The Foreign Account Tax Compliance Act (FATCA), which was passed by Congress all the way back in 2010, has represented a major hurdle for non-US financial institutions operating in the United States in the ensuing eight years since it was passed. Its enactment is still a bone of contention between the federal government, as represented by the Internal Revenue Service (IRS), and the financial markets.
With the rise of aggressive nationalist economic rhetoric from President Trump, it’s more important than ever for financial institutions operating in the US to tighten up their standards, and for organizations entering the US market for the first time to implement a strategy for FATCA compliance.
This post introduces the basics of FATCA, as well as some strategies used by financial institutions for reporting and compliance, and discusses the ways in which software solutions can help leverage your FATCA compliance strategy for a more carefree institutional existence.
What Is FATCA?
The purpose of FATCA was to tighten up the US tax regime against perceived tax evasion by US citizens holding assets in foreign financial institutions (FFIs). Despite a change in administration and a major tax overhaul, the federal government continues to be concerned about this “profit-shifting” activity, eager to root it out, to prosecute the organizations and individuals that engage in it, and to collect what it is owed.
The central provisions of FATCA have to deal with all taxable assets, rather than merely cash or securities. They cover any asset with a taxable event, which includes royalties, rent, real estate, insurance policies and ownership stakes. It applies to all assets held by US citizens through FFIs, regardless of whether they are held inside or outside of the US itself.
Both the US citizens who own these assets and the FFIs that hold them are required to report all information about financial accounts and foreign entities. Thus, FATCA imposes on all affected organizations extensive obligations to screen and identify, perform due diligence and process transactions carefully. FFIs that are found to have been evading FATCA may be subject to a punitive tax of up to 30% on all US investment flows, the individual or corporate status of the assets notwithstanding.
The FATCA Report Form
The IRS handles compliance for FFIs with FATCA through Form 8966, or the FATCA Report. Form 8966 covers, in brief:
- Certain US accounts
- Substantial US owners of passive non-financial foreign entities
- Specified US persons who own certain debt or equity interests in owner-documented foreign financial institutions
- Certain other accounts, as applicable, based on the filer’s Chapter 4 status
Form 8966 includes five essential parts:
- Identification of the filer
- Account holder and payee information
- Owner information
- Financial information
- Pooled reporting
FFIs are assigned to file a FATCA report on each account held by a US taxpayer. Specific guidelines for filling out the form can be found here. There are different reporting requirements for different kinds of accounts. Participating FFIs that have substantial US-owned interests are required to fill out Parts I-IV. Non-financial foreign entities that have substantial US-owned interests must fill out Parts I, III and IV, while FFIs with non-compliant US holdings may only be required to fill out Parts I and V.
FATCA Forms Compliance as Part of a Software Platform
Compliance with elaborate reporting systems like FATCA may seem like a full-time duty for the legal and financial departments of any midlevel or higher foreign institution. Fortunately, Blueprint OneWorld’s entity management platform contains a FATCA Management module that directly answers the needs discussed above and many more. It establishes a framework for compliance with FATCA, which, among other features:
- Categorizes entities by the appropriate FATCA classification
- Automates review of FATCA exposure
- Constructs a permanent audit trail
- Tracks foreign financial assets, offshore accounts and thresholds
- Records all reviews and updates
- Provides a complete, accurate and historical record of all FATCA decisions
- Creates a single source of clean data for ongoing, reliable FATCA compliance
- Ensures regular updates as organizational change occurs
Our FATCA module’s Survey Manager, for instance, provides compliant pre-created or highly customizable FATCA surveys for all kinds of specific organizational needs. Customizable question sets offer sequence logic so that responses determine the thread of subsequent questions. You won’t have any worries about forgotten responses, as automated email communications continue to remind survey recipients until a response is received. Survey Manager creates and stores a permanent record of the certification process.
The Review Manager provides a documented, automated FATCA verification process. Employing these workflows, your organization will gain the ability to demonstrate control of entity management data. You can customize specific data integrity rules to ensure compliance. Automated emails with an included link to the review simplifies the interface. Workflows ensure that notifications and reminders proceed until a task is complete. It seamlessly integrates with Survey Manager and Workflow Manager for a completely integrated and documented review process.
The Workflow Manager ensures that all required FATCA compliance tasks are completed correctly and on time. It removes paper, scheduling and human error from the process, and ensures that no required task falls through the cracks. No matter how many entities your organizations has in all of its different jurisdictions, Workflow Manager, in concert with the Survey Manager and Review Manager, combined with other tools, takes care of all required tasks having to do with FATCA compliance.
The Future of FATCA and FATCA Forms
Like other regulatory regimes, FATCA is constantly evolving and being reinterpreted by the IRS. Our FATCA Manager also keeps up with these changes. As your organization grows and the regulation changes, it ensures that your institution remains in compliance, with a solid documented audit trail that reveals every step of the FATCA survey, attestation and compliance process.
Organizations that employ Blueprint’s FATCA Manager enjoy the efficiency that flows from organizing the data and systems that they already possess to ease compliance. Leveraging the Blueprint platform for specific compliance tasks such as FATCA avoids the expenses and aggravation of external personnel or a separate expense for other, non-integrated solutions.
We hope to be your organization’s entry point into an affordable and effective solution that can adapt to your specific needs while ensuring compliance with the uniform requirements of FATCA and similar regulations. Please call us or email us today to discuss our solutions.