FATCA Compliance—Automate Reporting & Monitor Material Modifications
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  • FATCA Compliance

    The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to combat tax evasion by U.S. taxpayers through use of offshore accounts. FATCA imposes significant new burdens on foreign banks and U.S. financial intermediaries making payments to foreign persons.

    Withholding is generally required on withholdable payments made after June 30, 2014, to payees that are foreign financial institutions (FFIs) or non-financial foreign entities (NFFEs).

    Under FATCA, an entity that makes payments to any foreign person, including an individual, entity, or any type of foreign financial institution must withhold taxes at a 30% rate on withholdable payments unless fully completed and signed IRS forms and documentation are received or such transfer agents could be directly subject to the 30% withholding tax themselves.

    FATCA compliance involves a thorough review of information on customer status and for most institutions, a degree of data cleansing. FFIs will need to ensure they can properly identify U.S. persons, and in the case where accounts are held by NFFEs that none of the controlling persons (over 10% of ownership) are U.S citizens or residents. Gathering the requisite compliance information can be cumbersome.

    Additionally, certain securities including debt instruments can lose their grandfathered exempt status if they undergo a material modification for tax purposes and must be carefully monitored. Failure to adjust the exemption status and withhold accordingly can result in significant tax penalties. Manually monitoring material modifications can be tedious and error-prone.

    Learn more about the FATCA the FATCA reporting requirements.

    FATCA Compliance Requires:

    • Identification of payments that could be subject to FATCA reporting and withholding;
    • Determination if payments are going to a foreign entity with a U.S. beneficial owner;
    • Review of the payment process and identification where an intermediary or service provider may bear some FATCA responsibility;
    • Consideration of changes in accounts payable and other systems to capture required information and track necessary documentation;
    • Monitoring and adjustment of grandfathered exempt status resulting from material modifications; and
    • Integration of FATCA payee verification and withholding tax procedures with existing tax reporting and withholding tax activities and update them for recent changes.
     

    Your FATCA Compliance Partner

    At Wolters Kluwer Financial Services, compliance is paramount. Tax, legal and operations professionals at leading global financial firms count on us for in-depth expertise, unparalleled content and sophisticated technology for tax compliance reporting—including FATCA.

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