What Is FATCA? The Ins and Outs of Reporting and Compliance

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5 min read
The Foreign Account Tax Compliance Act (FATCA), passed by Congress in 2010, has represented a major hurdle for non-US financial institutions operating in the US in the ensuing eight years since it was passed. Its enactment is still a bone of contention between the federal government, represented by the IRS, and the financial markets.

Now more than ever, it's incumbent upon financial institutions operating in the US to tighten up their standards, and for organizations entering the US market for the first time to put in place a strategy for FATCA compliance. This post introduces the basics of FATCA and some strategies used by financial institutions for reporting and compliance. Additionally, it discusses the ways in which software solutions can help leverage your FATCA compliance strategy for a more carefree institutional existence.

FATCA: Background, Purpose, Effects

The purpose of FATCA was to tighten up the US tax regime against perceived tax evasion by US citizens holding assets in foreign financial institutions (FFIs). Despite a change in administration and a major tax overhaul, the federal government continues to be concerned about this 'profit-shifting' activity, eager to seek it out, prosecute the organizations and individuals that engage in it, and collect what it is owed.

The central provisions of FATCA deal with all taxable assets, rather than merely cash or securities. They cover any asset with a taxable event, including royalties, rent, real estate, insurance policies and ownership stakes. It applies to assets held by US citizens through FFIs regardless of whether they are held inside or outside of the US itself.

FFIs are required to report all information about financial accounts and foreign entities in which US taxpayers hold a substantial interest directly to the IRS. In this capacity, FATCA imposes on all affected organizations extensive obligations to screen and identify, perform due diligence on and process transactions. FFIs that are found to have been evading FATCA may be subject to a punitive tax of up to 30% on all US investment flows, the individual or corporate status of the assets notwithstanding.

Strategies for Ensuring FATCA Compliance

Establishing compliance guidelines with FATCA can be divided into three major stages or steps:

1) Creating an initial management framework

In this stage of the process, organizations start by classifying all of their entities and assets according to the requirements of FATCA. The goal is to establish a permanent database for the storage of this information, which can be easily managed from multiple locations.

2) Ongoing, automated surveys Once the basic data repository and methods of management are in place, organizations can turn toward ongoing compliance by implementing surveys that can be run periodically over all of the different entities that compose a multinational, multilevel organization. These surveys can be adjusted to the specific requirements of FACTA reporting as it is interpreted by the IRS on an ongoing basis, and what's more, they can be automated for efficiency and eliminating human error from the equation.

3) Workflow management

Automated workflow management represents a huge boon to companies dealing with the thorny implementation of FATCA requirements. A software platform that incorporates FATCA management not only keeps track of all relevant data, but also can alert responsible employees and authorities to upcoming filings, ensuring that all required operations are performed correctly and on time. It also logs and preserves these processes through the data repository, ensuring that everything is in place when audit time rolls around.

FATCA Compliance as Part of a Software Platform

Blueprint OneWorld's entity management platform contains a FATCA Management module that directly answers the needs discussed above and many more. It establishes a strong framework for compliance with FATCA, which includes the following:

  • Categorizes entities by appropriate FATCA classification.
  • Automates review of FATCA exposure.
  • Constructs a permanent audit trail.
  • Tracks foreign financial assets, offshore accounts and thresholds.
  • Records all reviews and updates.
  • Provides a complete, accurate and historical record of all FATCA decisions.
  • Creates a single source of clean data for ongoing, reliable FATCA compliance.
  • Ensures regular updates as organizational change occurs.

Our FATCA module's Survey Manager, for instance, provides compliant pre-created or highly customizable FATCA surveys for all kinds of specific organizational needs. Customizable question sets offer sequence logic so that responses determine the thread of subsequent questions. No worries about forgotten responses, as automated email communications continue to remind survey recipients until a response is received. Survey Manager creates and stores a permanent record of the certification process.

The Review Manager provides a documented, automated FATCA verification process. Employing these workflows, your organization gains the ability to demonstrate control of entity data. You can customize specific data integrity rules to ensure compliance. Automated email, with an included link to the review, simplifies the interface. Workflows ensure that notifications and reminders proceed until a task is complete. The Review Manager works seamlessly with Survey Manager and Workflow Manager for a completely integrated and documented review process.

The Workflow Manager ensures that all required FATCA compliance tasks are completed correctly and on time. It removes paper, scheduling and human error from the process, and ensures that no required task falls through the cracks. No matter how many entities your organization has in all of its different jurisdictions, Workflow Manager, in concert with the Survey Manager and the Review Manager, combined with other tools, takes care of all required tasks having to do with FATCA compliance.

The Future of FATCA

Like other regulatory regimes, FATCA is constantly evolving and being reinterpreted by the IRS. Our FATCA Manager also keeps up with these changes. As your organization grows and the regulation changes, it ensures that your institution remains in compliance, with a solid, documented audit trail that reveals every step of the FATCA survey, attestation and compliance process.

Organizations that employ Blueprint's FATCA Manager enjoy the efficiency that flows from organizing the data and systems that they already possess in order to ease compliance. Leveraging the Blueprint platform for specific compliance tasks such as FATCA avoids the expenses and aggravation of external personnel or a separate expense for other, non-integrated solutions.

We hope to be your organization's entry point into an affordable and effective solution that can adapt to your specific needs while ensuring compliance with the uniform requirements of FATCA and similar regulations. Please call or email us today to discuss our solutions.