FATCA Are you ready? -Rohit Johri Rohit.cfe@gmail.com 83221864 1
Disclaimer The views in this presentation belong to the speaker alone. This presentation is meant to be educational in nature and not a proxy for legal or technical advice. 2
What FATCA is (in nutshell)? A new (2010) U.S. tax regime designed to combat offshore tax evasion by U.S. taxpayers. An information-gathering tool. Under the threat of a 30% U.S. withholding tax for non-compliance, encourages" foreign entities to disclose general information about their direct and indirect owners In case of U.S. owners, such U.S. owners' identities and specific information about their respective foreign investments and income. 3
What FATCA is not? FACTA Fair And Accurate Credit Transactions Act, 2003 No increase in taxation, tax rate, or tax base. Only more effective (hopefully) information sharing. FATCA is not unavoidable; file the right papers, share the correct information, and FATCA is for someone else 4
What FATCA is (official parlance)? Chapter 4 of the US Internal Revenue Code Enacted by the Hiring Incentives to Restore Employment (HIRE) Act 18 March 2010 If FATCA operates as it is intended to, IRS will receive information about potential tax evaders and the 30% FATCA charge will simply not apply. 5
The clocks is ticking, yet again IRS issued FATCA regs on 17 Jan 2013 that provided for a phased implementation of the FATCA requirements over the period beginning on Jan. 1, 2014 and continuing through 2017 IRS released Notice 2013-43 on 12 July 2013, which extended a number of FATCA compliance deadlines by six months, with the go-live FATCA deadline now 1 July 2014. 6
Storyline complying with FATCA A. Registering Process B. Pre-existing account Analysis C. New account Onboarding D. Withholding E. Reporting F. Policies and Procedures 7
A. Register for FATCA Has your country signed an Inter- Government Agreement (IGA)? Singapore Model 1 IGA Hongkong Model 2 IGA Malaysia no IGA as of now FATCA portal available since 15-July-2013 Obtain GIIN 8
GIIN FFIs are issued Global Intermediary Identification Number Format: 98Q96B.00000.LE.250 WWWWWW Fatca Id XXXXXX FI Type YY FI type or branch category (BR, LE, ME, SL, SP) (Branch, Lead, {Non Lead} Member, Single, Sponsoring) ZZZ ISO 3166-1 country code NFFEs may also obtain GIIN (IRS Notice 2013-69 dated 29-October-2013) http://apps.irs.gov/app/fatcaffilist/flu.jsf 9
IRS portal 10
Search for other FFI 11
B. Pre-existing a/c analysis (Overview) Accounts in and out of scope Aggregation Individual Accounts Entity Accounts 12
B. Pre-existing account analysis Which accounts are in scope? An account can be out of scope By being designated as such (certain retirement funds, life insurance contracts, etc) Balance or value too low Aggregation Electronic Aggregation ( allow account balances to be aggregated ) (exclude PDFs) Relationship Manager Knowledge (Knowledge of Beneficial Owners) 13
B. Pre-existing a/c analysis (Contd) Individual accounts Lookout for 7 US indicia If indicia identified, check for documentation If documentation not found, recalcitrant a/c Low Value and High Value Accounts Aggregated value or balances: 50k to 1 Million; excess of 1 Million Low Value Accounts electronic search for US indicia High Value Accounts electronic search as well as review of physical files 14
B. Pre-existing a/c analysis (Contd) U.S. citizenship or lawful permanent resident U.S. birth place U.S. address Instructions to transfer funds to U.S. a/c or directions regularly received from a U.S. address Only address on file is in care of or hold mail or U.S. P.O. Box Power of Attorney or signatory authority granted to person with U.S. address US telephone number 15
B. Pre-existing a/c analysis (Contd) Entity accounts Foreign Financial Institution Non Financial Foreign Entity Excepted or Exempted Entities Review all entity account except Prima Facie FFI FFI (obtain W-8BEN-E and GIIN) Participating FFI Registered Deemed Compliant FFI Certified Deemed Compliant FFI Excepted/Exempted FFI W-8BEN-E was released in Feb 2014 16
B. Pre-existing a/c analysis (Contd) NFFE Active NFFE are excepted Passive NFFE with aggregated balances or values USD 1 Million or less review KYC/AML documentation for substantial US owners Passive NFFE with aggregated balances or values exceeding USD 1 Million gather more information Report on recalcitrant NFFE 17
B. Pre-existing a/c analysis (Contd) Substantial US owner Company - More than 10% of stock (vote or value) Partnership more than 10% of profits of capital interest Trusts more than 10% of beneficial interests in a trust Last day of entity s accounting year OR date on which NFFE provides documentation 18
Entity Classifications ACTNFFE Active NFFE AFFNFFE Affiliate of publicly traded NFFE CDCLOBK Certified deemed-compliant (DC) non-registering local bank CDCLOW Certified deemed-compliant (DC) FFI with only low value accounts. CDCNPO Certified deemed-compliant (DC) non-profit organisation CDCRT Certified deemed-compliate (DC) retirement plan DCERTFDS Both Certified DC and Exempt retirement plan/funds EHEDG Excepted hedging/financing centre of non-financial group ENFBRUP Excepted non-financial entity in liquidation or bankruptcy ERTFDS Exempt retirement funds ETNFFE Excepted Territory NFFE EXNFHC Excepted non-financial holding company EXSTART Excepted start-up company FCB Foreign Central Bank of issue FGOV Foreign government of government of US possession INDIV Individual/Sole Proprietor NA Not applicable NPFFI Non-participating Foreign Financial Institution (FFI) NPFFIBO Non-participating FFI with exempt beneficial owners ODOCFFI Owner Documented FFI OTHER Other OWNBO Entitiy wholly owned by exempt beneficial owners PFFI Participating FFI PSVNFFE Passive NFFE PTNFFE Publicly traded NFFE QIUSFI QI branch of a US financial institution RDCFFI Registered deemed-compliant (DC) FFI RESDIS Restricted distributor TOFI Territory financial institution UNDEF Undefined 19
B. Pre-existing a/c analysis (Recap) Accounts in and out of scope Aggregation Individual Accounts Entity Accounts 20
C. New Account On-boarding Individual Accounts Certificate of residence Govt Identification/NRIC/FIN 7 US indicia dig further if found Entity Accounts and payees FFI accounts NFFE accounts Is the entity really the payee? 21
D. Withholding Other laws continue to apply Know what is exempt and what is not Grandfathered obligations (challenges to InfoSys) Short-term obligations ECI (Effectively Connected Income) Withholding applies to U.S. source FDAP (that is not ECI) Gross proceeds from securities (effective 2017) Passthru payments any withholdable payment or other payment to the extend attributable to a withholding payment. 22
D. Withholding (Cont d) All persons, in whatever capacity acting, having the control, receipt, custody, disposal, or payment of any withholdable payment are categorized as Withholding Agents under FATCA. Withholding applies only to withholdable payments made to non-participating FFI, recalcitrant individuals, and recalcitrant NFFE 23
D. Withholding (Summary) Who is the withholding agent? Is there a withholdable payment? Who is the payee (not merely the recipient of the payment)? What are the withholding agent s obligations? 24
E. Reporting PFFI must report the aggregate number and total value of recalcitrant accounts in each of the following categories Recalcitrant accounts that have US indicia Recalcitrant accounts that lack US indicia Recalcitrant accounts that are dormant US accounts Form 1042-S (Foreign Person s U.S. Source Income Subject to Withholding) Form 8966 (Fatca report draft) 25
E. Reporting (Cont d) US accounts becoming non-us accounts 7 US indicia found Thresholds breached (both ways) Changes in status (NFFE status, M&A) Changes to grandfathered obligations IGAs being signed/rescinded Regulatory action and further guidelines 26
Intergovernment Agreements Model 1 IGA National Governments Swap information with the US on US Citizens in their countries, and vice versa Model 2 IGA FI report directly to US IRS 27
FATCA is not an island Need to incorporate operational procedures, technological infrastructure. Continuous due diligence to notice change in aggregate balance or value; US indicia Status of FFI, NFFE may change along the way Existing Know Your Customer/Customer Due Diligence data still important 28
Procedures Rohit is an employee of company XYZ in Singapore and has an account with Bank ABC. Rohit is designated as a non-us account holder. Rohit moves to his company HQ in the US, update his bank a/c data, and have payments forwarded to his US account. US account. The bank has 90 days to perform and finalize FATCA Due Diligence and obtain the proper documentation, consent, etc. What is the volume Bank ABC is looking at? 29
Additional challenges Change in stance by IRS Definitions (eg. grandfathered obligations, Limited FFI) Global legislation with local variations Inter Government Agreements Affect timelines, information to be shared 30
What makes FATCA special? Challenges to technology/procedures Global legislation with regional variations Steep timelines, rapidly changing specifications Regional challenges (IGA, data privacy laws, recalcitrant accounts) 31
Singapore Specific Included on Model 1 IGA list of Treasury effective 05-May-2014 FFIs in Singapore will be registered deemed compliant FFI (RDCFFI) while obtaining GIIN! Affect timelines, information to be shared 32
Yet to come Regulatory actions Long-term recalcitrant account holders 33
Parting thoughts 34