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Surveys Confirm FATCA Compliance Burden

by Mike Godfrey,, Washington

10 October 2014

Both the Securities Industry and Financial Markets Association (SIFMA) and Mindtree, a global technology services company, have pointed out the immense global compliance costs and issues posed by the Foreign Account Tax Compliance Act (FATCA) to the financial services industry.

Enacted by the US Congress in 2010, and effective from July 1, 2014, FATCA is intended to ensure that US authorities obtain information on accounts provided by foreign financial institutions (FFIs) to US persons. Failure by an FFI to disclose information about their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.

According to SIFMA President Ken Bentsen, "it is important that Congress and the Executive branch also understand that the way in which they develop such policy through legislation and regulation can and does result in a significant burden on the financial services sector, who in effect is required to step into the shoes of the government as it relates to reporting, collection and enforcement."

He pointed out that SIFMA recently conducted a survey and found that financial firms "had to spend over USD1bn in an effort to comply with FATCA in 2013 and 2014 alone. This is only a small fraction of the global compliance costs of FATCA, [as] the Internal Revenue Service (IRS) has estimated that there could be as many as 600,000 FFIs required to comply with FATCA – the vast majority of these banks are not included in this cost estimate."

Furthermore, Bentsen added, "let's not forget that FATCA also impacts millions of individuals and entities outside the financial services sector. It would not surprise me if the total cost of FATCA will be in the tens of billions – a number that comes close to eclipsing the IRS's USD11bn annual budget."

Mindtree, releasing the results of its Strategies for Achieving FATCA Compliance survey, which was conducted in May and June this year by Gatepoint Research, also noted the challenges that risk, compliance and information technology decision-makers (in businesses specializing in capital markets and commercial lending) face in achieving FATCA compliance.

67 percent of the finance executives surveyed said that the complexity of FATCA requirements was the greatest challenge to being compliant, while 49 percent reported that FATCA verification and due diligence procedures presented a major business challenge. Top priorities for smoothing the transition to FATCA compliance are "solution implementation, program management and system testing," while funding to achieve FATCA compliance is still in process for 29 percent of responders.

When surveyed, just under half of surveyed finance executives (48 percent) expressed some concern at their ability to meet FATCA requirements by July 1, 2014. When asked which department was responsible for FATCA compliance, answers included Chief Financial Officer (24 percent), Chief Risk Officer (22 percent) and Chief Compliance Officer (13 percent), but a "surprising 27 percent admitted they didn't know who was responsible."

"This survey reinforces that there are still many hurdles to be overcome to become FATCA compliant," said Gaurav Johri, Mindtree's Senior Vice President and Head of Banking, Financial Services and Insurance. "What most risk, compliance and IT decision makers need to understand is that executing a comprehensive product assessment helps avoid unintended impact of FATCA on their offerings. An assessment validates the way a FATCA-compliant product is offered while dealing with the variables of the client, their location and the generation of US sourced income."

CCH FATCA Resource Center
TAGS: compliance | Foreign Account Tax Compliance Act (FATCA) | tax | business | tax compliance | FATCA | law | banking | financial services | capital markets | Internal Revenue Service (IRS) | enforcement | tax authority | legislation | regulation | services | Compliance | Banking | Tax

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