As reported in a survey by Americans Abroad Global Foundation (AAGF) and the University of Nevada, 80% of US citizens living abroad believe that the US Tax laws are more complicated than the tax law in the country of their residence. In addition, an overwhelming 86% also said that FATCA needs to be reworked to allow Americans overseas access to banking services and should be exempt from reporting accounts held in the country where the taxpayers live. However, the Foreign Account Tax Compliance Act (FATCA) impacts not just US citizens living abroad, but also banks and financial institutions. So what exactly is FATCA and how does it affect you. Find out:

1. OVERVIEW OF FATCA
As reported in a survey by Americans Abroad Global Foundation (AAGF) and the University of
Nevada, 80% of US citizens living abroad believe that the US Tax laws are more complicated than the
tax law in the country of their residence. In addition, an overwhelming 86% also said that FATCA
needs to be reworked to allow Americans overseas access to banking services and should be exempt
from reporting accounts held in the country where the taxpayers live. However, the Foreign Account
Tax Compliance Act (FATCA) impacts not just US citizens living abroad, but also banks and financial
institutions. 1
So what exactly is FATCA and how does it affect you:
WHAT IS FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a US Federal Law that was enacted as part of the
Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. FATCA requires US citizens
living outside the United States to report their non-US financial accounts to the Financial Crimes
Enforcement Network (FINCEN) on an annual basis2
. Starting 2014, FFIs like local banks, stock brokers,
hedge funds, pension funds, insurance companies, trusts, etc. are required to report directly to the
IRS all their clients who are US nationals.3
1
NewsMax Finance: The Ugly Face of FATCA: Why Life for American Expats Is Getting
Harder
2
Thompson Reuters: FATCA FAQ
3
US Dept of Treasury: FATCA

2. FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to U.S.
nationals that may be investing and earning income through non-U.S. institutions. Whilst the primary
goal of FATCA is to gain information about U.S. citizens and nationals, FATCA imposes tax
withholding where the applicable documentation and reporting requirements are not met. Failure to
report the same can result in a penalty of more than $10,000 per report per year.4
WHO DOES IT AFFECT?
FATCA affects U.S. withholding agents and multinationals but the greater impact is to Foreign
Financial Institutions (FFIs). Under FATCA, FFIs are subject to stringent requirements to identify and
report U.S. accountholders (both individuals and owners of foreign entities) to the Internal Revenue
Service (IRS) in order to support FATCA’s objectives. FFIs that do not agree to comply are subject to a
30% withholding tax on specified U.S. source income, such as interest, dividends, and securities sales.
Even for FFIs that agree to comply with FATCA, withholding will be required for their customers who
do not agree to provide information to determine U.S. accountholder status. 5
US Financial Institutions (USFIs) are also under the purview of FATCA. They are required to withhold
30% of their proceeds of funds sent to not participant FFIs and Non-Financial Foreign Entities (NFFEs).
4
US Tax: What is a US Person for IRS tax purposes?
5
Protiviti: FATCA

3. Additionally, USFIs that have FFIs under their overall corporate structure (e.g. overseas affiliates or
offshore funds) face additional FATCA compliance challenges for implementing compliance programs
at each FFI and coordinating these programs across the enterprise.
HOW TO PREPARE FOR FATCA?
FATCA is a complex and detailed law that includes different tiers of definitions, exceptions, and
deadlines. FATCA is not just a tax issue, but a customer identification program and reporting
requirement for which compliance planning should begin immediately and involved parties should
include legal, compliance, treasury, operations, IT, systems, audit, private banking, asset management,
and risk management at a minimum.
CHALLENGES DUE TO FATCA
CUSTOMER CLASSIFICATION
To comply with FATCA regulations, banks and financial institutions need to have detailed knowledge
about a particular account and match that information from amongst multiple customer databases.
The information needs to be precise, because inaccuracies in reporting mean more fines. Moreover,
the lack of a centralized database system means there is huge enterprise effort required to fetch the
data. This can mean allocation of people, budget and project ownership across businesses,
operations, compliance and tax, which many organizations are incapable of providing. 6
Shailesh Karia, Hexanika Advisor and Ex CIO and MD Deutsche Bank adds, “Banks additionally need
to assess whether individual clients are FACTA relevant (e.g. US citizen OR Foreigners with US
connections or some financial ownership OR Companies owning share in US companies)”. Due to
huge complexities in the Act, determining the status of entity for FATCA purposes may be a
challenging aspect for most.
TRANSACTION MATCHING
FATCA applies to two defined payment types: withholdable payments and passthru payments. FFIs
need to identify where income is earned and sourced on a quarterly basis. This means financial
institutions should also keep a check on transactions and payments of accounts from their enterprise,
6
EY: Complying with FATCA: 11 key challenges

4. requiring sourced information from multiple transaction engines which in turn are dependent on
various touch points.
Shailesh agrees, saying “This creates a major challenge with payment transactions, as the transaction
is required to go through a FATCA supported engine or a similar system, which slows down
processing and impacts reporting Service Level Agreements (SLAs).”
REPORTING COMPLEXITIES
The short time frame for implementation requires immediate focus on key startup tasks, and this
adds to complexities in technology as numerous unrelated systems must be addressed and modified
to enable precise fetching of required information for reporting.7
Like other regulatory reporting requirements, FATCA requires detailed information of a particular
account to complete multiple templates. This includes:
1. Movement of specific accounts
2. Transactions by FATCA relevant clients
3. Details of beneficiaries and dividends of single accounts and also accountholders with one or
more of the shareholder being a US citizen or US national staying abroad
Fetching and reporting this information in time and checking it for correctness is a challenging task
for most institutions.
HEXANIKA: ADDRESSING FATCA PRESSURES HOLISTICALLY
Hexanika is a RegTech big data software company, which has developed the revolutionary software
platform SmartJoin™ and software product called SmartReg™ for financial institutions to address data
sourcing and reporting challenges for regulatory compliance. SmartJoin™ improves data quality while
the automated nature of SmartReg™ keeps regulatory reporting in harmony with the dynamic
regulatory requirements and keeps pace with new developments and latest regulatory updates,
thereby catering to market needs efficiently.
7
Capgemini: A Comprehensive FATCA Solution

5. SmartReg™ can use cleaned data from SmartJoin to be used for further analysis, visualization and
also for generating reports. The reports are generated dynamically in the format as prescribed by the
reporting authorities, bringing down the resources and time required to prepare FATCA reports, The
scalable and flexible rules engine enables an easy drilldown from regulatory reports to transactional
level, makes the process of data matching and integration easier and faster. Hexanika’s end-to-end
solution that is also relevant to FATCA identifies relevant transaction and provides for easy reporting
capabilities.
CONTACT US
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Tel: +91 9850686861
Email: info@hexanika.com