What is FATCA?

The Foreign Account Tax Compliance Act ("FATCA") is US legislation which was signed into US Law on 18 March 2010 as part of the US Hiring Incentives to Restore Employment (HIRE) Act.

Why has FATCA been introduced?

US Congress estimates that tax evasion by US persons equates to losses for the US Treasury of up to $100 billion annually. The fundamental objective of FATCA is to identify those US persons who may be evading tax through the use of offshore investment vehicles and to ensure that the IRS are collecting the appropriate amount of tax from all US persons.

How is FATCA being implemented?

FATCA is a mechanism whereby, for example, non-US banks, trusts/fiduciaries, custodians, investment banks and hedge funds which, under FATCA, are referred to as Foreign Financial Institutions ("FFIs") are required to register with the Internal Revenue Service ("IRS"), perform due diligence to identify US accounts and report client data to the IRS. FFIs that do not comply will suffer a 30% withholding tax on all US sourced income or payments remitted to them by US paying agents or other FFIs.

Who is affected by FATCA?

FATCA will apply to all FFIs and their affiliates, Non Financial Foreign Entities ("NFFEs") and US withholding agents.

How does FATCA affect you?

As a client of Ogier, we will work with you to ensure that if you are subject to the requirements of the FATCA legislation that the necessary applications and agreements have been put in place to conform to the FATCA requirements to ensure that you are not subject to a withholding tax.

Why Comply?

FFIs will be subject to a 30% withholding tax on any withholdable payment made to their proprietary accounts if they fail to comply with FATCA. Furthermore, account holders who fail to provide the FFI with the necessary FATCA-related documentation will be deemed recalcitrant and the FFI will be obliged to withhold 30% tax on any withholdable payment credited to their accounts.

FATCA compliant FFIs enter into an agreement with the IRS which obliges them to:

  • Identify US accounts;
  • Comply with verification and due diligence procedures specified by the US Treasury;
  • Report on US accounts to the IRS annually;
  • Deduct and withhold 30% tax on certain payments to recalcitrant account holders and non-participating FFIs;
  • Provide further information to the IRS/Treasury on request; and
  • Obtain a waiver to authorise reporting, if a foreign law prevents the reporting of the required information.

What happens when?

Click here to see FATCA Timeline.

Intergovernmental approach

On 26 July 2012, the UK, France, Germany, Italy and Spain published an Intergovernmental Agreement ("IGA") which had been developed jointly with the US. This is largely intended to address broad concerns that FATCA reporting violates foreign privacy and data protection laws. The main thing an IGA achieves is to:

  • Address the legal barriers to FATCA compliance;
  • Make provisions for a reciprocal exchange of information; and
  • Simplify some of the requirements, thereby reducing the cost of compliance.

The US also issued joint statements with Switzerland and Japan indicating a willingness to extend this approach to other countries. Ogier understands that a significant number of other countries have approached the IRS in this respect, but as no definitive list has been published, it is not clear at this time which countries these are but Ogier is constantly monitoring the market for notification of further agreements, in particular those countries where Ogier has a presence.

As and when further agreements / joint statements are published, Ogier will review them to ensure that we comply on a jurisdiction by jurisdiction basis.

Those countries who sign an IGA with the US may be subject to a certain number of different timelines to those countries who do not go down the IGA route.