10 FATCA facts

Jim Muir, director at financial data management firm AutoRek has published his list of 10 key facts around the US Foreign Account Tax Compliance Act, which takes effect 30 June 2013.

1. Who should care about FATCA? Chief Compliance Officers, CF10A people, Heads of Tax or Operations and other key leaders within any FFI will need to evaluate the potential impact of these regulations and develop a plan for managing the operational impact of FATCA.


2. Why should non US financial institutions care about FATCA? Because if you don’t comply with FATCA all US-sourced payments that your financial institution receives on behalf of itself or its clients – such as dividends and interest paid by US corporations – will be subject to a 30% withholding tax. This 30% withholding tax will also apply to gross sale proceeds from the sale of relevant US assets.


3. What do I need to do to comply with FATCA? To avoid the withholding tax penalties each FFI must enter into an agreement with the US tax authorities – The Internal Revenue Service (IRS). As part of that agreement the FFI will need to:

• Perform a detailed analysis of its existing customer base. To ensure that any US clients are correctly identified as such and are correctly reported to the IRS. This check may need to be re-performed more than once. AutoRek can help with this.

• Capture additional documentation on new customers when they set up an account or portfolio.

• Build system functionality to withhold the 30% US Tax on customers who refuse to supply the information and documentation required.

• Report to the IRS annually on the assets held and transactions that have occurred on the accounts or portfolios of any US clients.


4. So a big project then? Yes, and given the size of the project and the lead times for most financial institutions – particularly for IT system changes – FFIs need to act now.


5. What IT developments are required? It is hard to speak in general terms as no two FFIs are the same, but as a minimum it is likely that an FFI will have to amend the following systems:

• Account opening and “know your client” systems.

• Custody, dividend and corporate actions systems

• Banking systems and interest and tax calculation systems.

• Trading and settlement systems.

• Client and tax reporting systems.

This list is not exhaustive. One of the first steps in any FATCA project must be a detailed analysis of which systems and processes are impacted.

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