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  • 1. FATCA in Pakistan  FATCA in Pakistan Key challenges and Implications Ali Kazimi MENA FATCA Leader Financial Services Partner © 2013 Deloitte LLP. Private and confidential
  • 2. What is FATCA? US governments response to combatting tax evasion g p g US government concern • US persons evade their tax obligations by holding assets overseas in non‐US structures & products • US persons do not file or report their worldwide income with integrity US persons do not file or report their worldwide income with integrity US government response • N US fi Non‐US financial institutions designated Foreign Financial Institutions, or “FFIs” need to enter  i l i tit ti d i t d F i Fi i l I tit ti “FFI ” dt t into an agreement with the US Tax authorities and become participating FFIs Foreign Financial Institutions Income and sales  proceeds Bank  account Wealth  manager  US assets Fund Trust/ Custodian Platform Broker Insurance  product US owner • All participating FFIs need to report to the US Tax authorities: the balance the income and the All participating FFIs need to report to the US Tax authorities: the balance, the income and the  gross proceeds for all accounts held by US persons, on an annual basis © 2013 Deloitte LLP. Private and confidential 2
  • 3. FATCA Overview in Pakistan  Considerations and implications for Financial Institutions p FATCA in Pakistan Compliance Non‐Compliance Meet Compliance  requirements No additional work  requirements Meet Governance  requirements  Reputational Damage  Register with IRS/  Under an IGA Loss of Counterparty  and FI relationships Business As Usual*  Subject to Withholding  S bj t t Withh ldi tax at 30% © 2013 Deloitte LLP. Private and confidential 3
  • 4. Non – Compliance  Each non‐compliant FFI may have the following issues…..  p y g Subject to withholding tax Reputational damage  Beginning 1 July 2014 NPFFIs will be subject to withholding  FFI credibility and reputation may be damaged by not  tax at 30% on US sourced income , this will later extend to  complying with a globally applicable law . gross proceeds and foreign passthru payments.  Loss of counterparty relationships  Loss of customers  Customers may not want to deal with non‐compliant banks.  Many banks and financial institutions will not deal with  non‐compliant entities in order to reduce their own  non compliant entities in order to reduce their own Customers will not want to be subject to 30% withholding  tax due to the bank being non‐compliant.  reputational risk and withholding responsibilities. 4 © 2013 Deloitte LLP. Private and confidential
  • 5. Compliance Requirements  Each compliant FFI will have to fulfil the following…..  p g Entity Classification Individual Classification The classification of individual accounts to be US, Non US  The classification of entity customers into US, Non US,  Th l ifi i f i i US N US or Recalcitrant applying to both pre‐existing and new  Financial or Non‐Financial accounts Reporting Remediation The transition/remediation work  and further information  and documentation requirements for pre‐existing  The provision of information to the IRS under the FATCA  The provision of information to the IRS under the FATCA agreement for both pre‐existing and new accounts which  customers (obtaining withholding certifications or proof of  have been classified as US accounts.  US/Foreign status). Withholding The requirement to withhold 30% of withholdable The requirement to withhold 30% of withholdable payments to recalcitrant account holders. 5 © 2013 Deloitte LLP. Private and confidential
  • 6. FATCA requires significant process and system changes However the magnitude of the work required may vary depending on your  g q y y p g y existing AML/KYC framework Existing AML/KYC Framework Existing AML/KYC Framework New customer on‐boarding Existing customer remediation 6 © 2013 Deloitte LLP. Private and confidential
  • 7. Further considerations  Based on our extensive experience of FATCA engagements p g g Consideration Challenge Process Any process change is as good as its  implementation Ensure that the impacted stakeholders are  held accountable Systems/Data Most banks have data quality and data  integrity challenges As part of the FATCA remediation, consider  addressing these known data issues as well A sudden wave of one stop FATCA system solutions Carefully assess solution capabilities and  compatibilities before proceeding Not just FATCA… Consider potential future requirements from  other countries, not just the US Tactical changes versus strategic ones Tactical changes versus strategic ones 7 © 2013 Deloitte LLP. Private and confidential
  • 8. FATCA governance Each compliant FFI will have to fulfil the following…..  p g FATCA requires a participating FFI to comply with verification procedures established by US Treasury to certify that the FFI has  complied with the terms of the FFI agreement. Repetitive or systematic failures in the FFI’s compliance processes may result in  enhanced review procedures, including an external audit.  enhanced review procedures including an external audit Policies and Procedures Adopt written policies and procedures governing FATCA related requirements and conduct periodic reviews of compliance  with the said policies and procedures and FATCA obligations generally Responsible Officer/Internal Controls/Governance Arrange for the Responsible Officer of the FFI to certify the participating FFI s compliance with its FATCA obligations on a  Arrange for the Responsible Officer of the FFI to certify the participating FFI’s compliance with its FATCA obligations on a periodic basis, report certain factual information and disclose material failures with any of the requirements of its FFI  Agreement. Legal Requirements Requirements  Have the legal ability to disclose information to the IRS and apply withholding  8 © 2013 Deloitte LLP. Private and confidential
  • 9. FATCA Registration  Implications on the different types of registration  p yp g FATCA Compliance Register with IRS and  Govt under an IGA Register with the IRS Register on on‐line  portal  Model 1 Model 2 Responsible officer  required No responsible officer Responsible officer  required Report to Pakistan  government Report to the IRS No withholding  N ithh ldi requirements No withholding  N ithh ldi requirements Meet withholding  g requirements  Monitor further  regulations for dates,  regulations for dates processes and  procedures 9 © 2013 Deloitte LLP. Private and confidential
  • 10. Inter‐Governmental Agreements Between Pakistan Government and the US (IRS) ( ) Challenges for Banks/Financial Entities Benefits to Banks/Financial Entities Local government provides a level of protection to the  Local government provides a level of protection to the financial industry from the US • Potential for Financial entities to be exempted. • FATCA requirement changes introduced by IGA Removal of withholding • Uncertainty waiting for local government Uncertainty waiting for local government Assistance provided to the industry regarding  specific  concerns (e.g. Banking Secrecy) • • • • Reduced exposure of local entities to direct US action  (fines, reviews, audits). 10 © 2013 Deloitte LLP. Private and confidential
  • 11. FATCA Inter‐Governmental Agreements   Current status of IGA’s Model 1 IGA Model 2 IGA United Kingdom Japan  Denmark Switzerland Mexico  Germany  Germany Ireland  Norway  Spain  11 © 2013 Deloitte LLP. Private and confidential
  • 12. Inter‐Governmental Agreement – GCC region snapshot As at October 2013 Country Regulator Banking Secrecy  Discussions / Communications High degree of Banking Secrecy for all  Hi h d f B ki S f ll banking customers  • CBB issued a circular in September, announcing their intention to enter CBB issued a circular in September, announcing their intention to enter  into a Model 1 IGA with the US • CBB asked Bahrain institutions to provide update of their FATCA readiness Regulated financial institutions must protect confidential information relating  to their clients. • QCB issued a circular in September, announcing their intention to enter  into a Model 1 IGA with the US • QBB asked Qatar institutions to provide update of their FATCA readiness. Central Bank of  the BUAE (CBUAE) Bank secrecy is strictly enforced in the  UAE, although customer consent may  dis‐apply it. • At a FATCA Seminar in March, the UAE Central Bank governor verbally  announced the UAE government’s intention to enter into a Model 1 IGA  with the US • No further formal announcements have been made to date Saudi Arabia  Monetary Agency  (SAMA) A bank has a general duty of  g y confidentiality towards a consumer  except when disclosure is imposed by a  relevant authority  or with the written  consent of the consumer. • SAMA has instructed Saudi banks to undertake their respective FATCA  compliance initiatives whilst SAMA assesses the possibilities of entering  into an IGA with the US Oman Central Bank of  Oman  (CBO) CBO Committee reviews requests to  release confidential information and  barring this , consent is always required  from the account holder prior to  divulging information to third parties. • CBO issued a FATCA circular requesting financial institutions to assess the  potential implications FATCA has on their respective operations • No announcements in relation to an IGA have been made to date Kuwait Central Bank of  Kuwait (CBK) Affairs of the bank or its customers are specifically protected under the Civil and Commercial Procedure Law. • CBK has not issued any specific guidelines on FATCA • The Kuwait Bankers association has conducted internal FATCA discussions discussions, however no announcement in relation to an IGA have been made to date Bahrain Qatar U.A.E. Saudi  Arabia Central Bank of  C lB k f Bahrain (CBB) Qatar Central Bank 12 © 2013 Deloitte LLP. Private and confidential
  • 13. Rest of the world … Some examples  As at October 2013  Country Regulator Banking Secrecy  Discussions / Communications India Reserve Bank of  India Regulated financial institutions must R l d fi i li i i protect confidential information relating  to their clients. • The US Treasury reported on November 2012 that the US and India were The US Treasury reported on November 2012 that the US and India were  working to explore options for intergovernmental engagement.  • No further public announcements and information has been provided in  2013 Malaysia Bank Negara  Malaysia – Central Bank of  Malaysia Bank secrecy is strictly enforced in  Malaysia, although customer consent  Malaysia although customer consent may dis‐apply it. • The US Treasury reported on November 2012 that the US and Malaysia  were working to explore options for intergovernmental engagement.  • No further public announcements and information has been provided in  2013 Taiwan Central Bank of  the Republic of  ( ) China (Taiwan)  Banks are required to keep customer  information confidential  unless  otherwise required by law.  q y • On April 2013, the Taiwanese Financial Supervisory Commission and  Ministry of Finance jointly announced that both agencies and the US  Treasury had reached a consensus to pursue an IGA to facilitate the  implementation of FATCA.  i l t ti f FATCA Národná Banka  Slovenska A bank has a general duty to maintain a  customers confidential information and  protect it against disclosure except  when it is imposed by a relevant  authority  or with the written consent of  authority or with the written consent of the consumer. • The US Treasury reported on November 2012 that the US and Slovak  Republic were actively engaged in a dialogue towards concluding an IGA.  • No further public announcements and information has been provided in  2013 Slovak Republic  13 © 2013 Deloitte LLP. Private and confidential
  • 14. Business as usual   What happens next? pp Business as usual Continued governance Formal RO verifications  (3 yrs) Ongoing monitoring and  training Meet reporting and  withholding requirements Information refresh 14 © 2013 Deloitte LLP. Private and confidential
  • 15. Main Considerations  Key Challenges & Implications y g p Implementing  FATCA in Pakistan Key challenges  Key implications Population size Implementation  IT system challenges Language barrier /  communication Legal 15 Loss of  customers/business Internal  Internal controls/Goverenance IT systems IT t Reputation Technical  nature/knwoledge Technical legislation Non implementation Withholding © 2013 Deloitte LLP. Private and confidential
  • 16. FATCA Challenges  Common Misconceptions and pitfalls p p Misconceptions • • • • All about withholding – withholding can be minimized and it is information that is key. We have to do everything and we have no options – elections and delegation of responsibilities Need to do everything now – have a plan and use the FATCA milestones Local government/regulator will save us – time is an issue and major part of FATCA stays the same g / g j p y Difficulties • • • • • Treatment of joint accounts/partnerships/trusts T t t fj i t t/ t hi /t t Use of de‐minimis and other limits Reliance on documentation Technical nature of regulations What is classed as income, FDAP, Source of income etc? Wh t i l d i FDAP S fi t ? 16 © 2013 Deloitte LLP. Private and confidential
  • 17. FATCA – Next steps  Time is running out g • • • • • • • • Understand the importance of FATCA Acquire senior management buy‐in on FATCA Understand your business and group under FATCA Organize internally to implement a large regulatory project: o Resources o Budgets o Time Become familiar with the FATCA regulations Identify FATCA Gaps/changes Mobilize the business Implement FATCA in the business 17 © 2013 Deloitte LLP. Private and confidential
  • 18. Our Engagement team Focused on providing value added input F d idi l dd d i t Ali Kazimi – FATCA Leader and Financial Services Partner Ali has over 20 years of financial services sector experience gained with leading  financial institutions and professional advisory firms, including eight years as the  financial institutions and professional advisory firms, including eight years as the Head of Taxation at Barclays Global Investors. He has more recently focused on  advising on the implications of FATCA.  He works primarily with institutional investors, asset and wealth managers,  investment brokerage and platforms, and investment services firms. Ali is a frequent  speaker at conferences and has also written on wide range of topics including  speaker at conferences and has also written on wide range of topics including Securities Lending, Sovereign Fund Investing, Pension & Asset Pooling, Multi‐Manager  Investing, Custodial Structures, and Stamp & Transfer Taxes. • E‐mail: alikazimi@DELOITTE.com • Tel: 00971 45064910 Mark Pegram – FATCA Co‐Lead Tax Mark is a Deloitte FATCA co‐leader and has over 9 years tax experience, the last three  years with Deloitte in  Guernsey, the Isle of Man and now Dubai. Earlier in his career Mark worked for the UK tax authority (HMRC) as an Inspector of  Taxes, and provides an insight into the tax authorities perspective to our FATCA  projects. • E‐mail: mapegram@DELOITTE.com • Tel: 00971 45064902 Over the years he has worked on a number of projects for financial institutions based  Over the years he has worked on a number of projects for financial institutions based in Guernsey and the Isle of Man in respect of withholding taxes and reporting  requirements. 18 © 2013 Deloitte LLP. Private and confidential
  • 19. Important Notice This document, which has been prepared by Deloitte LLP (“Deloitte”), has been prepared for the sole purpose of providing a presentation and overview of certain FATCA issues. The contents of this presentations is for information only, should not be relied upon and does not constitute formal advice. About Deloitte: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent  entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 140  countries, Deloitte brings world‐class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming  the standard of excellence. Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They  enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building  public trust, and making a positive impact in their communities. © 2013 Deloitte LLP. Private and confidential