The Dbriefs Business Strategy & Tax series presents: FATCA and Common Reporting Standard: Preparing for New Compliance Risks in 2015 Sam Lowenthal, Deloitte Tax LLP Denise Hintzke, Deloitte Tax LLP Jon Watts, Deloitte & Touche LLP Dan Dumezich, Deloitte Tax LLP Stuart Mann, Deloitte Tax LLP March 9, 2015
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FATCA and Common Reporting Standard: Preparing for New ...€¦ · and identify reportable accounts under CRS as well as to establish reporting processes on the reportable accounts
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The Dbriefs Business Strategy & Tax series presents:
FATCA and Common Reporting Standard: Preparing for New Compliance Risks in 2015 Sam Lowenthal, Deloitte Tax LLP Denise Hintzke, Deloitte Tax LLP Jon Watts, Deloitte & Touche LLP Dan Dumezich, Deloitte Tax LLP Stuart Mann, Deloitte Tax LLP March 9, 2015
Important considerations • Noncompliance may result in
– Exposure to 30% punitive withholding on U.S. source income, proceeds and foreign pass-thru payments
– Market risk – Reputational risk
• Classification and documentation of entities may be impacted by IGAs
• Must consider payments being received as well as payments being made
• The rules became effective on July 1, 2014 but the true withholding impact will be felt on January 1, 2015
• The IRS transitional relief which provides additional time to document new entity accounts and relief for FFIs that show a “good faith effort” towards compliance may not apply in all counties
• Compliance includes two key themes – Classifying entities under FATCA
guidelines and registering them when appropriate
– Documenting accountholders and counterparties to confirm tax status under the regulations and IGAs
• Participating Foreign Financial Institutions (“FFIs”) must document all accountholders/counterparties, withhold on non-compliant persons and have documented processes and procedures which can be verified
• Non-Financial Foreign Entities (“NFFEs”) are required to report substantial U.S. owners
• Information on reportable individuals and entities will be submitted annually
FATCA aims to identify U.S. persons trying to avoid U.S. tax obligations by holding assets in non-U.S. structures and products…
The deadlines for reporting are imminent and the information to be reported is broad. Organizations need to plan now.
Reporting requirements
• The regulations require a mixture of client information and financial data. Reporting requirements will continue to increase after the first deadline
• Information on reportable individuals and entities will be submitted annually including name, address, TIN, account value and gross amounts paid or credited to the account
• The information to be reported by organizations is much broader than other current reporting requirements
• Reporting may be made via a local tax authority or direct to counterparty jurisdictions depending on the local legislation in force
• Local legislation and guidance will lead to variations in the date and format for reporting; generally, the timeline will be as follows:
March - June 2015 First annual reporting for U.S. FATCA on Tax Year 2014
May - June 2016 First annual reporting for UK FATCA on Tax Years 2014 and 2015
• The CRS is the standard for automatic exchange of financial account information (“AEOI”) developed by the OECD
• The CRS is a broad reporting regime that draws extensively on the intergovernmental approach to implement FATCA
• Similar to FATCA, the CRS requires financial institutions resident in the participating jurisdictions to implement due diligence procedures, to document and identify reportable accounts under CRS as well as to establish reporting processes on the reportable accounts identified
• On July 21, 2014, the OECD released the first edition of the Standard for Automatic Exchange of Financial Account Information in tax matters which contained: − A Model Competent Authority Agreement (“Model CAA”) − The Common Reporting Standard (“CRS”) − Commentaries on the provisions of the Model CAA and the CRS User Guide
• By October 2014, over 90 jurisdictions had signed or committed to sign the CRS
The standard for OECD AEOI
CRS is a recommended standard – it contains minimum information to be exchanged
• On October 14, 2014, the European Council agreed on a Draft Directive to amend Directive 2011/16/EU on Administrative cooperation on direct taxation (“DAC”)
• The purpose of the amendment is to implement the global standard on AEOI within the EU countries
• This will provide the legal framework for the 28 Member States to apply the CRS among themselves by 2017*. In other words, by 2017 the Member States will automatically exchange information with each other based on the CRS standard
• The Draft Directive will be adopted at a forthcoming European Council without further discussion. Note that according to article 115 of the Treaty on the Functioning of the European Union, unanimity by the European Council after consulting with the EU Parliament is required for adoption
CRS – the European Union DAC
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*With respect to Austria, it was agreed that the country would be given an additional year to apply the new rules
• Last October the OECD released a draft document to key stakeholders with the purpose of re-launching the Tax Relief and Compliance Enhancement (“TRACE”) as the CRS and TRACE have large areas of synergy
• According to the OECD, combining CRS with TRACE can provide a withholding tax incentive for implementing CRS as TRACE eligibility is restricted to financial institutions based in jurisdictions that are committed to the CRS
• Under TRACE, financial institutions may adopt Authorized Intermediary (“AI”) status and benefit from streamlined procedures to claim reduced rates of withholding tax on behalf of their customers – the AI system is a standardized system for claiming withholding tax relief at source on portfolio investments
• AIs are allowed to claim exemptions or reduced rates by providing pooled withholding rate information to the upstream intermediaries from whom they are receiving the relevant interest or dividend payments
Have you started looking at the impact of the Common Reporting Standard (CRS) on your organization?
• Yes, we have a project underway • Yes, we have been thinking about it • No, not yet as we are still focused on other issues • What is CRS? • Not applicable
An operational perspective of information reporting
Does your organization have the capacity to respond to new tax regulations beyond FATCA (i.e. UK FATCA, CRS, Chapter 3/61 remediation)?
• Yes – we’ve built institutional muscle in this space and are ready to respond
• Maybe – we’ve gotten better at tax regulations, but it is increasingly difficult to maintain organizational focus in terms of leadership, expertise, and budget
• No – we are tapped out; our experts are swamped and there is little left in the way of budget to take action
At the time FATCA was enacted the IRS had fewer than 20 people conducting enforcement activates. In 2015 the IRS will have how many people involved with enforcement?
This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.