fatca WHat the US tax LaW MEaNS for financial ORGaNISatIONS

Transcription

1 fatca WHAT THE US TAX LAW MEANS FOR FINANCIAL ORGANISATIONS

2 Foreword Financial institutions outside the US face significant operational upheaval over the next 15 months (to 1 July 2013) to ensure that they comply with FATCA regulations and become an unpaid reporting arm of the US Treasury. For an initiative that offers serious cost, but precious little value, FATCA has risen high up the list of business priorities for our clients and their senior executive teams. Indeed, we consider that without the support and involvement of senior management, any FATCA effort will struggle to gain the resource and cross-business coordination required to make it a success. To date, we have observed firms taking different approaches. Some have invested heavily even before the latest update was issued by the IRS in February this year, seeking to comprehensively assess the impact of FATCA on their business and starting with no- or low- regrets operational and systems changes. Others have preferred to wait for detail to emerge and are only now starting to engage senior management teams and to assess the full impact of FATCA. The more they engage, the more management are surprised by the scope and impact of the regulations. Given the scale and complexity of change involved, and if not done so already, we believe firms must quickly focus on ensuring the following: Senior management is engaged and providing active sponsorship of the FATCA programme There is cross-business awareness of the impact of FATCA underpinned by formal enterprise-wide governance to ensure all affected areas are involved in work to comply with the new regime A detailed impact assessment has been completed to identify how FATCA will affect the business and the strategic options that may be available The IT and operational effort required to comply is fully built into the firm s budget and change portfolio with an immediate focus on the client identification and due diligence requirements The Executive who will have formal sign-off responsibility for FATCA compliance has been identified and they are considering the audit and assurance processes they will need to have in place to allow sign-off. In difficult trading conditions, FATCA is placing a significant additional pressure on firms. Our work with clients to date shows that time spent achieving the above pays dividends in terms of ensuring quicker and more effective mobilisation of effort. contents 1. Executive summary 2. Background on FATCA 3. Where are we now with the regulations? 4. What are the timelines for implementation? 5. What happens next with the regulations? 6. What are the implications for financial institutions 7. Key implementation challenges 8. Phases of FATCA implementation 9. How BDO can assist you Tim Kirk Partner, Head of Financial Services

3 FATCA: What the US tax law means for financial organisations 1 1. Executive Summary In the IRS s own words, FATCA is an important development in US efforts to improve tax compliance involving foreign financial assets and offshore accounts. Put rather more directly, FATCA is designed to crack down on tax avoidance by wealthy US citizens investing offshore and represents a complex and costly compliance task being forced upon financial services firms globally by the US tax authorities. angela foyle Partner, Head of Financial Services Tax Although failure to comply with the FACTA rules can lead to a 30% withholding tax, the US Treasury is keen to state publicly that the fundamental purpose of FATCA is to obtain information on US-owned offshore accounts. While nobody really knows the extent to which US taxpayers are being under-assessed, the US Treasury clearly believes the figure to be substantial. In this respect, it is worth recalling that FATCA came about as the result of the IRS identifying in 2008 and 2009 what it perceived to be serious instances of offshore tax evasion. Recent IRS Offshore Voluntary Disclosure Programs have collected tax revenues of $4.4bn to date, with the final figure expected to grow even further. The US Treasury has stated that compliance rates are highest where there is third party reporting ie where the risk of being found out is highest, and believes that the size of the prize for FATCA runs to tens of billions of dollars. Additionally, despite a high cost to the financial services industry a crack-down on tax evasion is rarely a political vote loser with other taxpayers. For all these reasons, FATCA is here to stay. Many financial institutions that would potentially fall within the regime have maintained a watching brief to date rather than undertake any actual remedial or preparatory activity possibly in the hope that FATCA would somehow disappear (or at least be much reduced) but also through an understandable reluctance to commit time and resource to such a potentially large-scale operation when many aspects of the legislation were uncertain. Although final regulations are not expected until the Autumn of 2012, it is considered unlikely that there will be further relaxation of deadlines. FFIs, (Foreign Financial Institutions ie non-us institutions) have until 1 July 2013 to meet the deadline for implementing new account opening procedures. Now that the proposed regulations have arrived, FFIs should make it a priority to start understanding how FATCA will apply to their business and customers in practical and operational ways. While the timetable, and in some instances scope of the legislation have been relaxed, FATCA remains a complex and detailed piece of legislation and is not something that can be adopted at the last minute. Planning should start now. FATCA remains a complex and detailed piece of legislation and is not something that can be adopted at the last minute. Planning should start now.

4 2 FATCA: What the US tax law means for financial organisations 2. Background on FATCA What is FATCA? The Foreign Account Tax Compliance Act (FATCA) is directed at Foreign Financial institutions (ie non-us firms). It aims to prevent tax evasion by US persons through the use of offshore accounts. The FATCA provisions were included in the HIRE ACT which was signed into US law on 18 March What are the features and objectives of the legislation? Through increased reporting, the Act seeks to improve the tax compliance of specified US persons with offshore financial accounts For individuals, it applies to client accounts with an aggregated annual value of above $50,000 and for entities with an aggregated annual value of more than $250,000 and greater than 10% of US ownership There are additional requirements on accounts valued at over $1m It is projected to raise $7.6bn in tax revenue for the US over a ten year period. Who does it apply to? The rules will apply to any foreign financial institution that: Accepts deposits in the ordinary course of business Holds financial assets for others (eg custody/ nominee services) Is primarily engaged in the business of investing, reinvesting or trading in securities, partnership interests or commodities Is an insurance company (or the holding company of an insurance company) that issues or is obligated to make payments with respect to a financial account (eg contracts with value). In practice this means that a wide range of financial institutions will fall under the remit of FATCA including; banks, Insurance companies, trusts, broker dealers, hedge funds, private equity, custodians nominee services, investment funds and intermediaries. Broker dealers Hedge funds FFIs under the remit of FATCA Custodians nominee services Investment funds TRUSTS banks Private equity Intermediaries Insurance companies

5 FATCA: What the US tax law means for financial organisations 3 How does the IRS define US accounts? The definition of US accounts is very broad and adds to the complexity for firms in identifying personal clients or businesses with significant US ownership (above 10%). The IRS defines a US person or a US-owned foreign entity to mean: US citizens residing in the US or residing overseas US passport holders US persons directly or indirectly controlling more than 10% of a foreign company US persons linked to complex structures, such as foundations or trusts Green card holders or persons who have stayed in the US for several consecutive days during the past three years. For individual accounts with an aggregate annual value above $50k and below $1m, and for entities with a value above $250k, FFIs are required to conduct an electronic search of their account holder information to determine if any of the following US indicia are present: US residency or citizenship US place of birth US address US telephone number Standing instructions to transfer funds to an account maintained in the United States A power of attorney or signatory authority granted to a person with a US address US in-care-of or hold mail address that is the sole address the FFI has identified for the account holder. Importantly no further search of records or contact with the account holder is required unless US indicia are found through the electronic search. Accounts with a balance that exceeds $1,000,000, are subject to review of electronic and non-electronic files for US indicia, including an inquiry of the actual knowledge of any relationship manager associated with the account. To minimise burden, the review of non-electronic files is limited to the current customer files and certain other documents, and is required only to the extent that the electronically searchable files do not contain sufficient information about the account holder. Client Scenarios Private Bank FATCA impact Assessment and ongoing advisory support Overview BDO were engaged to assist the Bank in development of an impact and gap assessment, budget estimates, project communication strategy and identify representations to be made to the US Treasury regarding the bank s achievement of compliance with FATCA. Support was provided on: Development of strategic approach regarding the US clients and US investments held by the Bank s different entities Impact Assessment to assess the scale and nature of the organisational process and system changes required, and to direct compliance effort effectively for each entity Preparation of US indicia table with related operating model Review of templates prepared by the Bank (eg client s information letters) Review of legal documentations Development of training sessions Performance of a health check review Hotline assistance and ad hoc advisory services Periodic meetings with FATCA task force Also provided a Qualified Intermediary (QI) hotline service providing assistance in relation to tax, technical and operational issues. Outcome and deliverables Advice on the remediation process for existing clients Assistance in terms of client s KYC/AML documentation procedures and client identification procedures Advice regarding account opening procedures to ensure FATCA compliance Organisation of workshops and training for FATCA knowledge sharing Assistance regarding functional specifications.

6 4 FATCA: What the US tax law means for financial organisations 3. Where are we now with the Regulations? Following enactment of the HIRE Act, a series of Notices were issued providing preliminary guidance as to how the HIRE provisions would be implemented. These Notices, however, generated as many questions as they answered and also gave rise to a great deal of feedback and concern from companies likely to be within scope. On 8 February 2012, the Treasury Department and IRS released their proposed regulations providing further guidance with respect to information reporting and withholding. Additionally, the US Treasury also issued a statement jointly with the UK, France, Italy, Spain and Germany expressing a mutual intention to pursue a government-to-government framework for implementing FATCA. 1 An inter-governmental approach Although a very interesting development, it is important to be clear that the Joint Statement does not contemplate an exemption from FATCA for any jurisdiction. It offers a framework for information sharing pursuant to existing bilateral income tax treaties and allows FFIs to report the necessary information to their respective governments rather than to the IRS. The Joint Statement is intended to serve as a template for the US to work with other countries and we fully expect that other bilateral agreements will be reached over the coming months. 2 Benefits for FFIs in partner countries FFIs in the partner countries would automatically become Participating FFIs (PFFIs) and be granted FFI identification numbers without having to enter into a contract with the IRS unless they fall under the expanded Deemed Compliant categories There would be no 30% withholding against firms in these partner countries on their US sourced income provided they comply with the reporting requirements for PFFIs or become deemed-compliant FFIs. Taxation of payments made in favour of non-participating FFIs established in non-partner countries is still under discussion Inter-governmental data exchange will overcome some of the difficulties associated with data protection/ bank secrecy laws and may limit the need for firms to alter customer terms and conditions FFIs in these countries will not have to terminate the accounts of recalcitrant customers instead they would simply report on these accounts. FFIs in partner countries must still apply the necessary due diligence rules and identify pre-existing clients that qualify as US accounts. In addition, they will most likely still have to update their new client on-boarding processes to capture additional information required to report on US accounts going forward.

7 FATCA: What the US tax law means for financial organisations 5 FFIs in partner countries must still apply the necessary due diligence rules and identify pre-existing clients that qualify as US accounts. 3 Summary of key changes in proposed regulations (published February 2012) It would appear that the Treasury and IRS have been listening to the concerns of overseas governments, financial institutions, and trade bodies and have made a number of important changes in the draft regulations. Nevertheless, the compliance effort is still likely to be complex and time consuming and there are a number of areas that will require further definition before workable solutions can be developed (most notably in the area of foreign pass-through payments which has been pushed out to January 2017). 4 Summary of the latest timeline 5 Changes to financial thresolds $1,000,000 $750,000 $500,000 $250,000 0 $500,000 $1,000,000 Threshold for high value accounts $500,000 $1,000,000 $0 Manual Threshold for documentation individual of high value insurance accounts contracts Pre-regulations (February 2012) Post-regulations $250,000 $0 Threshold for entity accounts FATCA Requirements Jan 13 Grandfathered obligations $250,000 New customer on-boarding processes in place Withholding on Income Jul 13 Jan 14 Reporting on account and balance Withholding on Gross proceeds FFI affiliated group requirement Reporting on income Sep 14 Jan 15 Jan 16 Mar 16 Withholding on foreign pass-through payments Reporting on gross proceeds Jan 17 Mar 17 new or amended date unchanged

8 6 FATCA: What the US tax law means for financial organisations 6 In more detail the key changes published in the proposed regulations include: Refinement of Financial Account Narrower definition focusing on banks, brokerage, money market accounts and interests in investment vehicles and to exclude most debt and equity securities issued by banks and brokerage firms, subject to an anti-abuse rule. Pre-existing client identification (Individuals) $50k lower threshold remains except for Insurance contracts with a cash value, in this case a new lower threshold of $250k has been established Threshold for high value accounts has been raised from $500k to $1m Electronic search now required from $50k to $1m and a manual/paper search >$1m FFIs no longer required to distinguish between private banking accounts and other accounts but a new concept of Relationship Manager Test has been introduced for high value accounts US indicia expanded to include US telephone number. Pre-existing client Identification (Entities) Greater reliance on AML/KYC due diligence but 10% US ownership threshold remains Lower threshold of $250k invested has been established Above $1m, PFFIs must obtain info regarding substantial US owners or a certification that the entity does not have substantial US owners. New client on-boarding Proposed due diligence rules rely more extensively on an FFI s existing customer intake procedures No significant modifications are required other than with respect to account holders identified as FFIs, passive investment entities or as having US indicia and/or >$1m In practice this will most likely mean that existing processes will need to be updated to identify the above exceptions. Expanded Affiliated Group Introduction of a two year transition period to 1 Jan 2016 for all entities in a group to become participating FFIs or deemed-compliant FFIs During this period an FFI affiliate in a jurisdiction that prohibits an FFI s compliance with FATCA requirements will not prevent other FFIs within the same affiliated group from becoming participating FFIs. Timing of grandfathered obligations Enhanced relief for withholding agents from applying the 30% penalty on any withholdable obligations outstanding on 1 January Expanded Deemed Compliant categories Expansion of category to include certain banks and investment funds conducting business with only local clients, low risk entities or participating FFIs Deemed Compliant FFIs no longer have to register with the IRS and are permitted to self-certify. Transitional Period for Reporting For Reporting in 2014 and 2015 (with respect to years 2013 & 2014) PFFIs are required to report only name, address, TIN, account number and account balance with respect to US accounts Reporting on income will be phased in beginning in 2016 (with respect to 2015 calendar year) Reporting on gross proceeds will begin in 2017 (with respect to 2016 calendar year) In addition, PFFIs may chose to report in the local currency the account is maintained in or alternatively in US dollars. Pass through payments delayed Withholding on foreign pass-through payments comes into force now on January (two year delay) Until then the IRS will require PFFIs to report annually on the aggregate amount of certain payments made to each non-participating FFI So the threat of withholding on foreign pass-through payments remains although more time has been allowed to investigate practical means of implementation. Verifying compliance Unlike the Qualified Intermediary (QI) regime, PFFIs are not required at this stage to conduct an external audit to certify their compliance with FATCA. The Chief Compliance Officer (or equivalent Reporting Officer) is however still expected to certify that the FFI has complied with the terms of the FFI agreement (eg through internal reviews and attestations) and may in fact chose to use a third party to verify compliance Also FFIs that adhere to the requirements of the FFI agreement will not strictly be held liable in the event that they fail to identify a US account.

9 FATCA: What the US tax law means for financial organisations 7 4. What are the timelines for implementation? As it stands, the FATCA regime will come into effect on 1 January 2013, although the most significant provisions (eg 30% withholding tax) are effective from 1 Jan 2014 onwards. Firms in non-partner countries that chose to enter into agreements with the IRS will have to do so before 1 July / March 18, 2010 FATCA enacted to Law. February 8, 2012 IRS issues draft regulations and joint intergovernmental statement. January 1, 2013 No later than this date, IRS will make online process available for FFI applications. January 1, 2014 FATCA withholding required on US source FDAP payments. January 1, 2015 FATCA withholding required on gross proceeds. January 1, 2016 End of transitional provisions relating to affiliates within a group. August 27, 2010 Notice , IRB 329, released providing some preliminary guidance. Summer/Autumn 2012 IRS anticipates issuance of final regulations, and draft and final versions of FFI agreement and reporting forms. January 1, 2013 Expiration of grandfather period for issuance of obligations exempted from FATCA withholding. June 30, 2014 For FFI agreements effective July 1, 2013, identification procedures for highvalue ( > $1,000,000) accounts must be complete. July1, 2015 Identification procedures for all other pre-existing (July 1, 2013 FFI agreements) accounts must be complete. January 1, 2016 Reporting on income phased in during this year. April 8, 2011 Notice , IRB 765, released modifying and supplementing notice December 31, 2012 QI agreements expiring on this date automatically extended to December 31, July 1, 2013 Effective date of FFI agreements entered into before June 30, Account opening procedures for new accounts must be in place. September 30, 2014 First (limited) reporting of US accounts and recalcitrants due (for calendar year 2013). PFFIs are required to report only name, address, TIN, account number and account balance with respect to US accounts. September 30, 2015 Second (limited) reporting of US accounts and recalcitrants due for calendar year January 1, 2017 Withholding required with respect to foreign passthru payments. July 14, 2011 Notice released modifying notice and providing timeline for phased implementation. (Corrected Notice released July 25, 2011.) December 31, 2013 Account balance determination date for first reporting cycle. January 1, 2017 Full reporting including on gross proceeds phased in during this year.

10 8 FATCA: What the US tax law means for financial organisations 5. What happens next with the regulations? Governments, Financial Institutions, trade bodies and tax payers now have a further opportunity to comment on the draft rules and to seek further amendments to elements they believe remain challenging or costly to implement. The US authorities have requested comments back on the draft regulations by 30 April A public hearing is scheduled for 15 May 2012 and organisations may request an opportunity to speak or provide outlines of topics for discussion by 1 May The final regulations are expected to be written into law by the fall of Due to the complexities of achieving compliance (which will require process and systems changes), firms will not have the luxury of waiting to find out the final regulations before starting to assess the impacts and to put in place plans for implementation. Firms choosing to ignore this regulation in non-partner countries will be subjected to a stringent 30% withholding tax on their US sourced income or on any pass-through payments made via USFIs or other PFFIs, even if the firms themselves don t have any US domiciled customers. Client Scenarios UK branch of Overseas Bank Anti-money Laundering (AML), Know Your Customer (KYC) and Data analytics support Overview A branch of an Overseas Bank had concerns that there had been a breakdown in their AML and KYC procedures which could have allowed reportable transactions to take place in respect of a specific set of accounts that had not in fact been reported. We were engaged to review the overall AML / KYC procedures in operation at the time of taking on the bank s client as well as the actual AML/KYC procedures performed and evidence obtained. We were also asked to review and analyse transactions from these accounts over a three year period, including the source and destination of funds to identify relationships and patterns of transactions that would be of concern. The key features of the project were: Worked with client to agree key indicia for each allegation Identified the applications and associated database systems containing relevant data. Outcome Identified weaknesses in AML and KYC procedures and made recommendations to remediate Demonstrated ability to immediately identify key systems and sources of data Provided a pragmatic analysis of transactional data to identify linked transactions Worked with the legal advisers to manage the bank s exposure to censure.

11 FATCA: What the US tax law means for financial organisations 9 6. What are the implications for Financial Institutions For firms within the five partner countries (UK, Germany, France, Italy and Spain), FFIs will now fit into three categories: Participating FFIs Deemed compliant FFIs (see below for how to qualify for DCFFI) Organisations presenting a low risk of tax evasion (this will need to be defined by local authorities). There is no longer the choice for them to become non-participating FFIs. Financial Services firms outside the five partner countries will need to determine if they wish to continue to do business with US customers and whether they wish to continue to trade in US assets. If they do wish to continue, they will have to enter into an agreement with the IRS before the end of June 2013 and comply with their reporting requirements. Firms choosing to ignore this regulation in non-partner countries will be subjected to a stringent 30% withholding tax on their US sourced income or on any pass-through payments made via USFIs or other PFFIs, even if the firms themselves don t have any US domiciled customers. The withholding tax applies to: Any payment of US source periodic income eg dividends, interest, etc Any gross proceeds from the sale or other disposition of a security which can give rise to such income. Groups with affiliates around the world will have until 1 January 2016 for all entities within the group to become participating FFIs or deemedcompliant FFIs How can FFIs become Deemed-Compliant The latest proposed regulations have expanded on the number of deemed compliant categories to include pensions and tax exempt organisations. Other deemed complaint categories for local FFIs and subsidiaries of FFI groups have been also been expanded. In order to qualify as a Local FFI firms must verify the following: Local FFI status Must be licensed and regulated under the laws of its country of organisation as a bank or similar organisation authorised to accept deposits, a securities broker or dealer, or a financial planner or investment adviser No fixed place of business outside its country of organisation Firm does not solicit account holders outside this country Greater than 98% of accounts maintained by the FFI must be residents of the FFIs country of organisation (importantly for EU Member states, FFIs may treat account holders that are members of other EU Member states as residents of the country the FFI is organised) Must be required under tax laws of the country of organisation to perform either tax reporting or information reporting or withholding of tax with respect to accounts held by residents Implement policies to ensure that the firm does not open or maintain accounts for any specified US person who is not a resident of the country in which the FFI is organised.

12 10 FATCA: What the US tax law means for financial organisations 7. Key Implementation Challenges The level of change required to comply with FATCA will be dependent on the nature and scale of your business together with the level of involvement with US accounts (individuals and entities) and US investments. Each firm will have to conduct a detailed impact assessment into the extent to which FATCA requirements will affect their strategy, products, services, processes, systems and their people. The compliance task will be complex, time consuming and potentially very costly. Some of the key areas of impact and change will include the following: Identifying existing clients in order to establish presence of US indicia, firms face a complex data gathering and data mining task in order to pull together relevant client information from across potentially multiple, unconnected systems or from paper files. The onus will be on the FFI to disprove that they have US accounts. Where current data is insufficient to disprove US indicia, firms will need to implement client communication programmes to seek out the additional information required or in some cases to terminate the relationships New client on-boarding despite the greater reliance on existing AML/KYC processes in the proposed regulations, FFIs may still need to amend their processes to ensure they capture additional information where US indicia are present Client relationship management as the majority of clients will be unaware of FATCA, communication plans will have to be drawn up to inform customers of what this will involve and how it will affect them. Data protection and secrecy in order to comply with the IRS reporting requirements and to avoid legal issues around banking secrecy laws, data protection and privacy, firms in non-partner countries will have to ask customers to sign appropriate waivers, if this is possible. Systems updates for reporting and withholding systems capabilities will need to be developed to comply with the annual reporting requirements and to be able to calculate the withholding taxes on recalcitrant customers or on pass-through payments to nonparticipating FFIs. Approach to recalcitrant customers again in non-partner countries, policies and procedures will have to be developed to handle customers who refuse to provide further information or who refuse to sign the waivers. Responses could include terminating the relationship. However, this is again a complex area as certain countries eg France may have laws around the universal provision of banking services which prohibit this. Sign-off of due diligence and reporting it will be the responsibility of the Chief Compliance Officer (or equivalent) to verify that the due diligence procedures have been completed and that the reporting of US accounts is accurate. FFIs must start to identify who will do this and what audit and assurance processes will need to be in place to allow them to sign-off with confidence. Whilst, no external audit has been prescribed in the regulation, it may be necessary to gain sign-off from different operational and business unit heads before senior management can be assured that the due diligence has been completed satisfactorily. Client Scenarios Private Bank FATCA Impact assessment Overview We analysed the business divisions of the bank with respect to FATCA-relevant financial accounts and explained the qualification of the bank as Foreign Financial Institution (FFI) under FATCA rules We then described the impact of non-participation in FATCA with respect to US investments and analysed whether the bank would meet the requirements of becoming a Deemed Compliant FFI We provided a description of the obligations under FATCA with respect to both status scenarios Finally, we provided a preliminary recommendation regarding the preferred FFI status. Outcome The bank qualifies as a FFI and does not meet the requirements for Deemed Compliant FFI status Participating FFI status would be favourable and requires several steps to be taken for future compliance The bank is now kicking-off the customer identification stage of their project and will be seeking ongoing support from BDO.

13 FATCA: What the US tax law means for financial organisations Phases of FATCA implementation A typical FATCA implementation programme can be broken into a number of distinct phases: and onwards 0. Raising Awareness and Project Initiation 1. Impact Assessment and High Level design IRS issue draft regulations 2. Detailed Design and Development IRS to IRS will issue final begin regulations accepting FFI applications IRS deadline for FFI applications FATCA withholding on US source income payments FATCA withholding due on gross proceeds and pass-through payments 3. Implementation Ongoing Programme Management/ Programme Assurance Ongoing Tax Advisory Support 4. Monitoring and Optimisation Timeframes for completing each stage will vary by type and size of financial services institution and the nature of their involvement with US customers and US investments. BDO route map of key activities and outputs at each stage of the FATCA journey: KEY OUTPUTS KEY activities phases 0. Raising Awareness and Project Initiation Understanding new regulations Lobbying IRS and Industry bodies Educating staff and senior management on implications Identifying Sponsor and key stakeholders Defining Governance Establishing cross-functional working group Defining Business Unit Scope Securing initial budget Initiating project. Internal awareness raised Commitment secured Project mobilised. 1. Impact Assessment and High Level design Conducting impact assessment across in-scope business units and legal entities Reviewing existing data, processes and systems for: üü Account identification üü Client On-boarding üü Withholding and Reporting Assessing gaps against FATCA requirements Identifying where strategic decisions are required eg terminating business Assessing third party service provider readiness. Scale of impact understood and key gaps identified Strategic direction, scope and high level design agreed. 2. Detailed Design and Development Conducting verification exercise on existing client information Designing new policies and procedures for client documentation Developing client communications plans Creating remediation policies and procedures Agreeing approach to recalcitrant clients Designing withholding and reporting processes and systems enhancements Agreeing business case for implementation phase. Detailed Operating design, business case and implementation plan signed-off. 3. Implementation Entering into FFI agreement Implement operational changes and new policies and procedures Delivering client communications programme Testing and implement systems enhancements Training staff in new ways of working Implementing operational controls. Go live with new processes and solutions FFI agreement and IRS reporting in place. 4. Monitoring and Optimisation Putting systems in place to gather relevant pass-through payment percentages Conducing internal audits Monitoring impact of any refinements to regulation Benchmarking against competitors Implementing continuous improvement plan. Continuous improvement plan Ongoing reporting and gathering pass-through payment percentages.

14 12 FATCA: What the US tax law means for financial organisations 9. How BDO can assist you BDO can provide a comprehensive response to FATCA and can deliver a complete solution to all aspects of the regulations. Our specialist FATCA team offers: An integrated multi-disciplinary team covering; tax, technology, process and operational expertise Insight into good practice and benchmarking progress through our international FATCA team US tax specialists to provide insight on IRS expectations and emerging thinking Deep knowledge of the financial service sector. Impact Assessment As a starting point, we typically help clients with an initial FATCA impact assessment involving key stakeholders from within clients operations, tax, compliance, IT, customer relations and sales and marketing areas. We can also undertake detailed impact assessments using an industry leading, online diagnostic tool to help define the scale of the task ahead and the strategic options that are available across different business units. IMPACT ASSESSMENT Governance and process Data mining and systems We can work with you and carry out diagnostic tests to ensure you understand the impact of the regime on your business, and can assist you in defining your strategy and response. Our governance experts can develop proportionate and robust governance arrangements to support and oversee your compliance with the FATCA regime. This will provide you with confidence that you are able to demonstrate how you meet all regulatory expectations. This could include establishing a bespoke change programme to ensure delivery of revised arrangements to meet FATCA requirements within required timescales. We can provide assistance with data mining, analytics and interrogation to meet the requirements to identify all US source income and to review electronically searchable information on pre-existing clients. We can also help you to leverage your investment in current IT systems eg those designed to comply with the European Savings Directive or the QI regime. We can work with you to reconfigure systems to ensure that all required data is maintained and is easily reviewable going forward. This will ensure that the taxation, regulatory, governance, process and technology aspects of compliance with the regime are each addressed in a cohesive manner. reporting tax compliance client due-diligence, aml and kyc rules We can assist you with establishing reliable reporting processes and procedures, including setting up reporting templates, to help you ensure the timely submission of all relevant reporting. Our international tax experts can work with you to determine the likely FATCA status of all Group entities and their related tax obligations. Through our US contacts, we can also provide expert assistance in lobbying with the IRS. We can develop an integrated approach to your client take-on processes that ensures that FATCA and other regulatory requirements are addressed in an efficient and cohesive manner. This will include advice on client due diligence procedures based on the latest IRS guidance regarding identification of US persons.

15 ABOUT BDO BDO is the world s fifth largest accountancy and professional services firm, with nearly 44,000 partners and staff across 135 countries, including all major financial centres. We have specialists in all areas of financial services, including banking, insurance, capital markets and asset management and our financial services professionals truly understand the nature of the industry and can help you navigate through the challenges you are facing. BDO s global FACTA solution combines tax, regulatory, risk, IT and operational specialists.

16 CONTACT US We have an established network of BDO FATCA experts located in key territories around the world: UK Tim Kirk Partner, Head of Financial Services +44 (0) Angela Foyle Partner, Head of Financial Services Tax +44 (0) Graham Thomson FATCA Lead UK +44 (0) Germany Dr. Gebhard Zemke Partner, Head of Banking and Financial Services +49 (0) Mark D. Heinemann FATCA Lead Germany +49 (0) Belgium Marc Verbeek Partner Spain David Sardá Director / Fiscal david.sarda@bdo.es Italy Atilio Torracca Partner a.torracca@studiosala.com + 39 (0) Luxembourg Gerdy Roose Partner gerdy.roose@bdo.lu Sylvie Maestri Senior Manager FATCA Lead sylvie.maestri@bdo.lu france and Monaco Sylvie Maestri Senior Manager FATCA Lead sylvie.maestri@bdo.lu Switzerland Giuseppe De Pascalis Avocat, Expert fiscal diplômé giuseppe.depascalis@bdo.ch USA Martin Karges Senior Director International Tax mkarges@bdo.com Canada John C. McCrudden Tax Partner jmccrudden@bdo.ca Israel Golan Oz Partner golano@bdo.co.il Australia David Wheeler National FS Lead david.wheeler@bdo.com.au This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Services Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. BDO LLP is the Data Controller for any personal data that it holds about you. We may disclose your information, under a confidentiality agreement, to a Data Processor (Tikit plc). To correct your personal details or if you do not wish us to provide you with information that we believe may be of interest to you, please contact Shofna Uddin on or shofna.uddin@bdo.co.uk Copyright March 2012 BDO LLP. All rights reserved. This document is printed on paper containing 80 per cent recycled fibre and 20 per cent virgin Totally Chlorine Free (TCF) fibre sourced from sustainable forests. This paper is produced by an ISO accredited supplier.