ATO FATCA reports due by 31 July 2015: have you done your due diligence?

Reporting Australian Financial Institutions must report to the Australian Taxation Office by 31 July 2015 on their U.S. accounts or recalcitrant accounts.

These financial institutions must have undertaken the prescribed due diligence procedures required under the IGA.

Who must report?

It is critical that you determine whether you are a reporting entity.

All Reporting Australian Financial Institutions must report to the Australian Taxation Office by 31 July 2015 on U.S. Reportable Accounts and recalcitrant accounts identified by following the required due diligence procedures.

Most banks, insurance companies, trustees, custodians, funds, investment managers and certain other financial institutions are treated as Reporting Australian Financial Institutions under the Agreement between Australia and the United States to Improve International Tax Compliance and to Implement FATCA dated 28 April 2014 (IGA).

You may be a Reporting Australian Financial Institution if you are:

a property investment trust;
a trust which has appointed an investment manager;
an in-house finance company; or
a holding company.
Pre-conditions to reporting

Reporting Australian Financial Institutions should have:

registered with the U.S. Internal Revenue Service (IRS) and obtained a Global Intermediary Identification Number (GIIN); and
implemented procedures to conduct FATCA due diligence on their pre-existing and new financial account holders.
All Reporting Australian Financial Institutions must undertake due diligence and obtain certifications. It is not a precondition that they have U.S. customers, receive any U.S. source income, or have any other connection to the U.S.

What must be reported?

Reporting Australian Financial Institutions must report to the ATO on each U.S. account or recalcitrant account. The required account information for the 2014 calendar year includes:

the name, address and U.S. TIN (if any) of each Specified U.S. Person that is an account holder or of each Controlling Person of certain types of account holders;
the account number;
the name and identifying number of the Reporting Australian Financial Institution; and
the account balance or value as at the end of 2014 or, if the account was closed during such year, immediately before closure.
The ATO has indicated it will make a lodgement facility available from 1 July 2015, and will not accept lodgements before that date. There is a prescribed electronic procedure for information reporting.

For the 2015 and 2016 calendar years, Reporting Australian Financial Institutions will also be required to report on payments made to Non-Participating Financial Institutions.

What penalties apply for non-compliance?

Australia’s general tax penalties regime in the Taxation Administration Act 1953 (Cth) applies if you:

fail to report on time;
make a false or misleading statement in your report to the Commissioner of Taxation. Not following the required due diligence procedures might make a statement in the report false or misleading. The ATO guidance states that whether the Reporting Australian Financial Institution or the account holder would be liable for this penalty will depend on whose actions were responsible for the false or misleading statement; or
fail to retain relevant records for the prescribed five year period.
Most importantly, a Reporting Australian Financial Institution may also lose the protection provided by the IGA from FATCA withholding if it engages in significant non-compliance with its FATCA obligations for a period of 18 months (and certain other conditions set out in the IGA are met).

Updated ATO Guidance Material

The ATO has further updated its Guidance Material on FATCA. The updates include a new question 1.22 relating to financial accounts held by nominee companies in respect of a bare trust or WRAP account, the reworking of several examples and the inclusion of additional examples.