U.K. Buy-Side Body Allays Fatca Fears
Fears over the extra costs involved for non-U.S. firms implementing the U.S. Foreign Account Tax Compliance Act (Fatca) anti-tax avoidance measures appear to be diminishing as one U.K. buy-side body has said that the regulations are “a world away from those we were originally presented with”.
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.
However, the Investment Management Association (IMA), a U.K. buy-side trade body representing around £4.2 trillion of funds under management, says that the HM Revenue & Customs (HMRC), the U.K. body responsible for collecting taxes, is now taking on board concerns from the industry and is beginning to engage with firms on how best to implement Fatca.
“HMRC has delivered on a number of improvements that make Fatca much more benign,” said Jorge Morley-Smith, head of tax at the IMA. “These ensure that investment managers can use existing processes to accept new investors and perform Fatca reporting on their fund ranges.
“The proposals we see today are a world away from those we were originally presented with.”
The U.K. is widely seen as setting the pace on Fatca implementation and is one of only a handful of countries to sign intergovernmental agreements with the U.S. to participate with Fatca. Others, though, are expected to follow.
Morley-Smith said the intergovernmental agreement enabled much of the costs involved with Fatca compliance to be removed.
These agreements are seen as reciprocal and the nations involved 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.
There is, though, still a lot of uncertainty surrounding the new rules and some firms are even contemplating not providing services to U.S. clients because of the complexities involved.
Financial institutions have until October 25 to enter their online application for registration on the U.S. Internal Revenue Service’s new ‘Fatca Registration Portal’, to get on to the ‘good’ foreign financial institution list.
“While that date seems far off, given the great multitude of financial institutions across the globe and their complex interconnectedness, it would be wise to understand whether or not you, as a financial institution, need to register,” said Chris Collins, director of market initiatives and infrastructure at Sapient Global Markets, a provider of services and software to financial and commodity markets, in a recent blog posting.
“This means understanding now whether you as a financial institution are impacted by Fatca and therefore need to register. Wisdom dictates that if there is any doubt, then it is better to complete registration early and avoid the usual technical delays caused by a last minute rush of registrations to meet the deadline.”
Non-U.S. firms need to have in place new client identification procedures by January 1, 2014 although the first reporting date is not due until March 31, 2015.
“There is a temptation to hold off on other Fatca requirements,” said Collins. Although the vast bulk of Fatca rules are in place, some have yet to be finalized.
Collins, though, urged firms to act now as “reporting policies and procedures need to be created or added to existing reporting systems, tested and rolled out at the same time as other regulations, such as Emir and Dodd-Frank”.
“The final regulations have answered some of the big questions, though there are still plenty of ‘known unknowns’,” said Collins. “Additional hurdles will need to be cleared before project teams can be confident they have navigated Fatca requirements.”
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