What is FATCA – a reminder?

The U.S. Foreign Account Tax Compliance Act (“FATCA”) was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act on 18 March 2010. FATCA creates a new tax information reporting and withholding regime for payments made to certain Foreign Financial Institutions (“FFIs”) and other ‘foreign’ persons. Implementation of FATCA is phased, and the first changes will take effect from 1 July 2014, with certain withholding requirements also taking effect from 1 July 2014 and reporting from 2015 for the 2014 calendar year.

FATCA is intended to identify U.S. persons, to the Internal Revenue Service (“IRS”), who may be investing and earning income through FFIs, and it requires those FFIs to report certain information on those accounts, with the aim of reducing tax evasion. Failure to report could result in 30% withholding tax being deducted on U.S. source income and payments.

Many countries have negotiated, or are negotiating, Intergovernmental Agreements (“IGA”s) with the U.S. (“Partner Jurisdictions”) and this includes all of the jurisdictions in which Ogier Fiduciary Services operate, so our focus is on becoming compliant where an IGA is, or will be, in place.

FATCA is complex U.S. tax legislation which in practical terms has been somewhat simplified by the introduction of these IGA's. Domestic legislation and regulations are being introduced in all Partner Jurisdictions to enable and  enforce compliance with the objectives of FATCA so these regulations cannot be ignored. Whether or not you have U.S. investments or U.S. investors you are required to give it, at least, some consideration.

Ogier Fiduciary Services offices in Jersey, Guernsey, London, Cayman and BVI, and their clients, also need to consider the impact of tax information exchange agreements between the United Kingdom ("U.K.") and it's Crown Dependencies ("CDs") and Overseas Territories ("OTs"). This is being hailed as U.K. FATCA but unlike U.S. FATCA, which is global in its reach, it does only affect the U.K., CDs and OTs.

This U.K. regime broadly follows the same principles as U.S. FATCA but the intent is to identify U.K. persons who are investing and earning income through Financial Institutions "FIs", and it requires those FIs to report certain information on those accounts, again with the aim of reducing tax evasion. The reciprocal nature of some of these agreements also gives rise to the need for UK based FIs to identify and report on Jersey, Guernsey, Isle of Man and Gibraltar persons.

These agreements not only align well in terms of actions required with the U.S. regulations but the timeline for implementation is also the same, save that the first reporting will not be due until 2016.

In all jurisdictions currently in which Ogier Fiduciary Services operate it is anticipated that a Model 1 IGA will be in effect and so reporting will be to the counterpart.

As expected, in February 2014, the OECD released details of a Common Reporting Standard ("CRS") and a model Competent Authority Agreement ("CAA") with the intent to implement a multilateral platform for the automatic exchange of information from 2015. These proposals have the full support of the G20 and already 44 countries have signed up to this convention. The model   CAA is closely aligned with the IGA format and content developed for US FATCA and will pave the way for truly global transparency of tax information.FFIs.

So what do you need to do about FATCA?

With no likelihood of any further slippage in the timeline for implementation we now need look more closely at our clients, what they do and what we do for them.

In 2013 we undertook a programme of work designed to ensure that the data we held on each of our Client Matters and the Entities and Appointments associated with them were all consistent and of a quality that would help us categorise them effectively before considering the full impact of the US regulations. We managed this work in a way that ensured the effort would not have to be repeated for the UK regulations or for any subsequent extension of this type of regulation to other countries.

It was necessary for us to charge our clients for the effort involved in this work irrespective of whether or not the client would ultimately be affected by the regulations and this was done, for the most part, in the final quarter of 2013.

A consequence of the work we did was to gain the understanding of which clients were "in scope" of the Ogier Fiduciary Services FATCA Compliance Programme and which were not. Those clients who were not "in scope" for our programme have been assured that there will be no further charges applied by us which relate to FATCA and those assurances remain good unless the client engages us to perform further FATCA related actions. Even though a client may be “out of scope” of the Ogier Fiduciary Services FATCA Compliance Programme it is possible for them to be directly affected by FATCA and they may well need some support with the very real issues which FATCA presents. With this in mind we will shortly be contacting all clients who are out of scope of our programme to identify those who may need the support of Ogier Fiduciary Services.

For those clients who are "in scope" we do have more work to do. Most of the Ogier Fiduciary Services Operating Companies who provide services to our clients will be classified as FIs and we will shortly be registering them as such. As a minimum we are required to establish how our “in scope” clients would classify themselves within the regulations and, where appropriate, we may need to request additional information or acquire client self-certifications to support that classification. This is the point where Ogier Fiduciary Services will identify any “reportable accounts”.

Therefore we need to know what our clients are doing about FATCA and where they are in the process.

Client matters which are in scope of the Ogier Fiduciary Services FATCA Compliance Programme will fall broadly into three categories.

  1. In Scope – Ogier Fiduciary Services will perform the FATCA related tasks automatically. In accordance with the Ogier FATCA Policy, these are the clients to whom we provide Trustee, Operator, or Treasury services.
  2. In Scope – Client does not need Ogier Fiduciary Services FATCA support (client is fully FATCA aware and may already have their own programme in place).
  3. In Scope – Needs support (client may, or may not, be FATCA aware but will require external support to consider the regulations and to execute any resultant required actions).

Obviously we know which client matters fall into category 1 and for these clients we will be scheduling the work we believe is required. Our familiarity with these client structures, the scope of our responsibilities and efficient access to data means that Ogier Fiduciary Services will be best placed to perform any required tasks for this category and we will be contacting them in the coming weeks. Any work we do will be time chargeable – even for those clients who have an existing fixed fee arrangement. The one exception to time charging is for IRS FI Registration where we will charge a fixed fee of £150 per entity to be registered.

We will be contacting all other clients who are “in scope” as we need to know if they would fall into category 2 or 3 and we would like to gather any further information which may be relevant to their circumstances.

Can Ogier Fiduciary Services help?

Ogier Fiduciary Services has developed a FATCA client support strategy with a view to helping our clients understand the regime and to help them plan and execute their own FATCA compliance programmes where necessary.

The responsibility for compliance with FATCA regulations will remain with clients even when certain obligations are delegated. However, Ogier Fiduciary Services would be happy to help our clients by either sharing our own FATCA  experiences or even by executing some of the required elements more directly, with, or for our clients. In some cases Ogier Fiduciary Services may be able to undertake all of the required work on behalf of the client.

If a client falls within category 3 of our in scope matters or if a client is out of scope of the Ogier Fiduciary Services Programme but is directly affected by FATCA and needs support then we can help. The extent of what we can do to assist with FATCA may depend upon what services we currently provide to the client and how much information/material we already have to support them but we are able to help any client in determining the impact that FATCA has on them.

We would be pleased to discuss your needs and if you would like to know more you should first contact your usual Ogier Fiduciary Services point of contact. Fees will apply to the support we can give and will depend on the level of involvement required. Formal engagement terms will be agreed prior to the commencement of any Ogier Fiduciary Services FATCA support services.