One of the laws passed to help support the American economy in the wake of the later 2000’s financial crisis, the Foreign Account Tax Compliance Act (FATCA) was passed into legislation in 2010 and creates a regulatory environment for both foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs). The goal of regulation is to report on the holdings of any individual or legal corporation that is required to file U.S. income taxes, essentially becoming a de facto watchdog for any U.S. citizen looking to evade personal income taxes. Unless certain reporting requirements are met, FATCA imposes a 30% tax withholding. Of course, the rules are different for FFIs and NFFEs and the paper trail for a corporation can be quite extensive.
One of the core criticisms of FATCA is that it’s limited the U.S. engagement is larger global legislation like the Common Reporting Standard. This gap requires the United States to rely on information provided by it’s FACTA partners globally, which is not something all partners maintain similarly.
The details of FATCA laws can seem overwhelming and understanding the basics unfortunately does not even scratch the surface. If your business is global or multi-national in nature, FACTA can a cumbersome and potentially costly regulation. FATCA’s challenges have as much to do with entity management as they do with properly figuring out income amounts. Particularly for corporations with multiple qualifying entities and for FFIs that might be dealing with many, many qualifying clients, the response to FATCA will require coordinated, verifiable customer information and clear, concise reporting.
FATCA can be a challenging regulation for even the best-equipped corporation to manage. In addition to providing proper documentation, there are numerous regulatory filings – and these can differ by region. If you are a corporation with multiple entities across the globe or a FI dealing with a wide array of U.S. taxpayer accountholders, then this prospect may be particularly fraught. As with other exercises of this nature, the classification and verification of each entity within an enterprise, or each entity with which an FI does business, can be a costly and time-consuming task.
Entity management software can help ease that burden by creating a single source of corporate data, including GIINs, which can be indexed and updated through a secure, easy-to-operate dashboard. In addition, wherever applicable, entity management software can create automated processes that can reconfirm the GIINs of affiliate entities and financial institutions.
This automation can save you time and money, and may keep you from having to pay the withholding penalties associated with FATCA.