FATCA compliance: time is running out

FIs have until 5 May to register with the IRS for a GIIN, a unique identifier that FIs will use to show compliance following the implementation of the Foreign Account Tax Compliance Act (FATCA).

Obtaining a GIIN ensures an FI’s appearance on the US Internal Revenue Service’s (IRS) first ever list of FATCA compliant companies, which will be issued on 2 June.

The deadline had previously been 25 April, but was delayed in order to allow FIs in countries expected to become compliant to get on the first list.

Following this, FIs have until 22 December to declare themselves as participating foreign financial institutions, or they risk being withheld by the US in 2015.

If an FI is considered a non-participating institution by the IRS following FATCA’s implementation it could be subject to 30% withholding tax both on income and gross proceeds including equities, bonds and other asset classes such as funds.

Andy Thompson, director of operations at WMA, said the 5 May deadline was effectively a ‘soft deadline’ because US witholding will not start until 1 January next year.

“Not all FIs will get a GIIN by 5 May but at the same time they won’t be holding off until they are ‘fully compliant’. I suspect it’s more a case of just not applying in time,” he added.

“At the moment we’re not entirely sure what would be defined as fully compliant as there are deadlines which stretch in to 2015 and 2016.

“There is a lot of information available to FIs in terms of being compliant, something we have communicated to our members, however, with anything as complex as this there is always more that can be done.”

FATCA is part of the US Hiring Incentives to Restore Employment Act. It ensures that US persons, wherever they are located and in whatever investment vehicle they hold their assets, are paying the correct amount of US tax.

Guidelines by the Wealth Management Association (WMA) add that “the FATCA definition of a US person goes much wider than US residency”.

It has advised FIs the following when identifying an account holder as a US resident or citizen:
(i)    identification of an account holder as a US resident or citizen;
(ii)    a US place of birth for an account holder;
(iii)    a US residence address or a US correspondence address (including a US P.O. Box);
(iv)    a US telephone number;
(v)    standing instructions to transfer funds to an account maintained in the US;
(vi)    an “in care of” address or a “hold mail” address that is the sole address shown in the FI’s electronically searchable information for the account holder; or
(vii)    a power of attorney or signatory authority granted to a person with a US address.

An Inter-Governmental Agreement (IGA) between the US and the UK signed in September 2012 has helped to reduce some of the cost and administrative burden as UK FIs will comply with UK law and report information to HM Revenue & Customs.

An IGA makes it easier for partner countries to comply with the provisions under FATCA. The benefits of an IGA include relaxation of deadlines and increased clarity and simplicity around due diligence with country specific provisions.