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