Seven years after FATCA (the Foreign Account Tax Compliance Act) was enacted in the United States, Australian authorities and entities are still coming to grips with the data collection and reporting obligations which the US, in effect, imposed on the rest of the world.
While some of the compliance problems were definitely ameliorated by the signing of the Inter-governmental Agreement between Australia and the US in 2014, and there were temporary concessions during a transitional period (which expired on 30 June), some basic issues remained unsettled. However, it now looks like one important piece of the puzzle – how to handle the reporting of on-market transactions in listed securities – has been partly solved.
The drafters of FATCA designed a system with the customers of banks, credit unions and life insurance companies in mind (where customers inevitably deal directly and in person with the relevant institution), and so imposed the requirement that a ‘financial institution’ collect relevant information from an ‘account holder’ upon ‘opening’ an ‘account’. Making that obligation work where the financial institution is a A-REIT, the account holder is a unitholder and the account is opened by buying a security on market is more than a little problematic.
The more recent Common Reporting Standard (‘CRS’) developed in the OECD and adopted by Australia imposes a parallel set of data collection obligations and presents the same kind of problem, though the CRS timing rules are more flexible.
Several options were examined for handling on-market trades but it has now been confirmed by Treasury in a letter to the PCA that the property industry will be permitted to use its preferred ‘post-trade’ model for FATCA and the CRS. Under that model, on-market transactions can occur in the usual way and the data collection for FATCA and the CRS will occur after the trade has settled: the listed entity’s share registry will include in the information sent to new unitholders a self-certification form which the unitholder will be asked to complete and return. It is expected that a single form will be used to collect the data for both FATCA and the CRS.
Treasury’s letter confirms that where data is collected ‘post-trade,’ the A-REIT will be regarded as compliant with Australian law. Interestingly, however, the letter cautions that the US may take a different view for FATCA purposes.
The ATO will monitor the administration of an A-REIT’s internal systems and the letter advises the ATO may ‘work with’ institutions whose systems are regarded as deficient.
The ATO will also monitor customer compliance rates but the issue of reluctant or forgetful unitholders is not resolved in the letter. The letter simply warns that if compliance rates by customers prove to be ‘unsatisfactory’ some remedy (presumably a penalty or a withholding tax) will have to be found and the remedy might be imposed ‘rapidly.’
This is progress but it is not a complete solution. For example, the letter does not contemplate some system for ensuring that unitholders with an existing HIN and who have already lodged a self-certification form for an investment in one listed entity will not need to complete multiple forms.