Reporting Australian financial institutions must determine their FATCA status and register with the IRS by 31 December 2014 and conduct FATCA due diligence on account opening for all new account holders from 1 January 2015.

Who is affected?

Reporting Australian Financial Institutions as defined in the IGA, including most banks, insurance companies, trustees, custodians, funds, investment managers and other financial institutions.

What do you need to do as a matter of urgency?

  1. Identify your FATCA status

    If you have not done so already, you must identify your FATCA status.

    The obligations under the intergovernmental agreement entered into between the US and Australian governments on 28 April 2014 in respect of FATCA (IGA) are now imposed under Australian law by virtue of the Tax Laws Amendment (Implementation of the FATCA Agreement) Act 2014 (Cth).

    If you are a Reporting Australian Financial Institution (RAFI) under the IGA, you must comply with your FATCA obligations. It does not matter if you have no US customers, if you do not receive US source income, or if you have no connection with the US at all. The Australian Tax Office (ATO) imposes penalties on RAFIs who do not comply with their FATCA obligations.
  2. Register with the IRS

    If you are a RAFI, you must register with the U.S. Internal Revenue Service (IRS) by 31 December 2014 and obtain a Global Intermediary Identification Number (GIIN).
  3. Conduct FATCA due diligence

    You should ensure that your account opening procedures, disclosure documents and application forms capture the information required to comply with your FATCA due diligence obligations.

    RAFIs that have elected to treat entity financial accounts opened between 1 July 2014 and 31 December 2014 as pre-existing entity accounts in accordance with IRS transitional relief must treat all accounts opened from 1 January 2015 as new accounts for the purposes of due diligence and reporting obligations.

    The FATCA due diligence procedures include an obligation on RAFIs to identify the U.S. controlling persons of each account holder that is a ‘passive Non-Financial Foreign Entity’ (NFFE). Broadly, an NFFE’s controlling persons include its beneficial owners, and must be determined in accordance with the Australian Anti Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules).

    Recent changes to the AML/CTF Rules which came into effect on 1 June 2014 include a broadening of the definition of beneficial owner significantly (for example, the concept of beneficial owner will now apply to every customer type and not just companies).

    A compliance transition period in respect of these changes applies until 31 December 2015 in respect of enforcement action by the anti-money laundering regulator, AUSTRAC. This compliance transition period does not apply to FATCA or the ATO. Consequently, RAFIs will need to consider how the changes to the beneficial owner test under the AML/CTF Rules impact their FATCA due diligence obligations. Because of FATCA, you may need to determine how you will comply with at least some of the AML/CTF Rules changes in practice earlier than you expected.

Things to watch in 2015

  • First Reporting Date

The first reporting date for RAFIs to report to the ATO on US reportable accounts and recalcitrant accounts is 31 July 2015.

  • CRS – the “Global FATCA” is coming

The Australian government has announced that it intends to implement the OECD Common Reporting Standard for Automatic Exchange of Financial Account Information (CRS) (colloquially referred to as “GATCA”) in a staged process from 1 January 2017.

The government is currently consulting with industry on compliance costs, integration with FATCA compliance procedures, and other considerations. In implementing changes for FATCA, RAFIs should consider the proposed due diligence and reporting obligations under the CRS and, where possible, provide for flexibility in disclosure documents and application forms to reduce the need to make further changes to such documents going forward.

  • Watch out for entities in jurisdictions where IGAs have been agreed “in substance”

The IRS recently announced (IRS Announcement 2013-38) that it has extended its 31 December 2014 deadline for those jurisdictions which had agreed in substance to an IGA on or before 30 June 2014 to enter into an IGA. Such jurisdictions will continue to be treated as having an IGA in effect, provided they “continue to demonstrate firm resolve” to enter into an IGA as soon as possible. This gives comfort to financial institutions in such jurisdictions that they can continue to register with the IRS and certify their FATCA status on this basis. The IRS has stated that it will review on a monthly basis whether such jurisdictions continue to demonstrate firm resolve to sign the IGA.