FATCA Imperative: A Practical Approach to Compliance

FATCA Imperative:
A Practical Approach
to Compliance
George Kyroudis – International Tax COE – National Leader
Craig Wible – Director, International Tax Services
Richard Hossain – Manager, Risk & Advisory Services

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Foreign Account Tax Compliance Act – FATCA
Experis Finance – April 25, 2013 ©2013 ManpowerGroup All rights reserved.
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Meet Our Presenters
George
Kyroudis
International Tax
Services COE, National
Leader
Craig Wible
Director,
International Tax
Richard Hossain
Director,
Risk Advisory Practice

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AGENDA
Overview – What is FATCA? Highlights of the Final Regulations
Application – Issues Facing U.S. Withholding Agents
Impact – Practical Applications
Conclusions – Implications for Multinational Corporations
Action Plan – Steps to Become Compliant
Implementation – Operational Challenges

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Foreign Account Tax Compliance Act (“FATCA”)
Overview
• Foreign Account Tax Compliance Act (FATCA) is a series of U.S. tax compliance rules for
foreign financial institutions to collect, verify and report information on U.S. customers.
It was enacted in 2010 as part of the Hiring Incentives to Restore Employment (“HIRE”) Act.
• FATCA’s goal: Obtain information relating to U.S. persons with offshore accounts or investments
• Generally, from a withholding agent perspective, FATCA applies to:
– U.S. withholding agents (USWAs) to the extent they make withholdable payments
to foreign entities (Payor)
– Foreign entities to the extent that they meet the definition of a Foreign Financial Institution
(FFI) (Payee)
• It enforces the IRS’s disclosure goal by imposing a 30% withholding tax on certain
payments unless information regarding U.S. owners and accountholders is provided.
• The ultimate objective is capture U.S. persons who use non-US accounts and funds
to evade US tax obligation.

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History
• Final FATCA regulations issued on January 17, 2013
– These followed the statute, IRS Notices, proposed regulations, and model
Intergovernmental Agreements (IGAs)
• IGAs are an alternative regime to the FATCA regulations and provide for alternative standards
– Address problem of non-U.S. privacy/secrecy laws conflicting with FATCA reporting and
withholding requirements
– Treasury has announced that it is working with more than 50 countries
• To avoid this 30% withholding, an FFI must either enter into an agreement with the IRS to be a
Participating FFI (PFFI) or meet the requirements of one of the many types of deemed compliant
FFI (DCFFI). Certain nonfinancial foreign entities (NFFEs) also face potential withholding under
FATCA if they fail to disclose their substantial U.S. owners.
• FATCA does not replace the current U.S. documentation, informational reporting and
withholding rules applicable to U.S. and non-U.S. persons (e.g., Form W-8, Forms 1042)

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Applies to:
• The scope of FATCA is very broad. Almost every foreign financial institution is within the reach of
this new regime. The Act impacts Foreign Financial Institutions (“FFI”) and Non-Financial
Foreign Entities “NFFE"), while imposing new burdens on U.S. withholding agents.
• The provisions of the Foreign Account Tax Compliance Act (“FATCA”) impose a new set of
withholding and reporting requirements that will apply to all companies (including non-financial
companies) beginning on January 1, 2014.
• FATCA provisions are relevant for:
– U.S. Payors, Non-US entities receiving payments from US sources
– U.S. persons with non-US assets and accounts
– The FATCA rules apply to both third party and inter-company payments
• Ultimately, this impacts any Chief Compliance Officer, Chief Tax Officer, Chief Risk Officer
or Chief Financial Officer at foreign banks, trust companies, hedge funds, or private equity
funds, or similar foreign financial institution which expects to earn any U.S.-source income or
gross proceeds from sales of U.S. securities.

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Foreign Financial Institution or “FFI” means any non-U.S. entity (except entities formed in a U.S.
possession which are not considered foreign for these purposes) that:
Is a holding company or treasury center that is part of an expanded affiliated group that includes one of
the above, or is it formed in connection with a fund or similar investment vehicle
Is an insurance company that issues or is obligated to make payments with respect to
a cash value an insurance or annuity contract
Life insurance company / products
Is an Investment Entity: Advisors-conducting investment activities on behalf of customers, Entities (i) that are managed by
other financial institutions, and (ii) whose income is primarily attributable to investing in financial assets
Mutual funds ETF Hedge funds
Private equity
funds
Venture capital
funds
Managed funds
Has a substantial portion of its business, holds financial assets for the account of others
Broker dealers
Clearing
organizations
Trust companies Custodial banks Employee benefit plan
Accepts deposits in the ordinary course of a banking or similar business
Commercial bank,
Savings and loan
associations
Credit unions
Co-operative banking
institutions
What is an FFI?
OR
OR
OR
OR

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Withholding
Agent
Payment subject
to withholding
at 30%
Payment not
subject to
withholding at 30%
FFI complies
with FATCA
FFI does not
comply with
FATCA
No withholding
Withholding at
30%
FFI
NFFE certifies
that it does not
have over 10%
US ownership
Withholding at
30%
NFFE fails to
certify that
it does not have
over 10% US
ownership
NFFE
Example: Compliance for Withholding Agent
No withholding

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Withholding Tax Illustration under FATCA –
U.S. Withholding Agents
IRS
Participating FFIs
Recalcitrants
(not USWAs)
U.S. and Nonresident Aliens
Individuals
Non-Compliant
FFIs and NFFEs
U.S.W.A.
Registered Deemed
Compliant FFIs
Exempt FFIs
Compliant
NFFEs
Other Persons
30% WITHHOLDING TAX
Gross proceeds and
other withholdable
payments subject to
30% U.S. withholding tax
NO WITHOLDING
TAX
Gross proceeds
and other
withholdable
payments
typically free
from U.S.
withholding tax
Payment
Stream:
Reporting and
remittance of
tax per FATCA
Certified Deemed Compliant
FFIs

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Recent Developments
• FATCA Final Regulations 1471 issued January 2013
• Foreign Bank and Financial Account Report (FBAR), the Treasury Department
amended the FBAR regulations in 2011
• Designated “withholding” as a top priority (Chapters 3, 4, and 61)
• Revised Forms W-8
• Reorganization - New Withholding Territory as part of its International Business
Compliance program
– Service Center personnel better trained on assertion of penalties and processing/posting
of Forms 1042-S
– Historically, many IRS agents did not understand the rules
– Now mandatory referrals
• New U.S. Withholding Agent Frequently Asked Questions
– Published Internal Revenue Manual for Form 1042 Examinations
– No additional time will be allowed to remediate documentation failures discovered
during the examination
• New guidance regarding reliance on emailed or faxed Forms W-8

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Polling Question #1
How does your company handle the compliance
requirements under Sec. 1441?
A. We have a great system and process in place (that correctly sources
payments, determines residence accurately and handles
documentation).
B. We have very few foreign payments, which we track manually
when they arise.
C. In our business we don’t have any payments that fall under
the 1441 NRA Regulations.
D. We don’t know and don’t want to know.

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Withholding Tax under FATCA
Applies to:
Withholding under FATCA applies to “withholdable payments” and foreign passthru payments”
• Withholdable Payments:
– U.S. source income (includes dividends and interest) and other fixed or determinable
annual or periodic income (FDAP income)
– Gross proceeds from the sale of property (that can produce U.S. source interest or
dividends)
• Passthru Payments:
– i.e., a payment made by an FFI that is attributable to a withholdable payment)
is not yet defined
• Exceptions: e.g., Foreign Governments, Public Corporations
• Electronic Registration: FATCA Registration Portal: global intermediary identification
number (GIIN)
• New IRS Forms: New and revised IRS forms must be issued so that taxpayers may comply
with the FATCA certification, reporting and withholding requirements

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Exceptions to Withholdable Payments
• Payments where the withholding agent has no control over or custody of
money or property owned by a payee or beneficial owner of a payment, or
lacks knowledge of the facts giving rise to such payments
Withholding agent lacks control,
custody or knowledge
• Payments of interest on short-term obligations (183 days or
less)
Certain short-term obligations
• Certain income effectively connected with the conduct of a
trade or business in the US
Effectively connected income
• Gross proceeds from the sale or other disposition of any
property that can produce US source FDAP income excluded
from the definition of withholdable payment
Gross proceeds from sales of
excluded property
• Sales of a fractional share of stock with gross proceeds less
than $20
Sales of Fractional Shares
• Part of Gross Proceeds – Withholding in 2017
Offshore payments of U.S.
sourced FDAP income

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NEW FORMS Form 8938 Form 8597
Form W-8BEN
Form W-
8BEN-E
Form W-8IMY
Form W-8ECI Form W-8EXP

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Due Date
Staggered 2015
- 2018
IRS Reporting
Due Date
Staggered 2014-
2017
U.S. source
income -January
1, 2014
Gross proceeds-
January 1, 2017
Withholding
Due Date
FFI –within 60
days of the
completion of
the 2 year
period for
preexisting
account due
diligence,
ongoing once
every three
years
Certification
Due Date
FFI –June 30,
2014 (prima
facie FFI) /
December 31,
2014 (high
value) /
December 31,
2015 (all other)
Updates to the
new account
onboarding
process
Account Review
- preexisting
accounts
Due Date
FFI –January 1,
2014
Account Review
- new accounts
Due Date
IRS Registration
Open July 15,
2013
Enter into FFI
agreement by
January 1, 2014
FFI list available
in December,
2013 to appear
on list FFI must
register through
the Portal by
October 25,
2013.
FFI Registration
To avoid FATCA withholding on payments received on US securities
by an fund the following compliance steps need to be met
The most significant provisions are effective from January, 1st 2014

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What you need to do if you are the payee to achieve compliance
• Classify U.S. and non-U.S. entities
• Determine if affiliates are considered “Foreign Financial
Institutions” or certain kinds of “Non-Financial Foreign Entities”
• Prepare certifications
• Determine whether legal documents need updating
• Provide training and tools that can be used by individuals in the
field to ensure that they know how to respond to new requests
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Example: Payments in Ordinary Course
• Ordinary course payments for:
– Nonfinancial services
– Wages
– Office/Equipment Leases
– Software Licenses
– Transportation
– Freight
– Interest on accounts payable from
acquisition of nonfinancial goods, services,
and other tangible property
• Not:
– Dividends
– Interest other than interest on accounts
payable described above
– Dividend equivalent payments with respect
to which withholding agent acts as
custodian, intermediary or agent
– Bank or brokerage fees
Withholding
Agent
Foreign
Corporation
Payments in the ordinary course of
withholding agent’s business for
nonfinancial services, goods, and use of
property are not withholdable payments

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Exclusion for Non-Financial Holding Company
• Not FFI and treated as excepted
NFFE if
– Foreign entity
– Substantially all activities are
holding stock of one or more
subsidiaries that engage in
trades or businesses
– No subsidiary is financial
institution
– Not investment fund and
does not hold self out as one
• PE Fund, VC Fund, LBO
Fund, etc.
Foreign
Holding
Company
F Sub 2 F Sub 3
F Sub1
Withholding
Agent
Withholdable
Payment
100%
100%
100%

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Steps for FACTA Analysis
• Determine the FATCA status of each legal entity
1. Legal Entity Analysis
• Conduct a payment processing review to identify corporate
functions with the ability to make withholdable payments to
assess documentation that will need to be collected to
satisfy FATCA requirements
2. Withholdable Payment
Analysis
• Understand types of payments received by MNC foreign
entities and inventory payors. Prepare the appropriate
documentation to provide proactively to payors to avoid
30% withholding upon payments received.
3. Payee Analysis
• Understand potential FATCA impact (e.g. contractual,
relationship) as a result of third party relationships
4. Third-Party
Arrangement Analysis
• Provide the necessary training and internal process
improvement
5. Training and
Education

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Other Implications that FATCA Impacts
Guidance for Banks
• May qualify to be deemed compliant
Guidance for Trust Companies
• The 30% withholding on withholdable payments to FFIs does
not apply if the FFI becomes a participating FFI (“PFFI”)
• PFFIs must identify entity accounts with substantial U.S. owners
(i.e., more than 10% U.S. ownership)
• compliance systems must be updated to identify entity accounts
Guidance for Funds
• Hardest hit by FATCA given investor base

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FATCA for Multinational Corporations (MNCs)
• MNC departments impacted by FATCA:
– Accounts Payable
– Procurement
– Treasury
– Tax
– Operations
• Existing policies and procedures may require updating
• Changes to reporting and withholding systems may be required
to be FATCA compliant

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FATCA for Multinational Corporations
MNCs using FFI for cash management, custody and credit services
may be affected by FATCA
• MNCs with FFI “accounts”, including:
– Cash pooling arrangements
– Custody relationships
– Equity interest in funds and
– Similar arrangements
• MNC must determine if FFI is FATCA compliant or risk facing 30%
withholding on the payments the MNC receives through FFI
• Common transactions that can be impacted by FATCA include:
– Cash sweep arrangements (both physical, zero-balance and notional) and
– Treasury investments held by a foreign custodian

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FATCA for Multinational Corporations
A number of MNCs have an FFI within their organization
• Under FATCA, an FFI could include an entity that is not technically
an affiliate of the MNC but closely tied to it
• These “stealth foreign financial institutions” include offshore:
– Leasing
– Financing
– Factoring
– Captive insurance companies
– Non-U.S. retirement plans that are not excluded under FATCA
– Non-U.S. charitable foundations and organizations
(not tax exempt under IRC §501(c)

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Polling Question #2
Do you think that your company will be considered
an FFI by definition of the Final Regulations?
A. No
B. Yes
C. Not certain

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Becoming FATCA compliant
• What’s this mean – Achieving Compliance
– There is a convergence of Risk and TAX
– Need for single data source FATCA and other Risk compliance mandates –
• Single data source to feed customer and regulatory reports prevents mismatch
errors downstream
• Streamlines, increases efficiency
– Need for streamlining reports and adding more granularity
– Still some Regulatory uncertainty
– This “compliance” will be over multi jurisdictions, adding to complexity

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• Could lead to:
– Extensive changes to the type of customer and transaction data that the FFI
captures and stores
– All these new data gathering, management and retention requirements will lead to
FFIs having to plan more carefully, rigorously managed workflows, document
management and NEW audit processes.
– The processes will need to be managed on an ongoing basis, (previous versions
of FATCA guidance have suggested that annual re-testing and reassessment will
become a necessary part of FATCA compliance – will have to forecast new
budgets to provide for sustainability and skilled resources, and determine who in
your organization will own this process long term, and the impacts all this may
cause.
• The “How” – practical implementation
– Holistic approach – 3 legged stool Business (In this case it maybe your
RISK/Compliance organization, PMO and Technology.
– Assessment
– Create a Road Map
– Implementation Plan
Becoming FATCA compliant- (continued)

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Are existing account set-up processes and systems
good enough for FATCA?
The proposed regulations allow for reliance on existing processes, provided that they
are satisfactory to identify customers and counterparties for FATCA. Determining
whether current processes meet this standard is critical to comply efficiently with FATCA.
Accordingly, there are a number of points to consider:
1. Under what KYC or AML regimes does the firm operate? In which jurisdictions? Are there significant
variances from region to region? How compliant are current KYC processes?
2. Where and how are Forms W-8 or W-9 collected from customers? What is the workflow for receiving,
validating, storing and retrieving them? How are they maintained with respect to their expiration dates?
Could paper copies be produced on request?
3. Where is government-issued identification or other documentary evidence currently collected? In
jurisdictions where it is not, how much change will be required to enable this? Are there jurisdictional
legal barriers to collecting these types of documents or reporting to the IRS?
The proposed regulations have clarified the rules for FATCA, but have not changed the
account identification and new customer process deadlines for compliance. Financial
firms must begin immediately to develop and rollout changes to new account processes
and to classify their existing client and counterparty populations, lest they fall behind.
Pre-Assessment

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Scoping
Before having to go through the account identification exercise, an assessment of the existing client
data should be conducted. Also assess customer segment sizes and operational workload
predictions associated with client review for each of the segments specified in the regulation.
Although, the IT team may ultimately be responsible for developing a strategy for FATCA
implementation, both the “business” and the program office should participate intimately through
out the process. The development will be based on an assessment of internal systems and
selection of third party vendors and products to streamline implementation. In larger organizations a
program manager may be assigned and responsible for the development of the strategy.
In order to aid in the classification and remediation effort, some key points to consider:
• System:
a) Establish a complete inventory of internal sources of customer information, including existing client
databases, customer master files, KYC information and anti-money laundering (AML) files —
whether they are electronically searchable or not
b) To ensure existing data quality, a system health check will be required and remediation options
undertaken where necessary.
• Data Analysis:
a) Data requirements:
1. Individual -details of US citizenship, permanent residence, birthplace, details of fund transfer
instructions, PO box identification, hold mail identifiers and power of attorney information.
2. For corporate organizations,- the banks also need to understand ownership structures and
identify beneficial owners who may be US citizens.
Assessment

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Scoping (continued)
• Data Analysis:
b) Assess the quality and completeness of account data, and perform data-attribute-mapping to the data
elements required for FATCA classification
c) Assess the extent to which the data is "electronically searchable" according to FATCA
d) Assess the effort required to gather, complete or "scrub" the required data
e) Perform a preliminary FATCA segmentation analysis of account population based on the usable data
In addition to the data requirements, FATCA also requires FFIs to retain records of the data
gathering process - this includes copies of relevant documentation, evidence of
examination, and the name of the employee conducting the checks. - accountability and
traceability
• Consider developing tools and procedures needed to perform the classification in a
systematic and repeatable way – This preliminary segmentation analysis should enable a firm to
foresee potential roadblocks and prepare accordingly. The insights gained can also be used to shape new
account policies and procedures, as well as to plan for ongoing data maintenance. One of the key goals will
be to identify customer groups likely to require significant effort for FATCA compliance:
Assessment

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Scoping (continued)
• Populations of individual customers with US "indicia" and the jurisdictions in
which these customers' accounts reside – Divide tasks into those addressing the
needs of the new onboarding process and the retrospective account review process. Data
capture of FATCA indicia data elements; account authorization and disclosures from
relationship managers for private banking accounts; and management information needed to
assess operational efficiency and identify the impact of FATCA onboarding processes.
• Significant populations of FFI counterparties and clients, and the jurisdictions
that conduct business with them. Firms should consider further analysis to
forecast populations of potential non-participating FFIs (NPFFIs), based on a
set of assumptions agreed with internal stakeholders
• Significant populations of non-financial entity accounts, which may require
onerous efforts for "look-through" analysis of underlying owners
Assessment

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1. Separation of customer type:
Classify existing accounts held by individuals based on "electronically searchable" information to understand
which account holders:
(a) are definitely US citizens or residents
(b) are definitely not US citizens or residents
(c) require more due diligence to determine their US tax status
2. Separation of Account info:
a) Conduct an enhanced review of individual accounts with aggregate balances above US$1,000,000
(high-value accounts) that cannot be sufficiently classified by electronic means: This review must
include a search of primary customer files, know-your-customer (KYC) documentation and an inquiry
of account relationship managers for any actual knowledge that the account holder is a US citizen or
resident.
b) Identify each account held by a non-individual (an entity account) as held by a financial institution
(e.g., another FFI) or by a non-financial, foreign entity (NFFE)
c) Validate accounts held by FFIs as FATCA compliant or participating (to date not many participating)
d) Exempt NFFE accounts from further due diligence (which itself may be onerous), or the FFI will need
to obtain information on substantial underlying owners of the NFFE to determine if any of them are US
taxpayers
3. Perform a full classification of all clients and counterparties, including flagging non-compliant clients
as "recalcitrant." This will include requesting, receiving and validating US tax forms and any additional required
documentation.
Assessment

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Reporting
Structure
Applications
Structure
Input Structure
International
Regulatory Reporting
Domestic Regulatory
Reporting
Internal Reconciliation
Internal Reporting
FATCA
Rule
translation Enterprise
wide
metadata
structures
Enterprise
Risk Data
Warehouse
Solutions/Products
Assessments
(Implementation
Readiness)
Tax Data
Enterprise
Reporting
Systems of
records
Data
Warehousing
Security Framework
Models, Methodologies and Controls
KYC AML
Off shelf
tool
Home
grown
tool

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Wrap up - Key concerns:
• Knowledgeable Staff
• Data- (validation, Source to target mapping, integrity)
• New mandate accounted for within existing budget
• Prioritization ongoing work and new requirements
• Management decisions - Outsourcing vs. In-house or a mix of both
• Overworked staff being taxed additionally
• Technology – additional infrastructure, environments required?
• Integration layer?
• New system of record for FATCA?

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Polling Question #3
Where are you with your FATCA compliance program?
A. Just started
B. Completed initial scoping assessment
C. Gathering data
D. Not Started yet
E. Don’t know how FATCA applies to us

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Recap
FINAL THOUGHTS

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For more information
George Kyroudis
International Tax Services COE – National Leader
george.kyroudis@experis.com
Craig Wible
Director, International Tax Services COE
craig.wible@experis.com
Richard Hossain
Manager, Risk Advisory Practice
richard.hossain@experis.com

39
Circular 230 Disclaimer
This presentation contains general educational information only and
Experis is not, by means of this presentation, rendering accounting,
business, financial, investment, legal, tax, or other professional advice
or services. This presentation is not a substitute for such professional
advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or
taking any action that may affect your business, you should consult a
qualified professional advisor. Experis shall not be responsible for any
loss sustained by any person who relies on this presentation. This
document was not intended or written to be used, and it cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.

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