CHAPTER XX Customer Outreach - FATCA’s Biggest Challenge
HAYDON PERRYMAN
“The main thing is to keep the main thing the main thing.”
Stephen R. Covey
§ XX.01 [Title – i.e. Introduction]
[1] Subtitle – i.e. FATCA Challenges
There are two main challenges concerning FATCA and its successors, these are:
(1) A lack of awareness of FATCA
(2) Misunderstanding of FATCA where there is an awareness
The costs of FATCA Compliance will be USD 1 to 2 trillion worldwide. The bulk of
these costs will be incurred in the customer outreach required to obtain the required
documentation. I will explain and reference each of these points later in the chapter.
There will also be considerable customer backlash to FATCA and the documentation it
requires. In the age of social media this matters, if this sounds like hyperbolae please have a
look at this URL:
http://isaacbrocksociety.ca/2014/08/02/philippines-metrobank-plays-fatca-hardball-with-anex-client/comment-page-1/
In short, Customer Outreach is FATCA’s biggest challenge and whilst this is not
widely understood, how FFIs handle their outreach is going to effect both their reputations
and their balance sheets. FFIs who mishandle FATCA Outreach, possibly by not
understanding its importance, will find themselves at a competitive disadvantage.
By definition anyone reading this chapter has an awareness of FATCA. In that, they
are in the minority. There are geographic pockets that are aware of FATCA, this would
include Europe, Singapore, Australia and parts of the Middle East.
Move geographically away from these areas and you will find that many jurisdictions
are unaware (or faintly aware) of FATCA.
You may well think that I have missed out the most obvious country, namely
America. Arguably, the quality of FATCA understanding is at its highest in the USA. (Less
so, knowledge of the IGAs.) One would naturally expect that to be so, given that FATCA is
part of the US tax code. That said, even in American banks, customer facing staff working in
the USA are largely unaware of FATCA and are particularly unaware of US reciprocity on
FATCA.
Perhaps that is not so bad. After all, a little bit of knowledge can be a dangerous
thing. Also, legislation on US reciprocity for FATCA is at an embryonic stage.
FATCA is complex. No one should tell you otherwise. But that said FATCA has
attracted a great many ‘problem admirers’ and very few who simplify FATCA is a helpful
way.
The challenge to those who write about FATCA is to keep their content simple,
germane and interesting, yet not to simplify FATCA to such an extent as to misrepresent it.
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The corresponding challenge to the reader then must be to allow the writer to simplify
FATCA but also have a little patience with us when we later try to explain exceptions to our
simplifications.
As any practitioner or academic will confirm, FATCA has many rules with
exceptions, with the following applications and exceptions…………
FATCA can be distilled into four key themes. (Three pillars, one canopy.) These are:
(1) Customer Due Diligence (CDD). FATCA CDD concerns identifying your
customers tax status and as such forms an additional part of KYC/AML (Know Your
Customer/Anti Money Laundering) rules. FATCA CDD applies to both:
(i) Pre-existing customers, and
(ii) New customers
(2) Reporting. Reporting American accounts, Recalcitrant Account Holders and
(3) Non Participating FFIs to either the IRS (in Non IGA Countries and IGA Model 2
Countries) or to the local competent authority in IGA Model 1 countries.
Withholding.
Collectively these three pillars support the final key theme (the canopy if you will):
(1) Governance. Governance includes ensuring that the FFI is FATCA compliant,
meets regulatory deadlines, evidencing that the FFI has not given advice to customers
about how to avoid being detected by FATCA and making attestations of the same. In
essence Governance is about ensuring, in Non IGA Countries, that the obligations
under the FFI Agreement have been met and that in IGA Countries that the relevant
local statutory instruments have been complied with. (Model 1 IGA Countries do not
enter into an FFI Agreement with the US IRS.)
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Governance
REPORTING
WITHHOLDING
DUE DILIGENCE
(Onboarding)
DUE DILIGENCE
(Remediation)
New Customers
Pre-existing
Customers
Certifications
Diagram 1: FATCA Themes
In essence FATCA is that simple.
There is no part of FATCA that is not addressed by those four key themes.
FATCA is about information disclosure to the US IRS on accounts held by
Americans outside of the US.
FATCA effects any customer that has not self certified that they are not an American.
Under FATCA, a customer whose balance exceeds certain thresholds and has not
certified that they are not an American IS an American until they prove (or self certify)
otherwise.
Counter intuitive though this is, such is the regulation.
It may be that the myth that FATCA only effects Americans is promulgated on the
belief that the IRS can only write regulations that can be enforced upon Americans.
The IRS has gone a step further (possibly so far as to negate the “I” in IRS) and
written an extraterritorial piece of legislation that effects individuals and entities worldwide.
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The various IGAs (101 at the time of writing) do introduce some variation, as do
what are informally called “Sons of FATCA” an example of which would be the UK’s
version of FATCA, “CDOT’ which attempts to capture British tax evaders. “Sons of
FATCA” is an informal term that covers local jurisdictional equivalents of FATCA, designed
to detect jurisdictional tax residents who may be evading tax via off shore accounts.
Also, when a jurisdiction writes the Statutory Instruments it committed too write
under its IGA, it remains to be seen how closely those SIs mirror the IGAs. Nonetheless even
these variations are all covered under the four themes.
Further, if we cast our eyes to known regulatory developments that are in the pipeline
e.g. changes to the EU Savings Directive and the Automatic Exchange of Information, even
these fit within these four themes.
So in this respect FATCA and the associated regulatory developments in the near
future are relatively easy to explain.
However, I am going to simplify FATCA even further. Before I do allow me to
provide some historical context that may be germane.
FATCA is more accurately referred to as Chapter Four of the US Tax Code (even that
is not completely accurate but it is a helpful simplification so please allow it). FATCA had a
predecessor, namely Chapter Three often referred to as “QI”.
I won’t explain QI in this chapter but will explain a few key facts about it that help us
put FATCA in context and support my analysis. (Bear with me here because I am going to
simplify even the four themes.)
QI, was and is, also about tackling US citizens evading tax via offshore accounts.
Only about 10% of institutions who should have been complying with the QI regime ever
reported to the US IRS. The US did not enforce compliance of QI. Only one institution that I
know of ever faced enforcement procedures under QI specifically.
(We have seen fines for FFIs alleged facilitation of US based citizens in evading tax
via offshore accounts but this was not about QI per se.)
We can say for sure that more high profile names will be fined huge amounts by the
regulators for facilitating tax evasion. This much is inevitable.
Some will consider these fines draconian, others lenient (because the institution is
still in business).
At the same time (and some would say counter intuitively given recent fines) the IRS
recently announced (Notice 2014-33) that 2014 and 2015 are “transitional” years for FATCA
so long as institutions can evidence “good faith”.
Some see this as a weakening of FATCA. They are deceived: the American
regulators are suitably (some would say unsuitably) motivated to go after those institutions
they know are helping tax evaders.
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But how would they know, right?
The IRS has run several OVDP (Offshore Voluntary Disclosure Programs) where
some relief is given to reformed tax evaders who come clean and tell the IRS precisely whom,
when and where has been assisting Americans evade taxes abroad.
So the message from America is clear “We know who you are and we are coming to
get you”.
So only 10% complied with the QI regime and for the most part that is because they
were either unaware of or misunderstood their obligations.
For a detailed analysis of this scenario I recommend Ross McGill’s “US Withholding
Tax”.
Many tax jurisdictions recently collaborated to address ways to drive “compliance
enhancement”. An obvious example of this is TRACE (Treaty Relief and Compliance
Enhancement).
There were various collaborator forums, some worked on key principles that should
be addressed, not only concerning Compliance Enhancement but also on harmonizing
regulatory principles that would not only drive enhanced compliance but also make the
regulations themselves easier to comply with (as well as enabling jurisdictions to write future
regulations that are compatible with those of other jurisdictions – thus driving down the costs
of compliance to multi jurisdictional FFIs).
Such initiatives, if successful will address the harmonization of treaty relief (which
frankly is a mess, even intra European Countries) but that is beyond the scope of this chapter.
Importantly, one of the principles these forums agreed on was that of the
“Responsible Officer”. The RO would take on personal liability for the regulatory compliance
of the FFI and make attestations to regulatory authorities that the FFI is not only compliant
but continues to be compliant.
To illustrate the gravity of this idea and to put it in context using the US system, a RO
enters into a contract with a US authority, say the US IRS, and signs, under penalty of
perjury, that these obligations are being met by her employer and continue to be. If her
employee is found not to be compliant the RO is personally liable for the actions and or
inactions of her employer and faces whatever consequences the US legal system deems
appropriate.
My apologies if this all seems like a detour from the FATCA themes; I will be able to
get back on topic shortly and hopefully explain why this detour was germane.
There was consensus amongst these collaborative forums (nothing to do with FATCA
directly) on the role of the RO and the RO having personal liability for the compliance of
their employer.
As you can imagine consensus on initiatives like this take years because they
represent a paradigm shift from long established principles.
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These forums were also set up to address tax evasion not only by the individual but
also by corporates and looked into matters that included Tax Base Erosion and Profit Shifting.
So why is this germane? Over many years principles were agreed on a great many
important issues and over a great many geographies. Many of those working on this were tax
experts and many of these experts had been working on QI et al when FATCA was just an
idea and when IGAs were not even a concept under FATCA. The agreed principle, say, that
the role of a RO with personal liability, consequently has become indelibly printed on the
minds on those who worked so hard for many years.
The problem is that the Responsible Officer, for example, is not mentioned in the
IGAs, is not mentioned in the consequent Statutory Instruments and is not mentioned in
FATCA’s international (and far bigger) successor, namely Automatic Exchange of
Information (AEOI).
The RO concept simply is not there but those with years of form on tax regulations
see it in the IGAs and in the AEOI simply because “it should be there”.
Sometimes, too much knowledge can be a dangerous thing.
I have had conversations with QI experts who say that the RO concept should be in
the IGAs and AEOI and many experts interpret silence as the concept of the RO being in the
IGAs and the AEOI (almost as if it were there explicitly).
What betokens silence is not a new debate and people have been know to loose their
heads over it (literally). http://www.imdb.com/title/tt0060665/quotes
To date there are five types of FATCA
Model 1A: Reciprocal; report to the local competent authority.
Model 1B: Non Reciprocal; report to the local competent authority.
Model 2: Report directly to the IRS.
Of course, there is also the US itself as well as the US territories.
Lest we forget, there are Non IGA countries too.
The above is an over simplification of the IGA scenarios. (Complexities like Annex 2
are beyond the scope of this particular chapter.)
Most banks will have customers across jurisdictions that span all five scenarios. Any
Responsible Officer or Programme Manager responsible for a Global FATCA Programme
will tell you that far from simplifying FATCA, this has added to their woes.
A good example of the dizzying array of bind boggling ambiguities is that the US
version of FATCA has the Responsible Officer assuming personal liability under penalties of
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perjury. Yet the IGAs themselves and the few examples where FATCA has been written in
local law, are deafening silent on this particular issue.
Understandably ROs are looking for clarity on this particular issue as there are few
better examples of “having skin in the game”.
To top it all off, when you look at Form 8957 you can see that the RO is signing up to
personal liability under penalties of perjury; the form makes no reference to exceptions for
IGAs.
This can lead to the RO wondering what the heck she or he is signing up to.
This leaves many banks pursuing the most draconian interpretation of the
combination of the US and IGA versions of FATCA.
This is hardly a helpful simplification. It is however, a totally understandable position
for Financial Institutions to take as part of their FATCA policy.
What RO would be content to accept that they are not personally liable for the
institution’s FATCA Programme in IGA countries when, at the same time, the IRS portal
makes no such distinction?
Also, of what practical use is not being personally liable in IGA countries, when the
same individual is personally liable in IGA countries? This is not much of a consolation,
especially when you consider that the non-IGA jurisdictions have far more pressing
regulatory deadlines that are already extremely tough to meet. An example being the FATCA
CDD of prima-facie FFIs, six months after July 1, 2014.
However, it is true that the IGAs have virtually wiped out withholding and closing of
accounts due to recalcitrance in all but the most exceptional circumstances. That is a huge win
and for most will negate a need to build a withholding engine solely for FATCA.
Not only is the Responsible Officer not written into the IGAs, even under the US
Treasury version of FATCA withholding only occurs on Recalcitrant Account Holders and
Non-Participating FFIs. The Model 1 IGAs themselves explicitly negate these concepts.
Taking this literally there will be no withholding in IGA Model 1 Countries.
Many experts will tell you there is still FATCA withholding in IGA Model 1
countries. Why? Because they think there should be. (Keeping reading as there is a counter
argument.)
I have even heard some QI experts say that USWAs will be used to enforce FATCA
on IGA Model 1 FFIs (more accurately Registered Deemed Compliant FFIs) such that the
Responsible Officer taking on personal liability still applies.
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Of course, that is impractical because the RDC-FFI is compliant with the Statutory
Instruments in its jurisdiction(s).
The IGAs are very different from the US Treasury version of FATCA. An obvious
example would be that US Treasury FATCA requires documentation of US Beneficial
Owners of Passive NFFEs at 10%. In IGA Countries this does not apply, instead IGA
countries use their pre-existing KYC/AML procedures, typically outside the US, jurisdictions
use the FATF rules, these look for Controlling Persons (rather then Beneficial Owners) at the
25% level (rather than the 10% level).
Application of these differences can generate entirely different results.
The moral of the story is this, choose you advisers carefully and ensure that what they
state as a regulatory requirement is truly a regulatory requirement and not wishful thinking for
which you must pay.
If in doubt ask for a reference to the relevant part of the IGA (or better still the
subsequent Statutory Instrument) that drives the supposed regulatory requirement.
So what it boils down to is this.
FATCA has four key themes.
(1) FATCA CDD
(2) Reporting
(3) Withholding
(4) Governance, including the RO attestations
I will argue that this can be simplified further. Before I do that, be assured that this
chapter and possible solutions will address ‘interpretative issues’ such as assuming silence on
RO in an IGA and subsequent SIs means that the role of Responsible Officer remains as does
Personal Liability. Also, to be fair I can see scenarios where withholding may apply even in a
Model 1 IGA covered FFI. My role here is to bring all these issues to your attention in a
meaningful way and also to highlight when a part of FATCA is interpretive and to give you
the risks and issues concerning such interpretations.
The bulk of the population is covered by an IGA. It is true that depending on how you
define them there are somewhere between 250 and 268 tax jurisdictions, (the IRS FATCA
Portal Guidance contains a list of 250 jurisdictions, there are also tax jurisdictions that the US
recognizes that are not on that list) it is also true that only 101 of these have entered into a
FATCA IGA. So strictly speaking, the majority of the world is not under a FATCA IGA.
However, if you include the USA and look at the % of world GDP covered by an IGA, an
altogether different picture is revealed. The same is true if you look at the world’s population.
(Perhaps these arguments are flawed in that we can see that there is little correlation between
GDP and tax income, nor population and tax income. But those are points beyond the scope
of this chapter.)
To repeat myself again FATCA is about CDD, Reporting, Withholding and
Governance.
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Governance itself (including the assumed role of a RO, attestations and personal
liability in IGA countries) is relatively straight forward if CDD, Reporting and Withholding
are robust. If those three supporting pillars are strong then the canopy is supported. If any one
of these pillars is less than robust then the proverbial roof will fall in and hence Governance
will become problematic.
Perhaps the best method of explaining how this can be prevented would be to
illustrate how best to make sure that Governance becomes problematic.
If the CDD is less than robust, withholding will occur, in Non IGA Countries, on the
wrong customers (as well as the right customers). If the CDD is less than robust the wrong
customers (as well as the right customers) will be reported.
Hence, if the CDD is not robust this contaminates the Withholding, Reporting and the
Governance workstreams (to say nothing of the dire customer experience).
Reporting and Withholding on US Citizens with offshore accounts is not a new
requirement and already existed under QI (even though 90% of FFIs appeared not be aware of
this).
Robust CDD will ensure that only the correct customers are Reported and Withheld
upon.
As we have already discussed, in all but exceptional circumstances customers in
FATCA IGA jurisdictions should experience little to no withholding. To trigger FATCA
withholding under an IGA Model 1, a company would have to be operating outside of local
legal obligations. This will surely be exceptional. Also, in many jurisdictions where a
customer is brazenly operating outside of local law this could reasonably trigger their being
considered a candidate for a judicious review for offboarding purposes. For the avoidance of
doubt, this chapter does not advise offboarding customers, it simply makes the point that
when covered under an IGA, withholding would be exceptional and such exceptional
circumstances may also trigger offboarding where jurisdictional law allows.
Off boarding
A central FATCA policy will include a decision on whether to retain or off board
clients who are non-participating. Many institutions started off by saying they would off
board all non-participating institutions and recalcitrant account holders.
Whilst some banks are attempting to pursue “zero tolerance” i.e. off boarding
customers who do not evidence FATCA compliance and thereby avoid withholding
altogether, there are others who realize that in IGA countries, withholding, for the most part,
does not apply, nor does the need to close accounts, and are pursing a middle ground.
The middle ground includes identifying under what circumstances the bank would
retain a non-participating/recalcitrant customer. Naturally, the bank will have to withhold on
such a customer. (The point being that the bank is choosing to withhold rather than it being
forced upon them.)
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The FATCA CDD workstream remains, as does reporting.
This leaves us with CDD, Reporting and Governance.
I am not saying there will be no withholding whatsoever. That said the volume of
withholding transactions should be small if the majority of your customers are in IGA
jurisdictions. Under such a scenario it may not be necessary to build a withholding engine but
rather to have a more tactical solution (especially so, given that there is no withholding under
AEOI). Ultimately though that is a commercial decision that every institution will have to
make for itself.
The Governance workstream should have the robustness of the CDD workstream
‘front and center’ because with robust CDD, Governance will be relatively easy. Without a
robust CDD workstream, FATCA Governance is likely to be turbulent.
As I have said the IGAs are silent on the role of the RO and in attestations. However,
US Treasury FATCA applies in Non IGA jurisdictions and under US Treasury FATCA the
RO has to make attestations in 2016 concerning their employer’s FATCA Compliance, this
includes whether the FATCA CDD deadlines were met.
So by the end of 2016 the RO will have told the IRS whether the FATCA CDD
deadlines (which span 2014, 2015 and 2016) were met.
In the majority of cases those deadlines will not be met.
Here is a point rarely made: even if you start your outreach campaign now, you will
not meet the deadlines. The longer you leave it the worse it will be.
The IRS estimates between 400,000 and 600,000 institutions will register on its
FATCA Portal. Many experts say the number is closer to 1,000,000.
Each of these 1,000,000 will be conducting FATCA CDD on their customers and
counter-parties. Experts suggest this means 900,000,000,000 FATCA Self Certifications will
be necessary.
FATCA is not unprecedented (only the outreach FATCA requires is unprecedented).
FATCA’s predecessor was QI (Qualified Intermediary).
 QI was introduced in 2001.
 When first introduced only 20% of W8s were valid (i.e. could be used as the basis
for applying Treaty Relief).
 13 years on only 35% are valid.
 You have to validate your customer’s W8.
 It takes an expert 90 minutes to fill out a W8 for their institution.
 Response rates of many Non Financial Foreign Entities (NFFEs) are likely be less
than 10%.
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Is it therefore realistic to believe that you institution will have achieved FATCA CDD
compliance inside two years?
What about FFIs in Non IGA countries for whom FATCA CDD has to be completed
by December 31, 2014?
Does your Responsible Officer (irrespective of IGAs) realize that they have to attest
that these deadlines were met?
Does she realize that she is personally liable for this (in Non IGA countries)
****
I would categorize the population of Recalcitrant Accounts and Non
Participating FFIs into to two account groups:
(1) True tax evaders (candidates for offboarding?)
(2) Those who need educating as to why it is in their interest to provide FATCA
documentation (lay people). Remember that for many this will be the first they have
heard of a W8 (or equivalent).
Lay people can be converted. Not all lay people are the same, that is true, but the
sooner we reach out and educate those customers, the fairer we treat them and the greater the
chances of early conversion.
Few institutions have considered the impact of delay on the “lay people” category. At
the same time most institutions operate under a TCF (Treating Customers Fairly) regime. It
will be interesting to see how this unfolds.
Some advisors proclaim wisdom in waiting until the last possible minute (though
some would argue that if outreach has not already begun then the FATCA Program in
question is already way “beyond the eleventh hour”). The argument being that the IRS list of
registered FFIs is added to every month and that these can be considered “low risk”. CDD on
these is still required. Contrary to popular belief this list will not tell you the “FATCA Status”
of these FFIs and obtaining that data is part of “Identification of Payee” obligation under
FATCA CDD. The IRS list contains the name of the FFI and its GIIN. The GIIN contains
logic but that logic does not tell you the “FATCA Status”. Though the logic does contain
information such as whether the FFI is a legal entity or a branch, this should not be mistaken
for “FATCA Status”.
Only the customer can categorically state what their Chapter Four aka FATCA Status
is. There may be an indication of the likely FATCA status of a customer from pre-existing
KYC/AML but only the customer can be definitive about their Chapter 4 Status.
This is to state the obvious as before FATCA there was no such thing as a Chapter
Four.
(Chapter Three Status is a very different thing from Chapter Four Status.)
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The IRS list contains both FFIs and Direct Reporting NFFEs that have registered on
the IRS FATCA Portal.
It is unlikely that the NFFEs and FFIs on the IRS list would have been the most
troublesome.
The burden of establishing the customers FATCA Status remains.
In most cases this will be remedied by a W8.
One could be forgiven for making an assumption that customers who are FFIs will
respond to outreach relatively quickly (compared to NFFEs who have not heard of FATCA)
and accurately. Time will tell.
What though of NFFEs? Many of these will not be American companies and will not
have heard of FATCA. Their responses (where there are responses) may be short and
impolite. Such customers may choose to investigate moving their accounts to other banks,
only to find that those other banks conduct FATCA CDD too.
All this takes time. It may be counter intuitive to Passive-NFFEs that they must either:
 provide details of US their Beneficial Owners or
 declare they have no US beneficial Owners (and the Bank must not have reason to know
otherwise)
in order not to have 30% of their US income withheld.
This is not something that can be accomplished overnight.
The earlier the outreach is started the higher the conversion rate and the less likely
there will be recalcitrant accounts simply because the customer did not understand the
requirement and the consequences of non compliance.
To reiterate (again) CDD, Reporting, Withholding, Governance.
Governance is led by CDD and Reporting.
Mitigating Withholding
Withholding occurs on Non-Participating FFIs and Recalcitrant Account Holders in
Non IGA Countries. By deciding what customers to retain that meet these criteria and under
what circumstances, the institution can control how much withholding it has to do.
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Building a complex withholding engine is expensive – so this is a key component of
any organization’s FATCA Policy.
In terms of volume, withholding is no longer large enough to be considered a theme –
even if it is important. Withholding is a cost of FATCA that an FFI can mitigate with a
judicious offboarding program where local law allows. In any event, withholding only occurs
on Recalcitrant Account Holders and Non-Participating FFIs. With robust CDD the only
Recalcitrant Account Holders and Non-Participating FFIs will be tax evaders (and hence
candidates for offboarding). Robust CDD, when begun early enough and with a coterminous
FATCA education program with convert otherwise RAHs and NP-FFIs who would otherwise
be withheld against as tax evaders by converting them through obtaining and validating the
correct documentation within the regulatory deadlines. Easy to say, not so easy to do.
So withholding is manageable and good governance is achieved by robust CDD and
Reporting. This puts CDD and Reporting at the top of the agenda. Can this be simplified still
further?
Not really no, except to say that you can only have robust reporting with CDD. Hence
CDD is first on the critical path.
We have distilled FATCA into four key themes and we have explained how
application of the IGAs can simply these themes still further. (I don’t believe the IGAs
simplified FATCA, quite the contrary, even so, the need for simplification remains.) We have
briefly discussed the history of attempts to enhance compliance and the implications that has
had on how experts perceive FATCA and how some things that are not on the page still
sometimes ‘appear on the stage’.
But I have also said that in the majority of cases the CDD deadlines will not be met.
How can that be true? Given the importance I have given to the CDD what are the
implications and how can this be managed?
At a minimum to complete FATCA CDD, FFIs need to obtain, for customers who are
Prima Facie FFIs (PF-FFIs) their “Chapter Four Status” (FATCA Status) obtain a GIIN and
also verify the GIIN.
The format for obtaining the Chapter Four Status and the GIIN will generally be a W8.
However, the IRS’s own analysis states that completing a W8 takes in excess on 8
hours (see the IRS’s own guidance notes for each W8 form).
FFIs face something of a double bind because they face having to verify the GIINs of
their counter parties where, in the majority of cases, those counter parties do not yet have a
GIIN because they have not registered on the IRS portal.
So what can be done?
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Use of the pre FATCA W-9 and W-8 series is permitted until the end of 2014 (and
those forms completed and validated in 2014 will be valid until December 31, 2017).
Notice 2014-33 announced that 2014 and 2015 would be transitional years for
FATCA so long as FFIs could provide evidence of good faith in attempting to comply with
FATCA. Evidence of good faith, in this context, is having documented procedures and
proving, via audit, that these procedures have been followed.
When completing a W-8 form, the counter party can state, in the space for the GIIN,
“applied for” where it does not yet have the GIIN.
This gives the recipient of the W-8 an additional 90 days to obtain and verify the
GIIN before it has to treat the PF-FFIs as a Non Participating FFIs.
Allow me briefly to introduce some salient metrics:
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1
McGill, Ross, "US Withholding Tax", 2013, p 161
The Banking Federation and the Institute of International Bankers.
http://www.cticompliance.com/assets/pdf/EBF-IIB%202010%2011%2012.pdf
3
Swiss-American Chamber of Commerce "FATCA: US legislation with broad consequences for
many"
4
TaxConnections blog. https://taxconnections.com/taxblog/overall-burden-calculation-onfatca-revised-forms/^.UxUXLtzWK1x
2
(1) We know under QI (FATCA’s predecessor) that when QI was introduced only
20% of W8s were fit for purpose. We also know that 13 years after QI’s inception that
only 35% of W8s are fit for purpose.
(2) We also know that on average after a financial institution solicits a pre-existing
customer for a new W8 it takes between 5 – 7 months for that W8 to be submitted
(valid or otherwise).
There are some large estimates out there for how much FATCA will cost the
industry. The costs are not in reporting; reporting is nothing new – the challenge of reporting
for FATCA relates to prerequisite fields that can only come from having completed FATCA
CDD. Nor is the bulk of the expense on Withholding; withholding only occurs on Non
Participating FFIs and Recalcitrant Account Holders.
Inevitably some customers will leave their existing banks because they feel that how
they were treated for FATCA purposes was less than exemplary (not that they would phase it
that way).
Is there any institution that truly wants to withhold and report on customers who are
not tax evaders? Of course not, but that is what we risk if don’t act.
The graphic above may understate the challenge because the volume of requests for
Self Declarations should include repeat requests and this would bring the number closer to
two billion.
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I say this because even if you ignore customer inertia (which is a very real FATCA
challenge) and assume that 900M Self Declaration are sent, 80% of them (720M) will have to
be resubmitted because they were filled out incorrectly. Even out of that 720M, more than
half will have to be re-solicited yet again because they are still incorrect.
900M + 80% * 900 M * 1.5 = 1.98B
The main thing about FATCA is documentation. Documentation requires Outreach.
Get the Outreach right and you have a well run FATCA Program, get the outreach wrong and
you have a Remediation Program.
Document the procedures for complying with FATCA CDD on PF-FFIs now,
schedule for an audit and put plans in place to make sure that the company can evidence its
attempts to comply in time for that audit.
Also, given the proximity of the deadline, use of the pre-FATCA W8s is advisable,
unless your company has had time to adapt to the post FATCA W-8 series.
Evidencing attempts to comply is all, especially so given that very few will achieve
full FATCA CDD compliance within the regulatory deadlines.