The Foreign Account Tax Compliance Act (FATCA) DROP DEAD DATE

FATCA compliant and recognized tax compliant globally
Foreign Financial Institutions (FFI) must be FATCA compliant to be recognized tax compliant

The whole thing to do with FATCA is starting to build a tidal wave of interest now that most people understand that 1 July is the drop dead date.

[quote style=”boxed”]Would you like to guess as to what is treated as an exempt entity?[/quote]

This is explicitly for pension funds as exempt beneficial owners and also for administrators of pension funds. Well, that answer is the whole point because this certain exempt FATCA status means that if there is a U.S. person or not becomes irrelevant. What makes that significant is that effectively the only people who can efficiently deal in USD on behalf of US people are those who are FATCA compliant, have a FATCA Identification Number and are verified to sign a W8 BEN-E. That is why administratively this exempt beneficial owner is on firm ground.

How to be compliant with FATCA comes down to just THREE things;

And those three things end up with the foreign financial institution being able to deliver a W8 BEN-E or not. No W8 BEN-E means no dealings in USD. A W-8 has been around for a long time; it is a declaration by a non-US person as to their tax status for US tax purposes. The W8 BEN use to be a very simple one where a foreign company would declare it is not a US company, not US controlled and that it doesn’t have US income nor is a US business as such – in terms of business income- and that was necessary to allow any foreign company’s U.S. counter party to remit gross rather than deducting withholding. Because of FATCA they had to come up with a new W8 BEN-E declaration. To be authorized to sign this W8 BEN-E you need to come up with three things to deal with a counter party in USD.

One is if you are an exempt beneficial owner because of the government agreement with that Foreign Financial entity then that is fine but then there are two more considerations. One is that the Administrator himself must have a FATCA Identification Number and the way they are dealing with that, so that you are clear on it, is that they are dividing the world into three parts 1) Limited Conditional Status until the end of next year. These administrators are deemed FATCA compliant, it means they will accept registration first and verify later. 2) The only FFI they are treating right now as approved from 1 July are banks which are registered with the Central Banks. Those are the two agreed FATCA categories and then there are a huge number of FFI’s that are both a neither and a never.

So when you have an investment account FATCA needs to know first of all ”what is the status of the beast?”. It is a retirement plan, exempt beneficial owner and therefore that is the end of the matter as far as disclosure of members is concerned. Information held by the Trustee will remain private.

Most Foreign Financial Institution (FFI) accounts with a U.S. foot print will be closed because there will be a legal liability on the FFI to report the existence of the account and to report all that FATCA requires. Details of the beneficial owner of the account, US person, and I might add that an FFI might not even know the depth and breadth of beneficial owners because it is external to spouses, business partners and so on. They may not know the answer to that and they may not have any means to know the answer even though they have identified who the account holder is a US person connection. They need a way to learn what that person’s arrangements are before they can even report all of the details. If they can’t report all the details then they have to withhold and remit 30% of whatever the account balance is; effectively on a daily basis. The short stroke is that most banks don’t want to be bothered with uncovering all the details because they don’t want to be criminalized by this law as failing to comply. Often they don’t know if they can comply or if they can’t comply. As a result most are closing down accounts for US people.

What makes that significant is that effectively the only people who can efficiently deal in USD on behalf of US people is a Foreign Financial Institution (FFI) who is FATCA compliant and that is also administratively an exempt beneficial owner. Those are really two sides of the same coin. The third requirement means as an administrative matter, for example, the administrator of the pension fund as an administratively exempt beneficial owners can authorize the FFI to sign a brand new type of W8 BEN-E. That is really important because that is the document that would be given to the FFI because, you see, when they deal with their counter party the USD denominated bank, fund management house, investment or investment platform whatever it is, they in turn need to have on file a W8 BEN-E on the one hand and on the other hand the deeper issue for the pension fund is at the individual members own tax compliant level.

Individual tax compliance is really important because most people do not know how to bolt together individual tax compliance within the pension fund to the institutional FATCA level . At the institutional level they are either FATCA compliant or they are not. At the individual level most people don’t know what to do because you see if they have US people in these retirement plans or they want to create a pension fund to include U.S. persons they simply don’t know what to do to ensure that the individual is tax compliant globally. It is actually quite difficult in most foreign jurisdictions to bolt together a U.S. Internal Revenue Service compliant tax deferred on gains and accumulation foreign retirement plan that is also FATCA compliant and recognized tax compliant globally. We can do it and we have done that and been through this already.

[box type=”note”]When you go through the FATCA Model Agreements it is effectively a capital control mechanism.[/box]

What, it all comes down to in practical terms is when it is late day on Friday and an investment deal is closing when someone says ”what is your FATCA I.D. number and where is your W8 BEN-E?” it is: Deal On, or Deal Off?


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