William Byrnes' Tax, Wealth, and Risk Intelligence

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The over-arching requirements for FATCA [the Foreign Account Tax Compliance Act] are three-fold:

1. obtain appropriate due diligence information and documentation for account holders, investors and payees;
2. report on relevant parties such as U.S. account holders, recalcitrant account holders and non-participating foreign financial institutions (“FFIs”); and
3. coordinate withholding as appropriate and if necessary. The requirements are largely intertwined, with due diligence serving as the foundation for the reporting and withholding requirements.

Now that the final FATCA Regulations are published and a number of intergovernmental agreements (“IGAs”) have been signed, FFIs must implement practical steps to be FATCA compliant by January 1, 2014. There is no one-size-fits-all compliance plan for FFIs; however, there are many similar and consistent steps FFIs, regardless of location, can take to develop a FATCA compliance program to meet the broad goal of FATCA: to combat offshore tax evasion by U.S. persons and become FATCA compliant.

Before a FFI can become FATCA compliant, a FFI should take certain preliminary steps to determine the impact FATCA will have on the FFI as well as plan the path toward compliance in an efficient and timely manner.

Early in the process, the FFI should develop a FATCA task force or program team that will oversee the day-to-day operations to becoming FATCA compliant. The task force should include representatives from tax, anti-money laundering (“AML”) and customer on-boarding groups, technology, change management and operations as well as, potentially, other stakeholders. The task force will oversee the broad program plan for the FFI and likely report to the FATCA sponsoring executives or steering committee.

FFIs have to determine what, if any, communications they will prepare for both internal and external stakeholders concerning FATCA. An internal awareness and training program should be developed to teach FFI employees about FATCA and its importance to the FFI. The awareness program should start at the highest level to establish the necessary “tone at the top.”

The FFI may also want to prepare a list of questions, a “FAQs of FATCA,” to ensure the FFI’s clients are receiving a consistent message, regardless of where in the world they are located. FFIs should also determine what if any message they want to provide directly to clients or put on their websites, although it is very important that the FFI does not give unintentional tax advice to its clients.

Additionally, some training of FFI staff, including client-facing personnel, could assist with customers of the FFI receiving a clear and consistent message. It may likely be the FFI’s client-facing personnel are already receiving questions from customers regarding FATCA.

FFIs should take a proactive approach to minimize costs and interference with the customer experience at the FFI. With that in mind, prior to developing a FATCA compliance strategy, FFIs should conduct an assessment of the impact FATCA will have on the FFI by collecting information relating to:

1. Number and activity of each legal entity and/or business line;
2. Products and services offered by the business line;
3. Types and volume of accounts;
4. Relevant policies and procedures; and
5. Identification of information technology (“IT”) systems and databases that maintain relevant information and may require updates.

The FFI should also determine what past interactions it has had with the IRS or home country tax authority relating to information reporting on their customers. FFIs may be able to leverage past reporting for FATCA compliance.

FFIs around the globe may rely on other parties to take on certain responsibilities. For example, a foreign fund may outsource some or all of its asset custody, compliance and regulatory functions, transfer agency services and/or distribution. In this case, the FATCA compliance program will only be as strong as the weakest link.

Coordinating and ensuring all relevant parties are working towards FATCA compliance will be important since a FATCA compliance failure on behalf of an agent of the FFI can be construed as a failure by the FFI itself. Asking questions of the FFI’s third-party service providers will be an important early step. If a third-party service provider is not working towards FATCA compliance, the FFI may want to re-assess their relationship and engagement with that party.

After the impact assessment is complete, the FFI will need to plan a path forward that not only makes all of the information technology systems and policy changes, but also develops a working corporate governance structure and functioning compliance program. …

Chapter contributors: 

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Jeffrey Locke, Esq.  is Director at Navigant Consulting. Prior to joining Navigant, he served as an assistant New York state attorney general in the Criminal Prosecutions Bureau and worked in the prosecutor’s office for the United Nations in Kosovo.