01.30.2013
By Terry Flanagan

Firms Fearful as Fatca Spreads its Net

Non-U.S. firms with U.S. clients are weighing up their options as increased compliance costs and potential penalties associated with the recently released U.S. Foreign Account Tax Compliance Act (Fatca) anti-tax avoidance measures come into force.

The final regulations, which were published on January 17 and are now being phased in, will attempt to clamp down on U.S. tax dodgers using foreign accounts in a bid to tackle offshore tax evasion. All foreign institutions will now have to provide detailed information to the U.S. tax authorities of U.S. account holders with more than $50,000 in assets. Failure to do these sweeps of a firm’s database will result in punitive penalties on future U.S. income.

“Many firms are now faced with the question of where to start, and how can they ascertain the extent of the problem they are faced with in terms of Fatca compliance,” said Colin Camp, managing director, products and strategy at Dion Global Solutions, a technology provider.

Compliance costs are set to soar and some firms are even contemplating not providing services to U.S. clients because of the complexities involved.

“Most firms are going through a process right now to analyze their clients’ accounts,” said Bob Cumberbatch, head of regulatory and industry affairs at Interactive Data, a provider of financial market data

“They are working out if these accounts are U.S. taxpayers. There is a whole range of criteria on whether or not the U.S. taxpayer considers you a taxpayer or not.

“There are huge costs involved in doing this analysis. And once you know you’ve got a client then you’ve got to track inflows into that account that are sourced from the U.S.. That’s where the requirements of Fatca begin to overlap with the data providers.

“What we are looking to do in this space is to flag which instruments generate U.S. income and whether those instruments are in scope for Fatca. Fatca does allow scope for certain types of instruments in the U.S. to be exempt from Fatca provisions.”
Seven countries, including the U.K., have already signed intergovernmental agreements with the U.S. to participate with Fatca. Others are expected to follow. These agreements are seen as reciprocal and these nations may even introduce their own Fatca’s in the future in a bid to raise tax revenue. The U.S. tax authorities expect the measures to raise around $7.6 billion in revenue over a 10-year period.

“The HM Revenue and Customs in the U.K. will share information with the U.S. authorities about overseas taxpayers’ investments that they receive from the firms themselves in return for the same information about U.K. taxpayers’ investments in the U.S.,” said Cumberbatch.

“It is a two-way agreement and from this the U.K. tax authorities could be beginning to explore a Fatca of their own if it thinks that it is missing out on their citizens’ investments that are held overseas.”

Dion Global Solutions, too, is looking to assist firms over Fatca. It has launched the Fatca TRAC Indicia Check Service to allow firms to measure the impact of the Fatca regulations on their business.

Dion says its product will allow firms to perform the required checks and provide the analyzed data to a firm as a dashboard, offering visualizations of client categories and results. Firms can then drill down into specific account details and interrogate any U.S. indicia found.

Watchlists and activity lists for accounts with U.S. indicia are also produced for account, client and relationship managers to take any necessary remediation. This information can then be used by the firm to construct and map their compliance program.

“The Fatca TRAC Indicia Check Service [provides firms] with a detailed view of their client’s classification and the required remediation steps that need to be taken,” said Camp at Dion Global Solutions.

Related articles

  1. Good News for Unready Firms: MiFID II Delayed

    CSDR buy-in requirements are scheduled to go live on 1 February 2022.

  2. Trading Europe From ‘Across the Pond’

    The fintech has joined the Dutch Authority for the Financial Markets’ (AFM) regulatory sandbox.

  3. Brexit Muddles Future of UK-EU Linkage

    Temporary equivalence was set to expire on June 30, 2022.

  4. Some material changes have come out of ESMA’s review of algorithmic trading.

  5. Advisers Expand Use of Options

    The exchange has launched options on the OMX Stockholm 30 ESG index.