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FATCA Update-may 2013- compliance

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FATCA

FATCA

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  • 1. FATCA: An Update for Compliance Professionals Jennifer Sponzilli Seconded US Tax Partner London 31 May 2013
  • 2. 1© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. US Circular 230 Disclosure ANY TAX ADVICE IN THIS DOCUMENT IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. Any tax advice in this document is limited to the conclusions specifically set forth herein and is based on the completeness and accuracy of the stated facts, assumptions and representations. If any of the facts, assumptions or representations herein is not entirely complete or accurate, it is imperative that we be informed immediately, as the inaccuracy or incompleteness could have a material effect on our conclusions. In rendering our advice, we are relying upon the relevant provisions of the Internal Revenue Code of 1986, as amended (the Code), state, local and foreign tax statutes, the regulations thereunder, and the judicial and administrative interpretations thereof. These authorities are subject to change, retroactively and/or prospectively and any such changes could affect the validity of our advice. We will not update our advice for subsequent changes or modifications to the law and regulations, or to the judicial and administrative interpretations thereof. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
  • 3. 2© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. FATCA overview and recap ■ The goal of FATCA is to reduce the possibility of U.S. tax evasion by U.S. individuals who invest in offshore accounts and offshore vehicles. ■ FATCA aims to accomplish this goal by requiring foreign financial institutions (“FFIs” - banks, custodians, insurance companies, investment funds, certain types of fund service providers, etc.) to identify and report to the IRS all U.S. account holders. In the case of funds and certain types of fund service providers, equity investors and debt-holders will be considered to be account holders. ■ FATCA introduces a withholding tax of 30% to be applied on any US source income and gross proceeds paid to non- participating foreign financial institutions and/or any other person or entity that does not identify themselves. ■ The new withholding tax can be avoided if foreign financial institutions enter into an agreement with the IRS to carry out due diligence on their new and existing accounts and report on specified US persons annually. ■ There have been a few slips to the original expected timescale. All foreign financial institutions (who are not within a IGA country) are expected to register with the IRS before 25 October 2013 and will need to enter into an agreement with the IRS to avoid any FATCA withholding. ■ Under the terms of the FFI agreement, financial institutions will be required to put certain measures in place over a three year period, as specified by the IRS. ■ In order to support the underlying policy of FATCA, but to negate certain issues, some countries signed up to IGAs with the IRS. These are broadly Model 1 or Model 2 agreements. ■ A Model 1 agreement is a reciprocal agreement which is entails certain local law to be enacted, and reporting will be done directly with the local tax authorities. FATCA Goal Concept Timeline Intergovernmental Agreements
  • 4. 3© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What are the risks of FATCA non-compliance? Under FATCA Under Model I IGA Commercial  Non-compliant institutions subject to 30% withholding tax on US gross proceeds, potentially putting many out of business.  Eliminates withholding tax on gross proceeds and on passthru payments while the issue is studied.  Removing need for withholding engine and simplifying client on-boarding may cut cost of compliance by 25%. Reputational  Threat to client relationships from incorrectly withholding 30% of gross proceeds due to internal errors or customer not identifying themselves properly.  Potential friction resulting from withholding eliminated for the time being.  Do not have to withhold on or terminate relationships with recalcitrants who refuse to disclose information. Legal  In some jurisdictions, data privacy and banking secrecy laws make complying with FATCA illegal.  Responsible officers who wrongly certify their firm complies with FATCA potentially risk jail.  No responsible officer certification required (although as-yet undefined local country certification requirements may be introduced). RISK DRIVES PRIORITY
  • 5. © 2013 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Final Regulations Highlights Final Regulations 17 January 2013 Industry Comments Draft Regulations Model IGAs 4 Notices Hire Act What changed? •Further reduced the number of FFIs by creating more deemed compliant categories •Harmonization with and expansion of IGAs •Streamlined administration and registration process
  • 6. 5© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Development of Intergovernmental Approach to FATCA – Timeline 2012 2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 21 June Treasury and Japan and Switzerland release a joint statement (Model II Agreement) 12 September United Kingdom and the US signed reciprocal Model I IGA 17 January US Treasury publishes final FATCA regulations Jan Treasury and France, Germany, Italy, Spain, and the United Kingdom (G5) release a joint statement (Model I Agreement) 8 February US Treasury publishes draft FATCA regulations 26 July United States and G5 countries release joint communiqué Treasury publishes reciprocal and nonreciprocal versions of Model I IGA 14 November Treasury publishes Model II IGA
  • 7. 6© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IGA Harmonization ■ Model 1 IGA: FFIs covered by a Model 1 IGA, and that are in compliance with local laws implemented to identify and report US accounts in accordance with the terms of the Model I IGA, will be treated as satisfying the due diligence and reporting requirements of Chapter 4. – Model 1 FFI’s do not need to apply the final regulations for purposes of complying with and avoiding withholding under FATCA, but may do so if the local jurisdiction allows. ■ Model 2 IGA: FFIs covered by Model 2 IGA with the US will be required to implement FATCA in the manner prescribed by the final regulations except to the extent expressly modified by the Model 2 IGA. ■ Pressure to Enter Into IGAs - Quickly: The FATCA final regulations retain the sunset on 31 December 2015 of expanded affiliated group qualification for participating FFIs outside IGA jurisdictions if there is a limited FFI or limited branch in the group. FINANCIAL INSTITUTIONS Covered by IGAs
  • 8. 7© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. No Intergovernmental Agreement Intergovernmental Agreement Model I Intergovernmental Agreement Model II FFI FFI FFI National Government National Government Reciprocal Agreement Non-Reciprocal Agreement Comparison of FATCA Agreements (Flow of information) 7 Reporting on recalcitrant account holders on an aggregated basis Request information Request information Infos Infos
  • 9. 8© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Intergovernmental agreements Who signs it? 8 Signed : Mexico; UK; Ireland; Denmark, Norway, Spain, Switzerland Agreements initialed: Italy Close to finalisation: France, Germany, Japan, Canada, Finland, Guernsey, Ireland, Isle of Man, Jersey and the Netherlands In negotiation: Argentina, Australia, Belgium, Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Luxembourg, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden Exploring options for IGA: Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Romania, Russia, Seychelles, Sint Maarten, Slovenia, and South Africa. Not interested for the moment: China; Hong Kong •The U.S. Department of the Treasury announced that it is engaged with more than 50 countries and jurisdictions around the world to implement the Foreign Account Tax Compliance Act (FATCA)
  • 10. 9© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What are the major benefits of signing the Model I IGA? Elimination of withholding on certain income received by FATCA Partner Financial Institutions Simplification of due diligence requirements of account holders Greater alignment on AML/KYC procedures, existing documentation, and public information Relaxation of Expanded Affiliated Group rules Wider scope of institutions and products effectively exempted from the FATCA requirements (Annex II)     
  • 11. 10© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Key dates of the Intergovernmental agreement A. 31 December 2013 Treat accounts opened on or before this date as pre- existing accounts B. 1 January 2014 Treat accounts opened on or after this date as new accounts E. 31 December 2015 Complete due diligence for pre-existing lower value accounts and pre-existing entity accounts C. 31 December 2014 Complete due diligence for pre- existing high value individual accounts D. 30 September 2015 Competent Authority must provide required information to the IRS for 2013 and 2014 F. 30 September 2016 Competent Authority must provide required information to IRS for 2015 2013 2014 2015 2016 2017
  • 12. 11© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What are the some of the obligations of a Reporting FATCA Partner Financial Institution under Model I IGA? Reporting FATCA Partner Financial Institution is required to: Report annually to FATCA Partner required information on recalcitrant accounts Identify US Reportable Accounts and report annually to FATCA Partner Competent Authority required information in the prescribed time and manner   Report annually to FATCA Partner Competent Authority payments made to Non- participating Financial Institutions in 2015 and 2016 (interim solution to passthru payment)  Comply with the applicable Financial Institutions registration requirements (e.g. FATCA Portal in the US) 
  • 13. 12© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. FATCA FFI Agreement On-Boarding & Identification Remediation & Monitoring Withholding Reporting Governance & Compliance
  • 14. 13© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Am I a financial Institution? Financial Institution
  • 15. 14© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ENTITY CLASSIFICATION ■ Investment Entity: Definition was expanded to generally align with the IGA definition. For example, managers and administrators, are now captured. ■ Passive NFFEs: Entities with more than 50% passive assets or income that are not professionally managed are treated as NFFEs rather than FFIs. ■ Depository Institutions: In addition to accepting deposits, the definition is narrowed in that the entity must also conduct banking or financing activity (listed) on a regular basis. (e.g., designed to exclude certain finance companies and acceptance of collateral or security pursuant to a lease or loan). ■ Holding Companies and Treasury Centers: limits the circumstance when a holding company or treasury center is treated as financial institution. Limited in two situations: – (1) if the expanded affiliated group (“EAG”) includes a depository institution, custodial institution, insurance company or an investment entity; and – (2) if the entity is formed or availed of by any fund or similar investment vehicle. SCOPE OF COVERED FINANCIAL INSTITUTIONS
  • 16. 15© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ENTITY CLASSIFICATION (Cont.) ■ Excepted Inter-affiliate FFIs: A member of a PFFI group is not an FFI if it: – does not maintain financial accounts (other than for group members); – does not hold an account with or receive payment from a withholding agent other than a group member; – does not make withholdable payments to any person other than group members (who are not limited FFIs or limited branches); and – has agreed not to report or act as an agent for chapter 4 purposes on behalf of any financial institution (including group members). ■ Registered Deemed Compliant Qualified Card Issuers: limited to an FFI that is an issuer of credit cards that accepts deposits only when a customer makes payment in excess of the balance due and the overpayment is not immediately refunded. ■ Registered Deemed Compliant Sponsored FFIs: Consolidates due diligence, reporting and withholding for a group of FFIs in one trustee, fund manager or US financial institution (with regard to its controlled foreign corporations) that has the ability to manage and enter into contracts on behalf of the sponsored FFIs. Expansion of Deemed Compliant and Other Exempt Categories
  • 17. 16© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ENTITY CLASSIFICATION (Cont.) ■ Limited Life Debt Investment Entities (until 1 January 2017): This transitional certified deemed compliant category is for entities (SPVs) in existence on 31 December 2011, which were created to securitize certain types of indebtedness. ■ Registered Deemed Compliant Qualified Collective Investment Vehicles: alternative qualification for registration requirement permitted where fund manager is regulated with regard to an investment fund in all places the fund is registered. ■ Registered Deemed Compliant Restricted Funds: These funds are given an extra six months after registration to renegotiate their distribution agreements to add the distribution prohibitions. Sales are now restricted to specified US persons. ■ Retirement Funds: the fund will still qualify as exempt under the category of exempt beneficial owner even if it is not the beneficial owner. ■ RDCFFIs now have six months to cure defaults before they lose their status. Expansion of Deemed Compliant and Other Exempt Categories
  • 18. 17© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Do I hold Financial Accounts? Financial Accounts are defined as accounts maintained by a Financial Institution and include: * Debt or Equity interests (differences depending on Investment or other Financial Institutions) Depository Account Custodial Account Debt or Equity Interest* Cash Value Insurance Contract and Annuity Contract
  • 19. 18© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Due diligence requirements for UK entities Individual Pre-Existing Accounts Individual New Accounts Entity Pre-Existing Accounts Entity New Accounts Low Value ($50,001 - $1M) ($250,000* - $1M) * for insurance contracts Review by 31 Dec 2015 Self Certification from 1 Jan 2014 Review by 31 Dec 2015 Self Certification from 1 Jan 2014 High Value (>$1M) Review by 31 Dec 2014 Self Certification from 1 Jan 2014 Review by 31 Dec 2015 Self Certification from 1 Jan 2014 De Minimis Exclusions (no reporting or due diligence required) < $250,000 for insurance accounts < $50,000 for other accounts < $50,000 for all accounts <$250,000 for all accounts None
  • 20. 19© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IGA Rules and Procedures – New Individual Accounts (opened on or after 1 January 2014) ■ New Individual Depository Account unless the balance > $50,000 at the end of any calendar year or other appropriate reporting ■ New Individual Cash Value Insurance Contract unless the Cash Value > $50,000 at the end of any calendar year or other appropriate reporting Accounts not required to be Reviewed, Identified, or Reported Obtain self- certification Confirm reasonableness of the self- certification
  • 21. 20© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IGA Rules and Procedures – New Entity Accounts (opened on or after 1 January 2014) FATCA Partner Financial Institution is required to determine the New Entity Account status on the basis of: Publicly available information Information in possession of a Reporting FATCA Partner Financial Institution OR An Active NFFE? A Partner Jurisdiction Financial Institution? A FATCA Partner Financial Institution? An exempt beneficial owner? A Specified US Person? A Passive NFFE?A Deemed- Compliant FFI? An Excepted FFI? A Participating FFI? Self-certification
  • 22. 21© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IGA Review Procedures – Pre-existing Individual Accounts (opened before 1 January 2014) Review Procedures for PREEXISTING INDIVIDUAL Account Holders LOWER VALUE HIGH VALUE Electronic record search for any U.S. Indicia YES YES Paper record search for any U.S. Indicia NO MAYBE Relationship Manager inquiry for actual knowledge whether the account holder is a Specified U.S. Person NO YES Any account with a balance or value > $50k (or $250k for CVI Contract or Annuity Contract) BUT ≤ $1M 31 December 2013 Any account with a balance or value > $1M
  • 23. 22© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IGA Review Procedures – Pre-existing Entity Accounts (opened before 1 January 2014) ■ Pre-Existing Entity Accounts with account balance ≤ $250,000 as of 31 December 2013 ■ Until the balance > $1,000,000 ■ Pre-Existing Entity Accounts with account balance > $250,000 as of 31 December 2013, and ■ Pre-Existing Entity Accounts that initially do not ≤ $250,000 but the account balance later exceeds > $1,000,000 Entity Accounts subject to Review Entity Accounts not required to be Reviewed, Identified or Reported
  • 24. 23© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IGA Review Procedures – Pre-existing Entity Accounts (opened before 1 January 2014) Determine whether an Account held by an NFFE is a US Reportable Account Determine whether a Financial Institution is Nonparticipating Determine whether a Non-US Entity is a Financial Institution Determine whether the Entity is a Specified US Person
  • 25. 24© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ? ? Annex I IGA? US Treasury Regulations? Can Reporting FATCA Partner Financial Institution use alternative procedures to fulfil due diligence obligations? Is it a U.S. Reportable Account? Is it an account held by a Nonparticipating Financial Institutions?
  • 26. 25© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. HARMONIZING OF IGA with US REGULATIONS ■ Guidance Notes: Financial Institutions should not be at a disadvantage from applying the UK legislation implementing the Agreement as compared to the position that they would have been in if applying the US Regulations. So if the US regulations subsequently introduce additional or broader exemptions it is that additional or broader exemption that should apply. ■ Summary Responses from UK on FATCA: UK business will be expected to fulfil the obligations set out in the UK regulations. However HMRC will continue to monitor the development of the US provisions and use the period before finalisation of the UK regulations to discuss with business whether amendments to the US provisions have an impact on the draft UK regulations. Once finalised UK businesses will be expected to operate the rules and obligations set out in the UK regulations alone. UK Statements on Harmonization
  • 27. 26© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What if a Reporting FATCA Partner does not comply with the obligations? Minor and administrative errors: Significant non-compliance: ■ FATCA Partner or U.S. Competent Authority can make a direct inquiry to a Reporting Financial Institution ■ Competent Authority may notify the Competent Authority of the other Party about making the inquiry to a Reporting Financial Institution ■ Competent Authority will notify the Competent Authority of the other Party when a Reporting Financial Institution is in significant non-compliance with obligations ■ Competent Authority of such Party will apply its domestic law (including penalties) to address significant non- compliance ■ Reporting FATCA Partner Financial Institution has 18 months to resolve the issue ■ Reporting FATCA Partner FI could be identified as a Nonparticipating FI by the IRS
  • 28. 27© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What type of information a Reporting FATCA Partner Financial Institution could be required to report? ■ For individual U.S. Reportable Account and Recalcitrant Account accounts:  The name, address, and U.S. TIN of each Specified U.S. Person that is an Account Holder  The account number or functional equivalent ( e.g. a unique product identification number)  The name and identifying number of Reporting FATCA Partner Financial Institution  The account balance or value at the relevant calendar year end or as required  Additional information for specified accounts (e.g.: gross interest or dividends paid or credited)
  • 29. 28© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What about Recalcitrant Account holders? IF No withholding tax No requirement to close the account and The U.S. Treasury receives certain information with respect to such account
  • 30. 29© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What if another Partner Jurisdiction was granted better terms of the IGA than the FATCA Partner? More favourable terms of another Partner Jurisdiction IGA: FATCA Partner will be granted the benefit of any more favourable terms The U.S. will notify the FATCA Partner of any more favourable terms The U.S. will also automatically apply such more favourable terms of another Partner Jurisdiction
  • 31. 30© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ApproveRegister Publish Update Final FATCA Regulations – FATCA Portal Registration Process From 15 July 2013, a financial institution registers and agrees to: • comply with its obligations as a participating FFI or as a sponsoring FFI entity, or • to act as a limited FFI or a registered deemed-compliant FFI (including reporting Model 1 FFIs). FFIs in jurisdictions that have signed an IGA, but not ratified or implemented, may be able to register as Model 1 FFIs The IRS approves the financial institution registration. Upon such approval, the IRS intends to issue a Global Intermediary Identification Number (GIIN) to each participating FFI and registered deemed- compliant FFI. GIINs will start being assigned on 15 October 2013 Beginning 2 December 2013, the IRS will electronically post the list (IRS FFI List) of participating FFIs and registered deemed- compliant FFIs with their corresponding GIINs. The IRS currently contemplates that the GIIN may also be used by reporting Model 1 FFIs to satisfy reporting requirements under local law and is discussing this possibility with its Model 1 IGA partners FFIs registering on or before 25 October 2013 will not be subject to withholding from 1 January 2014 The IRS intends to update the IRS FFI List on a monthly basis. FFIs will need to validate the GIINs against the IRS FFI List within 90 days of account opening FFIs need to validate that none of their FFI payees have lost their GIIN once a year
  • 32. 31© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. What Guidance are we Still Waiting For? ■ Final withholding certificates and instructions. ■ Reporting forms. ■ FFI agreements. ■ Harmonizing regulations under Chapters 3 and 61 (existing withholding rules). ■ IGA network continues to evolve. – Several have been signed. – Many more contemplated. – IRS has yet to issue guidance related to reciprocal reporting by US financial institutions. ■ Crown Dependencies & Overseas Territories - UK FATCA ■ Pan-EU FATCA
  • 33. 32© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Layers of operational complexity One IGA country Lowered risk profile under the IGA turns FATCA into a pure, and less expensive, compliance exercise. Two IGA countries (one with local + one with direct IRS reporting) Still a compliance exercise, albeit with slightly more complexity and risk. Presence in IGA countries and US Compliance exercise, but significantly more complex - information reporting reciprocity will likely add compliance burden to US withholding agents. Presence in non-IGA jurisdictions Significant risks, with the IGA increasing the level of complexity. The CFO must be engaged in determining global standards and making strategic decisions on ways to achieve compliance.
  • 34. © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 33 FATCA Service Delivery Evolution Planning & Initiation Impact Assessment Target State Design Implementation Stage 1 Stage 3 Stage 4 Tax Ops Tax Engagement activities include project management support, operations enhancement, and technology implementation. Ops Tax Tax Ops Stage 2
  • 35. © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 34 KPMG’s FATCA Approach FATCA Academy High-level Impact Assessment Workshops Stage 1 Stage 2 Detailed Impact Assessment Stage 3 Target State Design FATCA Rules Interpretation ■ Converting FATCA rules into operational requirements ■ Academy target audience assessment ■ Academy tailored ■ Academy delivery ■ Workshop preparation ■ Conduct workshop ■ Compile results to validate scope and scale ■ Entity scoping ■ Product scoping ■ Entity and product analysis ■ KYC policies, processes and systems ■ AML policies, processes and systems ■ Impact due to withholding requirement ■ US account identification ■ Impact on IT systems ■ Impact on reporting ■ Gap analysis ■ Strategic option analysis ■ Value chain risk assessment ■ FATCA cost of compliance ■ Implementation roadmap ■ Technical guidance on implementation considerations ■ Processes to achieve appropriate levels of client documentation for new accounts / clients ■ Communications that explain rules ■ Business model decisions ■ Create/review business requirements ■ Business and functional requirements documents ■ Process documentation ■ Key decision support and documentation ■ BRD analysis, TOMs & BOMs Stage 4 Implementation ■ Project and change management support ■ Implement documentation programs for new clients/investors ■ Implement processes and systems remediation, installation, and testing ■ Pilot and initiate new process ■ Establish reporting routines and controls ■ Client documentation remediation ■ Vendor Attestation & Assurance
  • 36. © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 35 Issues to be addressed ■ Operational framework – highest common denominator? ■ Operating models differ by jurisdiction – how to transition midstream if the jurisdiction signs up for an IGA ■ What to do with limited FFIs – how long do you wait for the IGA? Transition relief at the 11th hour? ■ Closure, shifting or sale of entities/branches in certain non-IGA territories ■ Potential for over withholding – erroneously due to administrative error or not identifying grandfathered obligations ■ Utilization of third parties – how to police them ■ Effective governance framework for sponsoring FFIs ■ Service level agreements and legal document review
  • 37. © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 36 Realistic allocation of resources ■ Understanding of group and business policies ■ FATCA impact on each business function ■ Gap analysis of FATCA requirements and existing procedures and processes ■ Business requirements document outlining current systems capability and enhancements ■ Business requirement document for current processes including distribution arms, counter parties and third party service providers ■ Management team and business heads to identify and assign responsibilities to relevant functions to meet project timeframe ■ Planning for completion of deliverables at each phase within deadline to meet final deadline ■ Contingency workaround (back up) for delay in deliverables
  • 38. © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 37 Managing IT systems upgrades ■ Business sponsorship and approval ■ Existing priority business projects ■ Legal and compliance mandatory enhancements ■ Year-end systems freeze ■ System builds that may impact other modules ■ Business requirement specification ■ IT team to build and test ■ Training and communication ■ Risk v cost ■ Contingency workaround (back up plan)
  • 39. 38© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. February 29, 2016 Due date for Responsible Officer due diligence certifications (unless previously submitted)* March 15, 2016 • Annual tax return reporting (Form 1042) • Annual information reporting (Forms 1042-S) • Reporting of foreign reportable amounts to NPFFIs begins March 31, 2016 Annual Form 8966 reporting January 1, 2014 • New account due diligence/ identification begins • Grandfathered Obligations: Payments on certain obligations outstanding on 1/1/14 are exempt from FATCA withholding** • FATCA withholding begins on U.S. source FDAP payments to new account holders identified as NPFFIs, recalcitrants, and Passive NFFEs with undisclosed Substantial U.S. Owners FATCA Time Line for Foreign Financial Institutions (“FFIs”) A February 8, 2012 IRS published draft FATCA regulations. Q4 2013 October 15, 2013 Global Intermediary Identification Numbers (“GIINs”) assigned October 25, 2013 Last date to register with IRS to ensure inclusion on FFI List (safe harbor) December 2, 2013 FFI List published by IRS List December 31, 2013 FFI Agreement effective December 31, 2014 Deadline for FFIs to complete remediation on preexisting high-value accounts* January 1, 2017 • FATCA withholding begins on certain gross proceeds payments to noncompliant accounts • FATCA withholding begins on foreign passthru payment (or 6 months after publication of regulations defining term, whichever is later) • For qualified collective investment vehicles, date by which policies aim to redeem or immobilize Bearer Interests Q3 2012 July 26, 2012 Draft Model I IGA released Summer 2012 Draft IRS forms released D H June 30, 2014 Deadline for FFIs to complete remediation on preexisting entity accounts held by Prima Facie FFIs (begin withholding)* I J March 15, 2015 • Tax return reporting begins (Form 1042) • Information return reporting begins (Forms 1042-S) March 31, 2015 Form 8966 reporting for 2013 & 2014 on Substantial U.S. Owners & ODCFFI accounts identified by December 31, 2014 2012 2013 2014 2015 2016 2017 N Q4 2012 October 24, 2012 IRS Announcement 2012-42 released, providing some FATCA implementation deadline relief November 14, 2012 • Model II IGA released, available to countries with TIEAs with the United States • Model I IGAs revised December 31, 2015 • Deadline for FFIs to complete remediation on preexisting accounts, other than Prima Facie FFIs and high-value accounts (begin withholding)* • Final date for FFIs to qualify for Limited Branch & Limited FFI Status March 15, 2017 • Annual tax return reporting (Form 1042) • Annual information reporting (Forms 1042-S) • Reporting of foreign reportable amounts to NPFFIs ends March 31, 2017 Annual Form 8966 reporting G K O * These dates assume that the PFFI’s FFI agreement is approved by the IRS and effective on December 31, 2013 B Q1 2013 • FFI agreements to be released • Updated versions of IRS forms for FATCA to be released January 17, 2013 Final FATCA regulations released C F July 15, 2013 IRS portal opens E December 31, 2016 Final Day of Transitional Rule treating U.S. source FDAP payment paid by non-intermediaries on offshore obligations as excluded from definition of “withholdable payment” M L ** Payments treated as dividend equivalents, under section 871(m), may be treated as Grandfathered up to 6 months after the publication of regulation implementing 871(m) Payments treated as foreign passthru payments may be treated as Grandfathered up to 6 months after the publication of implementing regulations
  • 40. 39© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. March 15, 2016 • Annual information reporting (Forms 1042-S) • Annual tax return reporting (Form 1042) March 31, 2016 Annual Form 8966 reporting Q1 2013 Updated versions of IRS forms for FATCA to be released January 17, 2013 Final FATCA regulations released Q3 2012 July 26, 2012 Draft Model I IGA released Summer 2012 Draft IRS forms released February 8, 2012 IRS published draft FATCA regulations. FATCA Time Line for U.S. Withholding Agents (“USWAs”) B 2012 2013 2014 2015 2016 2017 A Q4 2012 October 24, 2012 IRS Announcement 2012-42 released, providing some FATCA implementation deadline relief November 14, 2012 • Model II IGA released, available to countries with TIEAs with the United States • Model I IGAs revised C D January 1, 2014 • New account due diligence/ identification begins • Grandfathered Obligations: Payments on certain obligations outstanding on 1/1/14 are exempt from FATCA withholding* • FATCA withholding begins on U.S. source FDAP payments to new account holders identified as NPFFIs, recalcitrants, and Passive NFFEs certain with undisclosed Substantial U.S. OwnersE F June 30, 2014 Deadline for USWAs to complete remediation on preexisting entity accounts held by Prima Facie FFIs (begin withholding) G March 15, 2015 • Information return reporting on Ch. 4 reportable amounts begins (Forms 1042-S) • Tax Return reporting on Ch. 4 reportable amounts begins (Form 1042) March 31, 2015 Form 8966 reporting for 2013 & 2014 on Substantial U.S. Owners & ODCFFI accounts identified by December 31, 2014 I December 31, 2015 Deadline for USWAs to complete remediation on preexisting accounts, other than Prima Facie FFIs (begin withholding) H December 31, 2016 Final Day of Transitional Rule treating U.S. source FDAP payment paid by non-intermediaries on offshore obligations as excluded from definition of “withholdable payment” J January 1, 2017 • FATCA withholding begins on certain gross proceeds payments to noncompliant accounts K March 15, 2017 • Annual information reporting (Forms 1042-S) • Annual tax return reporting (Form 1042) March 31, 2017 Annual Form 8966 reporting L * Payments treated as dividend equivalents, under section 871(m), may be treated as Grandfathered up to 6 months after the publication of regulation implementing 871(m) Payments treated as foreign passthru payments may be treated as Grandfathered up to 6 months after the publication of implementing regulations
  • 41. 40© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Today’s Presenter Jennifer Sponzilli 020 7311 1878 jennifer.sponzilli@kpmg.co.uk
  • 42. Thank You
  • 43. © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.

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