The vetting and validation of new accounts came into effect on 1st July 2014. In parallel firms continue to complete due diligence on pre-existing accounts with the high value accounts to be completed by 30th June 2015 and lower value accounts by 30th June 2016. FATCA reporting under the IGAs to local tax authorities begins in May 2015.
Key issues of focus for the industry remain:
Reporting schema still to be confirmed by HMRC
HMRC have just issued revised guidance notes (Aug 2014) which are being reviewed to determine any impact on operational processes.
Common Reporting standards is a significant focus to ensure consistency and eliminate any ambiguity some background to this is given below:
The Common Reporting Standard (CRS) is an OECD-lead initiative on the global automatic exchange of financial account information, sometimes referred as “global FATCA”. Its objective is to facilitate automatic exchange of information between governments on a global scale, using standardised due diligence and reporting methods
The OECD published its model CRS in February 2014. It is based on model 1-type FATCA IGAs and sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, and the common due diligence procedures to be followed by financial institutions. Final commentary providing detailed operational guidance was released on 21 July 2014
More than 65 jurisdictions have now publicly committed to the implementation of the CRS, with a group of more than 40 “early adopters” having committed to a start date of 1 January 2016. Information reporting would then begin in 2017
It is anticipated that the first CRS agreements could be signed as early as November 2014 at the next meeting of the G20 member countries
The UK has been one of the leading proponents of the CRS and is committed to being among the group of early adopters. On 31 July 2014, HMRC released consultation documentation, including draft Regulations, on implementing CRS based agreements into UK law. The closing date for comments is 22 October 2014.
It is expected that the UK will enter into CRS agreements with its UK FATCA partner jurisdictions, meaning UK FATCA will eventually be subsumed into CRS. However, existing US FATCA IGAs will remain in place and will not be superseded in this way.
TAs offering a CRS onboarding, pre-existing account due diligence and reporting service similar to their existing FATCA service will need to consider:
While the CRS model sets out the minimum information to be exchanged, different jurisdictions may choose to exchange more information and/or Annex II (exempt/non-reporting FIs) could differ across a jurisdiction’s different agreements. The provisions of each agreement will therefore need to be considered and systems developed to facilitate compliance with a range of different agreements.
Certain entity classifications will differ under CRS compared to FATCA. Again, therefore, system coding could be complex.
In general, as the identification of account holders in multiple countries will be required, FIs’ investor due diligence and reporting will need to be carried out on a much larger scale, and systems will need to accommodate the recording of which tax authority an account holder is (ultimately) reportable to.
OVERVIEW OF FATCA (April 2014) On 13th March the International Tax Compliance (Crown Dependencies and Gibraltar) Regulations 2014 were published and they come into UK law on 31 March 2014 which will be effective on 1 July 2014. These regulations outline the requirements of what has become known as "UK FATCA" and set out the UK's enhanced tax information exchange agreements with its Crown Dependencies (Jersey, Guernsey, Isle of Man) and Overseas Territories with financial centres (Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands). Agreements with the Crown Dependencies (CDs) and Gibraltar are reciprocal, meaning UK Financial Institutions (FIs) will be required to identify and report information on accounts held by CD and Gibraltar investors, and vice versa. The agreements with the Overseas Territories (OTs), other than Gibraltar, are non-reciprocal, meaning UK FIs are not required to report information on accounts held by OT investors, but OT FIs are required to identify and report information on accounts held by UK investors. There has been a big focus on this piece of the jigsaw with a focus to align processes and procedures with US FATCA requirements where possible to avoid unnecessary duplication or contention. As an example the IMA working group have considered alternative options to the self-certification templates being put forward. The requirements of US FATCA and UK FATCA (the two have the same start date) have many overlapping features, but also certain differences, which need to be taken into account. These include the indicia screening to be applied in determining reportable individual accounts, the classification of certain entity accounts, and differences in entities exempted from reporting under the respective regulations. Fund Managers are responsible for compliance with US/UK FATCA but may choose/require their TA to provide services to support FATCA including:
TYPICAL TA FATCA SERVICE OFFERING
1) Pre-existing Accounts Due Diligence:
Due diligence for pre-existing accounts: Application of US/UK FATCA due diligence procedures to identify existing individual and entity accounts with US indicia @30th June 2014.
2) Due Diligence and On-boarding:
Use of Self-Certification documentation and processes to validate new accounts
Due diligence and on-boarding for new accounts opened on or after 1 July 2014 enhanced due diligence to identify US/UK/CD/Gibraltar reportable accounts
Collection, storage and validation of the appropriate tax/Self-Cert documentation
3) US/UK FATCA Reporting:
Report the required information in respect of each specified US/UK/CD/Gibraltar person to the respective tax authority in a timely manner in accordance with the relevant regulations
Storage of reports in respect of this statutory reporting requirement
WHAT DO FUND MANAGERS NEED TO DO TO BE READY FOR FATCA?
Consult with your tax advisors in order to determine your FATCA responsibilities, and the FATCA category of your funds, investment structures and legal entities
Appoint in your organisation a FATCA Responsible Officer, if required
Undertake the FATCA registration on the FATCA Website and obtain the GIIN number
Understand how you will address the needs to review pre-existing accounts, have processes in place for due diligence when on-boarding investors and put in place mechanisms to provide appropriate reporting to tax authorities.
15th July 2013 :- The IRS announced a delay to FATCA last Friday 12th July. In essence, apart from the annual reporting requirements, everything moves back by 6 months. Please see below the salient points:-
Withholding does not commence until after 30 June 2014.
FATCA compliant procedures must be in place by 1 July 2014.
Pre-existing accounts are those in existence as at 30 June 2014 and the due diligence requirements are moved back 6 months.
The first reporting date remains in March 2015, however, this is only with respect to the 2014 calendar year.
The FATCA registration website is projected to be accessible to financial institutions on 19 August 2013.
The IRS will electronically post the first IRS FFI List by 2 June 2014, and will update the list on a monthly basis thereafter.
To ensure inclusion in the June 2014 IRS FFI List, FFI’s would need to finalise their registration by 25 April 2014.
Clarification on the treatment of Financial Institutions operating in jurisdictions that have signed an Intergovernmental Agreement – a jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect.
Treasury and the IRS intend to provide a list of jurisdictions that will be treated as having in effect an IGA, even though that IGA may not have entered into force as of July 1, 2014. April 2013 - As we come to the final planning stages of FATCA in 2013 there are still unresolved issues and challenges facing the industry. The IRS's publication of the final regulations in January and the additional Countries signing up, or at least negotiating, IGA's has given everyone in the industry enough to work on to start implementation, work on service offerings and generally move the project into a productive stage. However, concern still looms around four main areas, the IRS web portal, self-certification standards, FATCA classification of entities and the reporting requirements/formats.
The IRS have stated that their web portal for Financial Institutions to register on will be available in July 2013. A recent webinar (attended by over 100,000 participants) clearly demonstrated that there has been a huge amount of work completed but there are still many questions to be answered, and the build is someway off completion.
Discussions between industry bodies, forums, TA's, Fund Management Companies and the HMRC continue to close out the last definitions and practicalities of how self-certification will be managed and implemented. A working party made up of Fund Management Companies with input from trade associations submitted a proposal to the HMRC outlining a process to identify and classify existing investor entities. This proposal sets out a practical mechanism of determining which accounts require any form of follow up and or remediation, we await response on this approach. Finally there are very active and well attended meetings continuing between the industry, industry bodies, Tax offices and IT specialists to determine the data and format required for reporting US investor details and recalcitrant investor details to the Tax authorities there is time to complete this work as the first reporting deadline is September 2015.
We are only months away from the start of FATCA (1st January 2014). There is a great deal of communication between Transfer Agents, Fund Management Companies and Industry bodies with regard to implementation strategies, project planning and general comfort being given around FATCA compliance. Most firms will have started the implementation process on their systems and operational readiness strategies. However, until the issues around the wording and construction of Self Certification declarations is resolved the updating of prospectus and application wording deadlines are becoming increasingly tight. Coupled with other industry challenges such as the rebranding of the Twin Peaks initiative there is growing pressure on Fund Management Companies and their service providers to be fully compliant next year.
Nov '12 Update: The TA Forum has responded to HMRC’s consultation on implementing the UK-US FATCA Agreement IGA, please contact enquiries@thetaforum.co.uk for further information.