Australia: FATCA in Australia: Q&A

Holley Nethercote commercial & financial services lawyers

David Court, a partner at Holley Nethercote Commercial and Financial Services Lawyers was recently interviewed by an international publication regarding the implementation of FATCA in Australia.

Below are some of David’s thoughts – How have you approached FATCA? What’s your biggest challenge? What has the impact been? Tell us in the comments below.

What issues has FATCA given rise to in Australia?

Timing

The implementation of FATCA in Australia is pursuant to a ‘Model 1 Intergovernmental Agreement (IGA)’ signed by Australia and the US. This was not formalised until the end of April 2014. The domestic legislation that implements the IGA also came late in the piece on 30 June 2014 for a 1 July 2014 start. This resulted in many Australian financial institutions being unprepared for implementation of the FATCA regime.

Ambiguity

The IGA is the key source document. However, the Model 1 template uses a drafting style that is less formal than that used in Australian legislation. Further, a number of concepts are those of the US regulatory system that do not translate well into the Australian regulatory system. This has created interpretation difficulties, and a lack of clarity around which Australian entities, financial products and business models the FATCA regime applies to. The Australian Tax Office (ATO) has released multiple versions of draft guidance on how it interprets the IGA, but there has been limited assistance from other areas of the Australian Government. This has resulted in considerable uncertainty about the regime’s application in particular situations.

Misunderstandings

Many Australian financial institutions expressly restrict their products from being offered in the US (due to issues with SEC regulation) and are under the impression that if they do not have US clients then FATCA does not apply to them. Prior to the IGA this approach was a reasonable one. However, the IGA and implementing legislation potentially goes well beyond applying FATCA only to entities with US clients. In Australia, financial institutions may be caught by FATCA based on their service offerings, who they make payments to, as well as the identity of clients – and even without any obvious US connection.

How are companies/individuals preparing in your jurisdiction?

The larger Australian institutions appear to be well aware of FATCA and have prepared for it – as have the local offshoots of foreign institutions. Other local institutions have not been well prepared for FATCA and are often unaware of FATCA, or still in the process of determining its application to them.

We are seeing more clients requesting legal advice on FATCA. The legislation has not had a high profile in the Australian business media to date – but its visibility is increasing.

For companies where FATCA applies, we see three areas of implementation:

Amendment to onboarding documentation and processes (including FATCA due diligence policy);

Screening current client database and obtaining FATCA information for post 1 July 2014 clients; and

Reporting to the ATO.

What do you think will be common or recurring problems and challenges?

In our experience, the biggest difficulty Australian financial institutions are facing under FATCA is ascertaining whether or not it applies to them. Once this is ascertained, the application of the regime is relatively straightforward and can integrate well into current AML/CTF processes and procedures.

In our view, Australia is yet to feel the full impact of the FAT