Published on August 10, 2014
PowerPoint Presentation: Moderator: Jeffrey Short, CPA, Partner, EY Guest Lecturers: Duncan Nicol, Director, Cayman Islands Tax Authority Michael McMaster, JD, SVP & Director, Tax Svcs, U.S. Bancorp Jun Li, CPA, Partner, Tax, EY Rudy Escalante, CEO, ICSA FATCA & Tax Compliance – Emerging Issues & Developments ™ Process Management: Process Management Leverage, where possible: Existing technology Processes already in place Current reporting Anti-Money Laundering/Know your Customer (AML/KYC) Are they robust enough for FATCA? Is your current process sustainable? Will you be able to track your actions over time? Documentation and Audit Trail are essential to a sustainable FATCA program Spreadsheets are not sustainable Roles and individuals change Analysis performed today must be clearly documented for the future Monitor ongoing changes Legal Entity Process: Assessment: Legal Entity Process: Assessment Does your process classify your reportable legal entities? The type of entity The products offered by the entity A consistent method for assessing the entity’s FATCA status An audit trail that: Documents the process Documents adherence to the process Does your process encompass your entire organization structure? Leads, affiliates, branches, sponsored entities Does your process include regular reviews? Changes to entities, e.g., ownership, must be examined for FATCA impact Infrastructure must support regular reviews of the data and process to ensure ongoing compliance Document Document Document! Know Your Clients: Assessment: Know Your Clients: Assessment Gather data with ability to accommodate : Sensitive client data Multiple jurisdictions C lassification and linkage of US taxpayer accounts across branches, subsidiaries and business units M anage data cross-platform Substantiate the data gathering process: copies of relevant documents, evidence of examination, name of employee conducting the checks Enhance customer onboard systems to collect additional information about new customers T rack and identify changes in circumstances Changes that will impact FATCA status of an account or a payee (e.g., an addition of US indicia to an account) Create and maintain an auditable process management, document management and review process Develop data remediation system Compliance Implementation: Compliance Implementation Technology: In order to comply and meet due diligence requirements, FFIs must develop systems to scour their databases D oes an account have a US indicia? FFIs need to develop technology to continually monitor accounts of US persons T rack account values; complete and submit FATCA reporting to the IRS FATCA implementation will require modifications to existing systems, such as KYC/AML and databases Solution: Integrate IT and software solutions to facilitate FATCA implementation Process Report Card: Process Report Card The “Hard Look ” If your current process is insufficient then a new process and new technologies must be established Recent IRS FATCA Regulatory Updates: Recent IRS FATCA Regulatory Updates On February 20, 2014 the IRS and Treasury released proposed and temporary regulations (TD9657 and TD9658. This new guidance does NOT extend nor further delay the effective date of FATCA, which remains July 1, 2014 As of March 1, 2014 the IRS has stilled not issued final, revised Forms W-8 (or their Instructions) reflecting the onboarding changes required by FATCA TDs 9657 and 9658 do not focus on clarifying the current FATCA investor onboarding requirements. The new guidance primarily addresses FATCA withholding requirements on foreign individuals, applies revisions to the various IRS code sections pertaining to US withholding on foreign investors to ensure the UNIFORM application of the FATCA regulations, and also provides clarification on the Expanded Affiliated Group (EAG) reporting rules. Current Developments/Issues Relating to Intergovernmental Agreements (“IGAs”): Current Developments/Issues Relating to Intergovernmental Agreements (“IGAs”) IGAs are Agreements between the U.S. and foreign countries that maintain the legitimacy of certain foreign privacy laws while also allowing FFIs to disclose investor account information to their domestic authorities who in turn will share this with the IRS. Model 1 IGA Agreements provide for reciprocal reporting by USFIs to the IRS on residents of the FATCA partner country. Partner Country FI will report information on U.S. accounts to local tax authorities and an exchange of information with the IRS will follow. Model 1 IGAs differ from Model 2 Agreements in that under Model 2, a partner country FFI will report US accounts directly to the IRS, but may or may not be required to enter into a Participating Agreement with the IRS, depending on the terms agreed upon with the partner country. Under Model 2 Agreements, reciprocal reporting is optional. PowerPoint Presentation: Model 1 FFIs have a December 22, 2014 GIIN registration filing deadline and FATCA withholding begins for non-compliant FFIs on January 1, 2015 There are currently 22 signed Model 1 FFI Agreements. Status of Model 1 substitute W8 Forms from an Industry Standard perspective. Status of Model 1 “Responsible Officer” Certification filings from an Industry Standard perspective. Options to consider with respect to outsourcing Responsible Officer duties to an independent third party service provider for Model 1 FFIs. Current Developments/Issues Relating to Intergovernmental Agreements (“IGAs”) (continued) FATCA Filing Timeline for Certain U.S. and Foreign Funds: FATCA Filing Timeline for Certain U.S. and Foreign Funds The timelines below reflect the anticipated timeframes for certain FATCA registrations, filings, and withholding periods according to the current regulations : August 19, 2013 through April 25, 2014: Registration period for FFIs to enter into a FATCA Participating Agreement with the IRS. Participating FFIs will in turn receive a GIIN from the IRS. July 1 , 2014: Withholding on payments of U.S. source income begins for new non-compliant FFIs and recalcitrant accounts. Withholding agents, participating in FFIs, registered deemed-complaint FFIs and IGA FIs must implement FATCA compliant on boarding procedures for new accounts. December 31, 2014: Withholding agents and participating FFIs must complete due diligence for pre-existing “prima facie FFIs” (i.e., preexisting investors deemed to be FFIs) accounts, as withholding on such non-compliant accounts begins. March 31, 2015: Participating FFIs must report to the IRS via Form 8966 on U.S. accounts with respect to 2014 calendar year (and by March 15 of immediately following calendar year with respect to 2015 and later calendar years). June 30, 2015: IGA FIs and participating FFIs must complete due diligence for pre-existing individual “high-value” accounts. Or if later, one year after the FFI Agreement effective date for participating FFIs or for IGA FIs, within six months after the end of the calendar year in which the account became “high-value”, as withholding on such recalcitrant accounts begins. FATCA Filing Timeline for Certain U.S. and Foreign Funds (continued): September 30, 2015: IGA FIs and participating FFIs must report with respect to 2014 calendar year (and by September 30 immediately following calendar year with respect to 2015 and later calendar years). June 30, 2016: Withholding agents and participating FFIs must complete due diligence for pre-existing entity accounts other than “prima facie FFI” accounts ( or, if later, two years after FFI Agreement effective date, for participating FFIs). IGA FIs and participating FFIs must complete due diligence for pre-existing individual accounts, other than “high-value” accounts by December 31, 2015 (or, if later, 2 years after FFI Agreement effective date, for participating FFIs). IGA FIs must complete due diligence for pre-existing entity accounts greater than $250,000 as of December 31, 2015, or within six months of the end of 2015 or later year in which a remaining preexisting entity account greater than $1 million, as withholding on such non-compliant accounts begins. January 1, 2017: FATCA withholding begins on distributions of gross proceeds from dispositions on or after January 1, 2017 of U.S. source divided or interest-producing property to recalcitrant or non-compliant accounts. Withholding of “foreign passthru payments” from FFIs to recalcitrant accounts or non-compliant entities begins on this date (or , if later, six months after publication of final regulations defining the term “foreign passthru payment”). FATCA Filing Timeline for Certain U.S. and Foreign Funds (continued) Current FATCA Onboarding Considerations: Current FATCA Onboarding Considerations Status of New W8 Forms. Consistency Required with AML and KYC documentation. Responsibilities for Nominee Accounts. Industry Standards for Investment Advisor Maintenance of Onboarding Procedures and Internal Controls. 90 day Grace Period for non-compliant investors. Industry Standards of timeframe for updating pre-existing investor accounts. Continuing FATCA Obligations: Continuing FATCA Obligations Potential FATCA Withholding Issues relating to FFI Expenses and FFI Distributions made to Offshore Counterparties as Components of Swap Agreements. Ensuring Grandfathered Obligations are properly calculated and considered when FATCA withholding is required. Potential Indemnification Correspondences for services performed by Third Party Service Providers. Updating Fund Subscription Documents and Services Agreements for FATCA. Outsourcing of Responsible Officer Function.