FATCA: Making First Submissions and Maintaining Compliance
While the Foreign Account Tax Compliance Act (FATCA) became law in 2010, it has been slowly transitioning to implementation, with 2015 being the first year of required reportings. For anyone not familiar with the Act, FATCA aims to prevent tax non-compliance among U.S. taxpayers with foreign accounts by requiring U.S. taxpayers to report their foreign assets while also requiring Foreign Financial Institutions (FFIs) to report financial accounts and entities held by U.S. taxpayers.
Non-exempt FFIs must register with the IRS and file proper reportings; otherwise, they face a 30% withholding on certain U.S. source payments. U.S. Financial Institutions (USFIs) are responsible for withholdings on certain payments to foreign entities as well as reportings of foreign entities with substantial U.S. ownership. Thus, FATCA brings compliance obligations for both U.S. and foreign companies, and it is a law with many intricacies and exemptions, warranting a detailed understanding on the part of financial institutions.
As mentioned above, 2015 is a big year for FATCA and FATCA-affected organizations, as this year requires the first filing submissions. Deadlines range from March 31, 2015, to June 30, 2015, depending on jurisdiction. Some jurisdictions have made Inter-Governmental Agreements (IGAs) with the IRS which enable institutions in those areas to fulfill their obligations through local tax authorities. In those cases, there are a range of deadlines as well as some differences in requirements, so it is imperative for institutions to be familiar with the requirements of their particular tax residency jurisdiction. Jurisdictions without an IGA required a March 31, 2015, filing deadline, and filings were to go directly to the IRS.
As this is the first required filing, there still may be some questions and uncertainty on the part of financial institutions as well as some perfecting of processes on the part of the IRS and other tax authorities. For example, some issues have already been uncovered with some IGA statuses and exemptions not lining up as they should with those of the IRS, bringing confusion and requiring further guidance. In addition, problems have been encountered by FFIs with the use of the form W-8 as a default for information gathering and self-certification, as the forms cannot be fully completed by organizations without a U.S. tax position, and these organizations run into trouble when other organizations require them to submit fully completed forms as proof of certification. There are kinks to be worked out as well as further instruction likely necessary from the IRS, but for the time being, submissions must be made and deadlines must be met.
If your company has yet to file, be certain that it is registered with whatever authority its jurisdiction reports to, and be aware of deadlines and jurisdiction-specific regulations. One requirement that differs between jurisdictions is whether filing is required when an institution has no reportable accounts; some jurisdictions require the filing of a “nil return,” while many do not. In addition to filing a return, financial institutions should also be aware of their ongoing obligation to both collect information and provide it. Specifically, FFIs need to be actively gathering information from their clients so that they can make proper reporting’s, and they need to be providing details of their own FATCA position to other parties with whom they conduct business. Indeed, the ongoing requirements of FATCA, as well as the fact that it is still working out some glitches, mean that financial institutions need to be proactive and comprehensive to maintain compliance.
