need to review their corporate structure to assess the FATCA impact on the status of each of their entities to determine how they will become FATCA compliant: A risk based strategy and rollout based on the FI s jurisdictions, entities, lines of business, clients, and products. Build a centralized FATCA process that looks across the enterprise. Requirements differ, depending on whether a FFI resident in: A Non-IGA Country (conflicts of law may dictate different approaches). A Model 1 IGA Country (further differences will apply on a country-by-country basis. A Model 2 IGA country (may have similar approach as non-iga countries). A comprehensive timeline for completion of milestones: Aggressively attack compliance deadlines and develop execution before deadlines expire. Coordinated implementation in a manner least disruptive to promoting BAU. Minimize costs around the duplication of efforts organizationally. Streamline the approach to mitigate pain points unique to each organization. March 12, 2013 Swiss American Chamber of Commerce 15

16 Preparation for FATCA Compliance Compliance Program and Verification: Design the methodology for a centralized compliance program and management of customer data to focus on a documented approach; supported by rationalization, auditable standards and a risk-based verification. Policies, Procedures and Internal Controls. Determine how EAG will comply. Appoint Responsible Officer(s) and support for a verification trail. Due Diligence: Pre-existing accounts (low value, high value EDD required, Annual Update). New accounts (new on-boarding procedures, terms and conditions, consents and waivers where necessary). Contracts (Grandfathering, Collateral and other transactional Agreements). Registration: Timely action to register. Obtain GIIN. Sign FFI Agreement(s), where necessary. Coordination within EAG. March 12, 2013 Swiss American Chamber of Commerce 16

17 Preparation for FATCA Compliance Continued FATCA Reporting: Reporting under IGAs is substantially similar to reporting under the FFI agreements Register with IRS Portal FATCA requires PFFIs to report to the IRS on an annual basis certain information regarding its US accounts. PFFIs with US accounts would be required to report: Basic account details for 2013 and 2014 by March31, 2015; and Withholding on pre-existing recalcitrant individual accounts and undocumented entity accounts begins January 2016 FATCA Withholding: IGA s eliminate most withholding requirements. Requirement to withhold under FATCA regulations depends on the identity of the payee (generally, the person to whom a payment is tendered or the financial account owner to which the payment is directed). PFFIs, WAs and QIs must withhold 30% FATCA tax on US Source withholdable payments: January 1, 2014, withholding on US source FDAP begins. January 1, 2017, withholding on sales or dispositions generating gross proceeds begin. January 1, 2017, earliest possible date for foreign passthru payments begin. March 12, 2013 Swiss American Chamber of Commerce 17

18 Project Planning Review FATCA impact on other regulatory and contractual requirements. Review opportunities to minimize FATCA impact (e.g., ring fencing and grandfathering). Consider other opportunities for savings such as entity rationalization. Determine where automation will drive cost/benefit efficiencies. Project efficiency planning to minimize FATCA impact and optimize automation Utilization of FATCA program and technology to address other enterprise compliance schemes involving customer identification (i.e., AML, on boarding, MiFID) Consider future-proofing for: Evolving FATCA Future FATCA-like laws Business change Other regulatory compliance and reporting requirements that leverage existing KYC and transactional systems March 12, 2013 Swiss American Chamber of Commerce 18

19 Circular 230 Notice In compliance with US Treasury Regulations, please be advised that any tax advice given herein (or in any attachment) was not intended or written to be used, and cannot be used, for the purpose of (i)avoiding tax penalties or (ii)promoting, marketing or recommending to another person any transaction or matter addressed herein. March 12, 2013 Swiss American Chamber of Commerce 19