ACFCS FATCA One Day Seminar June 21, Role and Application of Technology in FATCA

Transcription

1 ACFCS FATCA One Day Seminar June 21, 2013 Role and Application of Technology in FATCA

2 Chris Corrie VP, Global Trade and Treasury D&B Washington, DC

3 Jerry Khan Senior Manager, Tax KPMG New York, NY

4 Combating Tax Evasion is Becoming a Global effort The world is coming together to combat tax evasion FATCA will have a major impact financial institutions The road to FATCA compliance may involve multiple sectors within an organization (e.g. tax, compliance, IT) Inter Government Agreements make developing global systems more complex It is anticipated that other countries will implement similar regulations

5 Consider how different areas of your organization may be impacted depending on the areas you currently operate in. Comparison of FATCA Agreements (Flow of information)

6 Business and Operational Considerations Can you reduce the Business Model Impact? Can you reduce the Operational Impact? Change the business to reduce impact Change operations to comply Restricting Channels/Markets Restructuring Entities Avoid Need To Build Withholding Engines Leveraging KYC/AML Moving Customers Changing Products Leveraging Existing System Projects Leveraging Planned Customer Contact Exiting Customers Exiting U.S. Investments Leveraging Identification Initiatives i.e., Sanctions Turning Off The Tap Now Standardizing and Centralizing On-boarding

7 Implementing FATCA Key areas to focus on 1. FFI Agreement; 2. New Account Onboarding; 3. Preexisting Account Remediation; 4. Withholding; 5. Reporting; and 6. Governance and compliance. 1- Entity Classification and FFI Agreement Determine expanded affiliated group Classify entities Assign responsible officer Enter into FFI agreement by the safe harbor date (10/25/13) 2- New Account Onboarding Identify and implement onboarding processes and controls changes Identify and implement onboarding systems adjustments Create and maintain onboarding training 3- Preexisting Account Remediation Create an account remediation project plan Implement remediation activities Establish FATCA status These workstreams require analysis and action in order to achieve FATCA compliance. 4- Withholding Determine impact on current payment systems/processes o Determine options to compliance o Manual vs Automatic Implement updates o Update withholding engines o Maintain withholding matrix logic o Train operations staff 5- Reporting Determine impact to current reporting process Implement reporting system/process updates Manage Reporting Engine Implement coordinated electronic submission to IRS 6- Governance and Compliance Develop or update policies and procedures Establish Group governance and risk management Prepare and deliver training Establish ongoing compliance monitoring (Internal Audit)

8 What are organizations thinking about? Everyone s organization is different Build Buy What s right for me? Both FATCA Impacted Systems

9 FATCA Implementation Decision Making the right decision may prove challenging Update Existing System Some Considerations Stable core? Ready for the modern world Ability to adapt to a changing world Build New Systems Some Considerations Effort Resource needs Timing Buy Some Considerations Is vendor technology right for my organization? Advantages v. Disadvantages Customization needed Cost Combine Some Considerations What works best for my organization? Minimize effort Minimize cost

10 Technology Options There are many options that are available for organizations to help with FATCA compliance Remediate Existing Systems Outsource IRS Documentatio n Acquire Documentatio n Software Utilize Vendor Onboarding System Make updates to the current Onboarding systems and processes Review and make updates to the payment systems and processes Make updates to the YE reporting processes Manage and take responsibility for updates for compliance Outsource the IRS documentation requirements to a third-party service provider o Reduce or eliminate the need to collect IRS documentation o Reduces the administrative burden around the cure documentation and account maintenance process Acquire an external vendor s Electronic documentation software o Reduce or eliminate the need to collect IRS documentation Leverage a vendor onboarding system that addresses AML and FATCA due diligence requirements or connect existing AML systems into an off the shelf FATCA onboarding solution with automated due diligence capabilities o Reduce the administrative burden around Onboarding for more than one regulatory regime, including FATCA and KYC. o Reduce the administrative burden around due diligence. o Facilitate and automate documentation collection in many forms (paper/electronic).

11 Onboarding Framework Consider partitioning accounts New Individuals Financial Accounts Entities Financial Accounts Preexisting Financial Accounts Financial Accounts

12 A New Approach to Onboarding Acquiring FATCA documentation from third-party data providers may help to ease some of the burden FATCA adds to the onboarding process Third-party data providers A withholding agent may rely on documentation collected by a third party data provider with respect to its entity account holders. ( (c)) A third party data provider must : 1. Be in the business of providing credit reports or business reports to unrelated customers; 2. Have collected documentation sufficient to determine the chapter 4 status of the entity under (d); 3. Have reviewed all information that it has for the entity and verify that it does not conflict with the entity s claimed chapter 4 status; 4. Notify the entity that the entity must notify the data provider within 30 days of a change in circumstance ; and 5. Be obligated under its contract with the withholding agent to notify the withholding agent if a change in circumstances occurs

13 A New Approach to Onboarding (Continued) Can the industry rely on documentation from by third-part data providers? What will withholding agents need to continue doing? A withholding agent: 1. May not rely on a chapter 4 status provided by the data provider if the withholding agent knows, or has reason to know, that the chapter 4 status is unreliable or incorrect based on information in the withholding agent s account records; 2. May not rely on a chapter 4 status provided by the data provider if the documentation or information provided does not support the chapter 4 status claimed; 3. Be able to submit copies of the documentation received from the data provider to the IRS upon request; and 4. Will remain liable for any underwithholding that occurs as a result of its reliance on information provided by the data provider if the documentation is invalid or unreliable The rules above do not apply to: A withholding certificate or withholding statement containing an election to accept withholding or reporting responsibility (e.g. by a QI, territory financial institution or U.S. branch) provided by a data provider.

14 The Benefits of a 3rd Party Data Provider Leverage their core competencies Maximize the value of existing data Efficiency gains for all parties FATCA is Entity Management 3 rd parties do this well, but invest significantly to do so Leverage this investment, and focus on your core business Standardize customer information Link to 3 rd -party information In some cases, this, alone, is enough to satisfy classification requirements Consistent, minimized interaction with customers Reduced implementation burden for financial institutions Consistent application of policy for regulators Ease of monitoring and update for all Future Proof your solution Reap ancillary benefits FATCA requirements are likely to evolve IGA partner countries are already implementing their own requirements Solutions must anticipate this evolution, or become obsolete Improved customer management impacts all aspects of a business o Standardize information across systems and business areas o Identify profitable, low-risk customers o Monitor for changes in risk or opportunity o Comply with other regulatory requirements

15 The challenges of implementing 3 rd Party Data Legacy System Integration Integration into onboarding process o FATCA status checks o Customer information capture Pre-existing account classification Synthesizing Information Consistent Customer Experience 3 rd party data must be considered in the context of existing customer information Information between sources may corroborate, or conflict Ultimate accountability remains with the financial institution Eliminate duplication of data Consistent look and feel online, consistent interaction offline Comfort interacting directly with a service provider, vs. the financial institution A benefit, not a burden

16 Finalized Time Line for U.S. Withholding Agents ( USWAs ) January 1, 2014 March 15, 2015 March 15, 2016 A February 8, 2012 IRS published draft FATCA regulations. Q July 26, 2012 Draft Model I IGA released Summer 2012 Draft IRS forms released B Q Updated versions of IRS forms for FATCA to be released January 17, 2013 Final FATCA regulations released D 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, and Passive NFFEs with undisclosed Substantial U.S. Owners E G 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 2014 on Substantial U.S. Owners & ODCFFI accounts identified by December 31, 2014 I Annual information reporting (Forms 1042-S) Annual tax return reporting (Form 1042) March 31, 2016 Annual Form 8966 reporting K January 1, 2017 FATCA withholding begins on certain gross proceeds payments to noncompliant accounts Q October 24, 2012 C IRS Announcement released, providing some FATCA implementation deadline relief November 14, 2012 Model II IGA released, available to countries with TIEAs with the United States June 30, 2014 Deadline for USWAs to complete remediation on preexisting entity accounts held by Prima Facie FFIs (begin withholding) F 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 nonintermediaries on offshore obligations as excluded from definition of withholdable payment J L March 15, 2017 Annual information reporting (Forms 1042-S) Annual tax return reporting (Form 1042) March 31, 2017 Model I IGAs revised Annual Form 8966 reporting 16

17 Finalized Time Line for FFIS A February 8, 2012 IRS published draft FATCA regulations. Q July 26, 2012 Draft Model I IGA released Summer 2012 Draft IRS forms released B D January 17, 2013 Final FATCA regulations released Q FFI agreements to be released Updated versions of IRS forms for FATCA to be released July 15, 2013 IRS portal opens E 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 G I December 31, 2014 Deadline for FFIs to complete remediation on preexisting high-value accounts* 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 February 29, 2016 L 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 N 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 Q October 24, 2012 C IRS Announcement 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 Q F October 15, 2013 Global Intermediary Identification Numbers H ( GIINs ) assigned June 30, 2014 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 Deadline for FFIs to complete remediation on preexisting entity accounts held by Prima Facie FFIs (begin withholding)* 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 * These dates assume that the PFFI s FFI agreement is approved by the IRS and effective on December 31, 2013 ** 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 K December 31, 2016 M Final Day of Transitional Rule treating U.S. source FDAP payment paid by nonintermediaries on offshore obligations as excluded from definition of withholdable payment O 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 17