FATCA, the Foreign Account Tax Compliance Act, introduced by the US government and designed to crack down on tax avoidance by wealthy US citizens investing offshore, represents a complex and costly compliance task being forced upon financial services firms globally. It will take effect from July 2013 but preparations for the deadline are complex.
For an initiative that offers serious cost, but precious little value, FATCA has risen high up the list of business priorities for our clients and their senior executive teams. Indeed, we consider that without the support and involvement of senior management, any FATCA effort will struggle to gain the resource and cross-business coordination required to make it a success.
To date, we have observed firms taking different approaches. Some have invested heavily even before the latest update was issued by the IRS in February this year and have sought to comprehensively assess the impact of FATCA on their business and have started with no- or low- regrets operational and systems changes. Others have preferred to wait for detail to emerge and are only now starting to engage senior management teams and to assess the full impact of FATCA. The more they engage, the more management are surprised by the scope and impact of the regulations.
Given the scale and complexity of change involved, and if not done so already, we believe firms must quickly focus on ensuring the following:
1. Senior management is engaged and providing active sponsorship of the FATCA programme.
2. There is cross-business awareness of the impact of FATCA underpinned by formal enterprise-wide governance to ensure all affected areas are involved in work to comply with the new regime.
3. A detailed impact assessment has been completed to identify how FATCA will affect the business and the strategic options that may be available.
4. The IT and operational effort required to comply is fully built into the firm’s budget and change portfolio.
5. The Executive who will have formal sign-off responsibility for FATCA compliance has been identified and they are considering the audit and assurance processes they will need to have in place to allow sign-off
In difficult trading conditions, FATCA is placing a significant additional pressure on firms.
Our work with clients to date shows that time spent focusing on the above will pay dividends in terms of ensuring quicker and more effective mobilisation of effort.
Financial Services firms need to take action now by accepting that this is much more than a tax compliance issue. They must conduct a thorough impact assessment into how the FATCA requirements will affect their strategy, customers, products, processes, systems and their people.
BDO can provide comprehensive support for your FATCA preparation and compliance efforts that draws together the expertise of our multi-disciplinary FATCA team comprising specialists in Risk & Regulatory Services, Tax, Forensics and Technology Advisory Services. We can help you to ensure that the strategic, governance, operational, technology, taxation and reporting aspects of the regime are all addressed in a cohesive manner.
The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in U.S. efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.