1. Foreign Accounts Tax Compliance Act FATCA

2. Compliance with FATCA a precursor for Lexis Guide to FATCA Compliance contact David Soborski to order (David.T.Soborski@lexisnexis.com) 3. Author Contact Details Prof. William Henry Byrnes, Associate Dean, Graduate & Distance Education wbyrnes @ tjsl.edu +1 619 961 4211 The information contained herein and during this presentation is only for academic discussion, and not applicable to any specific situation. The information is of a general nature and based on authorities that are subject to frequent change. 4. biography Associate Dean William H. Byrnes, IV, has achieved authoritative prominence with more than 38 book and compendium volumes, 25 book & treatise chapters, 750 articles, and a monthly subscriber tax newsletter Tax Facts Intelligence. His publishers include Lexis- Nexis and National Underwriters. He created the approach of Concept Mind-Maps for Lexis-Nexis found on the Tax Law Center. 5. Q1: What is FATCA? New Information Reporting Regime on Foreign Institutions & Entities to Assist the Internal Revenue Service Collect Identification and Financial Information about US Individual Taxpayers Match this information to new Form 8938 Statement of Specified Foreign Financial Assets (and the Foreign Bank & Financial Accounts form FBAR) 30% withholding 6. Q2: What Caused FATCA? 60+ Tax Treaty EOI articles, 20+TIEAs, MLATs, and Hague Evidence Convention FBAR (Foreign Bank & Financial Accounts) 1996 by BSA in 2003 FINCEN signed MOA for IRS to enforce QI Regime (2000) Approx. 5,500 financial institutions (vs. 100,000s) 7. Q2: QI Differences? Expanded application of reporting (names + specific account in(s)/out(s)) Look through to UBO Expanded application of reporting persons Expanded application of reportable transactions FFI cannot determine customer w/h pools Only approx. 5,500 QI v. 100,000s of FFIs and FEs 8. Q2: What Caused FATCA? Offshore Voluntary Disclosure Programs 2009 & 2011: 33,000 raised $5B 2012 remains open: 1,500 UBS headline case: 17,000 hide $20B, $780m fine with $104m to convicted insider whistleblower Bradley Birkenfield 9. Q3: Compliance Costs? 1. Financial Costs 2. Labor / Service / Software & Systems 3. Management 10. Q3: Financial Costs? Treasury: $100m per large institution Can. Bankers Association: $1B each for 5 largest banks Generally accepted: $250m per large bank $30m-$80m for UK investment banks E20-E50 per investor for investment funds, $1m per fund How much did Y2K cost? EU Savings Directive? New expanded reporting? QI regime? 11. Q3: Labor / Systems Costs? Which department will wear the FATCA yoke? (Tax, AML, Comp) Employ / Outsource add. compliance manager / staff ? Employ / Outsource add. systems and software integration staff (probably both, at least on short term contracts) Employ / Outsource FATCA consultants least cost is your Lexis FATCA Compliance Handbook ;-) 12. Q3: Labor / Systems Costs? - enterprise software programming/building (AML, FATCA, Internal and External treasury/client reports) - new protocols and rules - new onboarding procedures - data entry - middleware - systems maintenance 13. Q3: Management Enterprise Steering Committees Each business unit has working team Drilling down impact by country, product Decision making process: CCO, CTO, AMLRO, CLO (GC), and new FATCA Responsible (Certification) Officer? Investment Funds re-drawing investor agreements 14. Q3: Other EU Cost Concerns Data Protection & Civil Law Privacy - costs of obtaining each clients signature on new FATCA waiver, 15. Q4: Who does FATCA apply to? Two Categories: FFI & NFFE Foreign Financial Institution Non-Financial Foreign Entity 16. Q4: What is an FFI? Not Territory-Organized (aka TOFI) - Accepts deposits in ordinary course of bus. - Holds financial assets for 3rdp as sub. bus. - bus. of investing, trading in securities, commodities, pshp interests, futures, forwards Sign FFI agreement or IGA in place 17. Q4: Examples of FFI? - Investment, hedge, equity, mutual funds, unit trusts - Clearing houses, Brokerages - Insurance (cash value), annuity, pension, - Trust companies, custodians 18. Q4: Exempt from FFI? Low Risk of Tax Evasion Foreign governments, Central Banks 19. Q4: Registered Deemed Compliant ? Still Register with Treasury but as compliant FFI Certain local-only banks if >98% accounts local and undertake US DD on accounts after 2011 Qualified collective investment fund no US investor over $50,000 Restrictive fund < $175m assets & < $7m revenue no US distribution + USDD after 2011 20. Q4: Certified Deemed Compliant? Dont register with IRS but certify to W/H agents Certain small local banks with local accounts < $175m assets Low Value Accounts < $50,000 & < $50m assets Non-profits Certain retirement plans 21. Q4: Certified Deemed Compliant? Retirement Plans organized locally, by local employer for local employees, contributions tax exempt & no employee has >5% or < 20 participants, earned income only, if outside local then < 20% of assets + < $250,000 22. Q: Challenges? SWAPS difficult to value, changing counter parties in opaque market Funds: lack access to information for approx. 40%-45% UBOs, distributors & transfer agents must become PFFI fund of funds private equity funds & tie-up periods Life Insurance: whole life touch points with owner 23. Q5: NFFE? 10% shareholders 24. Q6: FFI Due Diligence ? 3 categories of accounts / 2 time periods 1. < $50,000 2. $50,000 - $1m 3. > $1m (high value accounts) Current (look back) vs. New (onboarding) 25. Q6: FFI DD $50k - $1m Electronic Search of AML records of the KYC / CIP program > $1m CCO -> RM communicate about account holder and if necessary, review account file docs for previous 5 years W8Ben (foreign) or W9 (US): Trust but Verify 26. Q6: US Indicia (1) Citizenship or residency in U.S.; (2) U.S. place of birth; (3) U.S. residency or mailing address; (4) U.S. telephone number; (5) any standing instructions to transfer funds to a U.S. account; (6) any power of attorney or other signatory authority to any person with a U.S. address; or (7) Whether the account holder has provided any verified in-care or hold mail address with the U.S. 27. Q6: EDD for High Value Accounts RM communicate about account holder using file and KYC or CCO directly accesses file review account file KYC for previous 5 years account opening documents, signatory card POA / incapacitation or death instructions 28. Q6: DD for NFFE W-9 on file ? specified U.S. person ? < $250,000 - Excluded from review, until account balance exceeds $1,000,000. Search existing CIP/KYC info/account opening docs to determine status Passive NFFEs Must identify substantial U.S. owners or certify that there are no substantial U.S. owners. 29. Q6: specified US person is not Publicly traded corporation Affiliates of a publicly traded corporation Exempt organization or IRA REIT RIC / SEC registered (1940 Investment Company Act) The United States U.S. state, DC, or U.S. possession US bank Common trust fund Exempt trust under section 664(c) US registered dealer US Broker 26 USC 6045(c) 30. Participating FFIs Systems Documentation: evolve current AML systems to capture FATCA DD across enterprise customer base Reporting: implementing then maintaining annual reporting system with US (or IGA) for US individuals, including identifiers, account balances, gross payments Withholding: building system for 30% withholding on recalcitrant account holders 31. 1. identity and residence of the beneficial owner; 2. name and address of the paying agent; 3. account number of the beneficial owner; 4. and amount of interest income earned 5. TIN if available If resident in a country different than passport or I.D. card, then tax residence certificate Q6: EU TSD Art 8 Info 32. Report must contain Name / address / TIN Account No(s) / Balance(s) Annual Gross transactions (receipt/deposits/payments/withdrawals) Can elect to report like US-FI (1099s) Or w/h and close account Q6: Foreign Info Reporting? 33. 1. the name, address, and TIN of any person that is a resident of FATCA Partner and is an Account Holder; 2. the account number; 3. the name and identifying number of the U.S. Financial Institution; 4. the gross amount of interest paid on a Depository Account; 5. the gross amount of U.S. source dividends paid or credited to the account; and 6. the gross amount of other U.S. source income paid or credited to the account Q6: US Info Report to IRS? 34. Q6: Withholding WH agent (USWHA or PFFI) required to report annually Form 1042 and Form 1042-S Form 1042 to IRS, with aggregated reportable amounts and any tax withheld. Form 1042S to IRS, copy US specified person with reportable amounts paid. Form 1042-S is required for each US person, with separate Forms for each separate type of payment. 35. Q7: Recaltrant Accounts 36. Q8: IGA No IRS agreements required for FFIs No officer certifications directly to the IRS Retirement account issues addressed Data privacy concerns addressed Withholding concerns addressed Customer identification issues addressed No closing accounts of recalcitrant account hold 37. Q9: Timeline Overview TY 2011 Form 8938 (filed 4/17/12) TBD: FFI agreement & electronic registration 38. Timeline DD 1/1/14: PFFIs new account USDD 6/30/14: existing accounts USDD must be completed (for prima facie FFI) 39. Timeline Overview 12/31/14 PFFIs complete review & documentation of all other pre-existing high value individual accounts (& certified completed by FATCA officer) 12/31/15 PFFIs complete review & documentation of all other pre-existing individual accounts and all pre-existing entity accounts not previously identified as being held by prima facie FFIs (& Certify by FATCA Officer) 40. Timeline Withholding 1/1/2013: Obligations issued before are grandfathered (material modification) 1/1/2014: Start withholding on FDAP to non-compliant account holders 3/15/2015 start of annual report (for 2014) via Form 1042(S) of FATCA withholding (Foreign Persons U.S. Source Income Subject to Withholding) 41. Timeline Withholding 1/1/2017: Start expanded withholding on US-source gross proceeds arising from sales and redemptions & foreign pass through payments 42. Timeline Reporting 3/15/2015 start of annual report (for 2014) via Form 1042(S) of FATCA reportable amounts (Foreign Persons U.S. Source Income Subject to Withholding) 43. Timeline Reporting 3/31/2015 (for 2013 and 2014) annual report: US accounts (name, address, TIN and account balance) recalcitrant account holders (aggregate reporting) 3/31/2016 + income associated with these US accounts 3/31/2017 + gross proceeds 44. FORM 8938 A specified foreign financial asset is: Any financial account maintained by a foreign financial institution Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely: Stock or securities issued by someone other than a U.S. person Any interest in a foreign entity, and Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person. 45. 8938 thresholds Individual / Filing Separate taxpayers in the US: total value of specified foreign financial assets > $50,000 on the last day of the tax year or > $75,000 at any time during the tax year (Joint = 2x threshold) Living Abroad: foreign tax residence + bona fide or 330 days in 12 months ending in tax year > $200,000 / $300,000 (Joint = 2x threshold) 46. 8938 Foreign Financial Account Foreign bank accounts Foreign mutual funds Foreign hedge funds Foreign private equity funds Certain foreign insurance products 47. 8938 Foreign Financial Asset Stock or securities issued not by US person Any interest in a foreign entity Any financial instrument or contract that has as an issuer or counterparty that is not US person Foreign pensions and deferred comp plans Foreign estates 48. 8938 Foreign Property ? Not if direct ownership of real property Yes if -> foreign entity -> Property (FE interest) Yes if mortgage (FA interest) Not if direct ownership of movable assets (e.g. metals, jewels, art works) 49. 8938 Questions Part II Other Foreign Assets (see instructions) Note. If you reported specified foreign financial assets on Forms 3520, 3520- A, 5471, 8621, or 8865, you do not have to include the assets on Form 8938. You must complete Part IV. See instructions. If you have more than one asset to report, attach a continuation sheet with the same information for each additional asset (see instructions). 1 Description of asset 2 Identifying number or other designation 3 Complete all that apply a Date asset acquired during tax year, if applicable . . . . . . . . . . . . . . . . . . b Date asset disposed of during tax year, if applicable . . . . . . . . . . . . . . . . . c Check if asset jointly owned with spouse d Check if no tax item reported in Part III with respect to this asset 4 Maximum value of asset during tax year (check box that applies) a $0 - $50,000 b $50,001 - $100,000 c $100,001 - $150,000 d $150,001 - $200,000 e If more than $200,000, list value . . . . . . . . . . . . . . . . . . . . . . . . $ 5 Did you use a foreign currency exchange rate to convert the value of the asset into U.S. dollars? . . . Yes No 50. 8938 Questions 7 If asset reported in Part II, line 1, is stock of a foreign entity or an interest in a foreign entity, report the following information. a Name of foreign entity b Type of foreign entity (1) Partnership (2) Corporation (3) Trust (4) Estate c Check if foreign entity is a PFIC d Mailing address of foreign entity 8 If asset reported in Part II, line 1, is not stock of a foreign entity or an interest in a foreign entity, enter the following information for the asset. a Name of issuer or counterparty b Type of issuer or counterparty (1) Individual (2) Partnership (3) Corporation (4) Trust (5) Estate c Check if issuer or counterparty is a U.S. person Foreign person d Mailing address of issuer or counterparty.