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Foreign Account Tax
Compliance Act
(FATCA) Workshop,
Bucharest
László Winkler - Director, Deloitte Hungary
Enikő Takács - Manager, Deloitte Hungary
March 11, 2014
The path forward
Foreign Account Tax Compliance Act (FATCA) Workshop
General introduction and overview of FATCA
• Aim and general concept of FATCA
• Latest legislative developments and current status of FATCA in Europe and
Central Europe
• Intergovernmental Agreement (IGA) – issues, practical considerations
• OECD’s Model of Competent Authority Agreement and Common Reporting
Standard Model
FATCA requirements and practical issues
• Requirements for financial institutions regarding FATCA compliance
• Challenges and practical experiences with FATCA impact assessment/
implementation
Agenda
© 2014 Deloitte Hungary
Aim and general
concept of FATCA
3 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
What does FATCA involve?
• Foreign Financial Institutions (FFIs) are required to enter agreements with U.S.
Treasury to identify and report U.S. accounts annually
• Unless otherwise provided, an account shall be treated as a US account
• Sanction: U.S. withholding agents are required to withhold 30% of withholdable
payments made to recalcitrant account holders, non-participating FFIs or their clients
• Foreign Financial Institutions (FFI)
• US Withholding Agents
• US individuals
• US entities
• Non-US Financial Entities with substantial US ownership
Who must meet the FATCA requirements?
Who are the targets?
FATCA aims to identify US persons trying to avoid
US tax obligations by holding assets in non-US
structures and products
© 2014 Deloitte Hungary 4 Foreign Account Tax Compliance Act (FATCA) Workshop
• Proposed regulations were released in February 2012
• Final regulations were released on January 17, 2013
• The IRS has released Notice 2013-43 extending most of the FATCA deadlines by 6
months
• FFI Registration Portal opened on August 19, 2013
• Notice 2013-69 (FFI Agreement) in October, 2013
• The U.S. Department of Treasury and the Internal Revenue Service released temporary
regulations that revise and clarify the final FATCA regulations on February 20, 2014
• The U.S. Department of Treasury and the Internal Revenue Service released
Coordination Regulations on the FATCA on February 20, 2014
FATCA – Regulatory update
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop 5
Evolution of internal FATCA Regulations
• In July 2012 the Model 1 Intergovernmental Agreement (IGA) was released, in
November 2012 the Model 2 IGA was released
• Over 60 countries around the globe are negotiating Model 1 and Model 2 IGAs with the
U.S. government
• The U.S. has now entered into a Model 1 IGA with Denmark, Ireland, United Kingdom,
Germany, Norway, Spain, France, Jersey, Guernsey, Isle of Man, Netherlands, Malta,
Italy, Hungary and Finland, and into Model 2 IGA with Switzerland
• Annex 2 of Model 1 IGA released on May 9, 2013
• Announcement regarding the registration deadline for Model1 FFIs was issued on
January, 2014
FATCA – Regulatory update
Development of IGA framework
6 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Intergovernmental Agreement (IGA)
7 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - Current IGA status in Europe
Source: http://www.treasury.gov
Gibraltar
Russia
Montenegro
Serbia
Bulgaria
1
2
3
Denmark
Ireland
United Kingdom
Germany
Norway
Spain
France
Switzerland (IGA 2)
Jersey
Guernsey
Isle of Man
Netherlands
Malta
Italy
Hungary
Finland
Czech Republic
Slovak Republic
Poland
Slovenia
Belgium
Cyprus
Estonia
Liechtenstein
Sweden
Luxembourg
Ukraine
Croatia
Romania
Signed IGA
IGA expected soon
Actively engaged
Exploring options
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Romania is currently
negotiating
the IGA Model1
8
Romania – The IGA is currently under negotiation.
Bulgaria - US Treasury has decided not to conclude the Model 1A IGA (reciprocal) with
Bulgaria. They offered Bulgaria to join FATCA under the IGA Model 1B or IGA Model 2.
Czech Republic – IGA is expected to be signed soon.
Croatia - Convention on Mutual Administrative Assistance in Tax Matters was signed in
October 2013, they are in the negations process.
Hungary - IGA was signed in February, 2014.
Montenegro - they intend to enter into an IGA latest by June 2014.
Poland - IGA is expected to be signed in the coming months.
Slovakia - IGA is expected to be signed in the coming weeks.
Slovenia - The U.S. and Slovenia initialed the IGA in January, 2014.
Serbia - the Ministry of Finance intends to enter into an IGA latest by June 2014.
9 © 2014 Deloitte Hungary
Overview of IGA Status in Central Europe
Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime Conceptual differences in IGA 1A vs. FATCA Regulations
IGA FATCA Regulations
Countries enter into inter-governmental
agreements
FFIs have to enter into FFI
agreements
FATCA provisions need to be
implemented into local law
FFIs apply the FATCA regulations
directly
FATCA reporting to local authorities which
report to the IRS FATCA reporting directly to IRS
US reciprocity No reciprocity
10 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime – IGA 1 in general Benefits
• Government will facilitate compliance -
removing local legal obstacles
• Group level compliance may become
easier
• It maybe possible to negotiate
exemptions for certain entities
and products
• Exceptions for withholding
• No requirement to close recalcitrant
accounts
Implications
• All FFIs will need to be in compliance
• Local Government will enforce
11 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime – IGA 1 in general (cont.)
Depth
• IGA is not as detailed as the FATCA Regulations
•Some of the countries already published their own guidelines on the
interpretation issues (Memorandum of Understanding – MOU)
“Most favored nation” clause
•Entitles FATCA Partner to apply more favorable terms negotiated in other
IGAs
•These provisions won’t have direct effect for local Financial Institutions
•New IGAs are negotiated on the basis of the latest signed IGA
Negative consequences of non-compliance
•Domestic penalties are applicable
•Withholding is applicable for US source withholdable payments
(significant non-compliance rule)
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop 12
Overview of IGA Regime – Structure of the IGA
Structure of the IGA
(1) Main part
Scope of the IGA and definitions (foreign financial institution, financial
account definition, account holder, related entity, etc.)
Details (content and deadlines) of reporting obligation for FFIs
(2) Annex 1
Detailed rules of the client due diligence
(3) Annex 2
Exempted entities, products, and deemed compliant statuses
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop 13
Overview of IGA Regime - Scope of the IGA
Effected institutions
(foreign financial institution
categories):
(1) Depositary institution - accepts deposits
in the ordinary course of a banking or
similar business.
Interpretation question: is the
definition for banking or similar
business in the FATCA Regulations
applicable under IGA?
(2) Custodial institution - holds, as a
substantial portion of its business,
financial assets for the account of others.
14 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
Overview of IGA Regime - Scope of the IGA (cont.)
(3) Investment entity - primarily conducts as a business (or is managed by an
entity that conducts as a business) one or more of the following activities or
operations for or on behalf of a customer:
trading in money market instruments (checks, bills, certificates of
deposit, derivatives, etc.); foreign currency; foreign exchange, interest
rate, and index instruments; transferable securities; or commodity
futures
individual or collective portfolio management; or
otherwise investing, administering, or managing funds, money, or
financial assets on behalf of other persons
(4) Specified Insurance company - (or the holding company of an insurance
company) that issues or is obligated to make payments with respect to
cash value insurance or annuity contract.
Interpretation question: is the definition for insurance company in the
FATCA Regulations applicable under IGA?
15 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - Scope of the IGA (cont.)
Main effected products (financial account categories):
(1) Depository account
•Any commercial, checking, savings, time, or thrift account, or an
account that is evidenced by a certificate of deposit, thrift certificate,
investment certificate, certificate of indebtedness, or other similar
instrument.
•What about secured credit cards?
(2) Custodial account
• Any account for the benefit of another person that holds any financial
instrument or contract held for investment.
• What about treasury transactions?
16 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - Scope of the IGA (cont.)
(3) Equity, or debt interest in an investment entity
• Any equity or debt interest (other than interests that are regularly traded
on an established securities market) in an investment entity
• What about interest in fund management entities?
(4) Cash value insurance contract, annuity contract
•Cash value insurance in an insurance contract (other than an indemnity
reinsurance contract between two insurance companies) that has a
Cash Value greater than $50,000
•Annuity Contract is a contract under which the issuer agrees to make
payments for a period of time determined in whole or in part by reference
to the life expectancy of one or more individuals
17 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 1 Annex 1
General rules of due diligence
•FFIs may use the rules of the Regulations instead of the rules of the IGA
provided that Romania permits the use of this rule
•The election can be made separately for each section, and separately to any
clearly identified group of accounts
Rules of the client due diligence
•Due diligence of preexisting accounts (accounts opened prior to 1 July, 2014) is
required
•The procedure of client due diligence is different in the case of individual and
corporate, existing and new clients
18 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 1 (cont.)
Annex 1 (continued)
Special rules and definitions
•Active/ passive NFFE definition
•Account balance aggregation rules
•Currency translation rules
•Documentary evidence rules
19 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 2
Annex 2
•According to the version released on May 9, 2013 the exempted entities and
products can not be listed country by country.
• It contains general terms, which are very similar to the categories in the
FATCA Regulations.
•This part is the most flexible part of the IGA.
• In the course of the negotiations the requirements can slightly be modified in
order to cover country specific institution and products.
20 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 2 (cont.)
Annex 2 - Exempt beneficial owners
Main categories of exempted institutions
•Governmental entity
• International organization
•Central bank
•Retirement funds:
There are three type of the retirement funds: (1) treaty qualified retirement
fund, (2) broad participation retirement fund, (3) narrow participation
retirement fund
Private retirement funds, mutual funds can be treated as exempted entities if
they are covered by the DTT, or fulfill the requirements of the other 2
categories
In the Hungarian version of the IGA the definition of the broad participation
retirement fund was modified in order to be able to treat these entities as
exempted beneficial owner
21 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 2
Annex 2 - Deemed-compliant FFIs
•Purpose of the deemed-compliant category is to ease the compliance of small
local market players that do not present a high risk of being used to evade tax
•The fulfillment of the FATCA requirements is easier for these categories
•As a general rule they do not have to register, and they have no reporting
obligation
•Main categories:
Financial institution with local client base
Local bank
Financial institution with only low-value accounts
Qualified credit card issuer
Certain investment entities
22 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 2
Annex 2 - Deemed-compliant FFIs (cont.)
Sponsoring, sponsored FFI categories
• Special status for investment funds, trusts
• Sponsoring entity (e.g. fund management entity) and sponsored entity (e.g.
investment fund) have to agree that the sponsoring entity fulfills the FATCA
requirements on behalf of the sponsored entity.
• Main categories:
Sponsored investment entity
Sponsored, closely held investment vehicle
23 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of IGA Regime - IGA Annex 2
Annex 2 - Exemptions from the financial account definition
• Exempted accounts are products which present a low risk for being used for
avoiding tax.
1) Two types of savings accounts: retirement and pension accounts
and certain tax-favored products.
2) Certain term life insurance contracts which are not appropriate for
investment purposes.
3) Accounts held by an estate
4) Escrow account
• In the Hungarian version of the IGA, the definition for saving accounts was
modified in order to be able to treat products as exempted where there is no
limit set by law for the annual contribution.
24 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Hungarian IGA
25
• The main part and Annex 1 were not modified
• There are minor modifications in Annex 2
Modifications in Hungarian Annex 2:
Broad Participation Retirement Fund:
• Based on Model IGA fund members should be current or former employees, in
the Hungarian IGA there is no such limitation
• Annual reporting requirement about the fund members is modified as in
Hungary retirement funds report to the supervisory authorities
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Hungarian IGA – cont
26
Non-Retirement Savings
Accounts:
• State-subsidized products are also
included
• Withdrawals can be made for
residential and social purposes as
well
• Requirement for the annual
contribution limit was modified – if the
annual contribution does not exceed
$50,000 the requirement is fulfilled
Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
Steps of the development of the legal
environment for FATCA compliance through
Hungary’s example • Signing IGA with the US and incorporation of the signed IGA into domestic law
• Prepare and adopt the amendments in the relevant regulations to enable the
FATCA compliance and to eliminate the potential conflicts
• Acts to be amended in Hungary:
o Act on the Capital Market
o Act on Insurance Institutions and the Insurance Business
o Act on Investment Firms and Commodity Dealers, and on the Regulations
Governing their Activities
o Act on Credit Institutions and Financial Companies
o Act on Certain Rules of International Public Administration Cooperation in
Tax and Other Social Contributions
• Determine the additional roles and task of the Hungarian Tax Authority (e.g.:
preparation of the forms and detailed instructions for the reporting)
27 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
OECD’s Model of Competent Authority Agreement and Common Reporting Standard Model
28 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
OECD’s Model of Competent Authority Agreement and Common Reporting Standard Model
• On February 13, 2014 OECD released global standard for automatic exchange
of financial account information
• Purpose of the OECD standard: co-operation between tax administrations to
fight against tax evasion
• Two components:
The Model CAA (Competent Authority Agreement) contains detailed rules
on the exchange of information
The Model of CRS (Common Reporting Standard) contains the reporting
and due diligence rules to be imposed to financial institutions
• The CAA can be executed within existing legal frameworks, the CRS will need
to be translated into domestic law
29 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
The main aspects of CRS:
• Reportable accounts are defined as
accounts held by residents in the Reportable Jurisdiction; and
by Passive Non-Financial Entities with controlling reportable persons
(looking through passive entities to report on the individuals that ultimately
control these entities is required)
• The financial information to be reported with respect to Reportable Accounts
includes
all types of investment income
account balances; and
sales proceeds from financial assets
30 © 2014 Deloitte Hungary
OECD’s Model of Competent Authority Agreement and Common Reporting Standard Model
Foreign Account Tax Compliance Act (FATCA) Workshop
Next steps:
• The standard will be complemented by detailed commentary and technical
solutions to implement the actual information exchange
• It is planned that the commentary and the technical solutions will be delivered
for the September G20 Finance Minister Meetings
• Countries will need to change their domestic legislation to adopt the CRS and
conclude CAAs with other participating countries based on the model CAA
• Financial institutions will need to introduce necessary changes to IT systems
and client on-boarding procedures for implementing CRS
31 © 2014 Deloitte Hungary
OECD’s Model of Competent Authority Agreement and Common Reporting Standard Model
Foreign Account Tax Compliance Act (FATCA) Workshop
FATCA
requirements and
practical issues
32 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
FATCA requirements
for FFIs
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Overview of the FATCA requirements
Registration
Due diligence of clients
Reporting
Withholding
FATCA classification of group entities
34 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Company
group
Registration
FFI NFFE
Pre-existing accounts
(Entity / Individual)
New accounts
(Entity / Individual)
Accounts held
by a Non-
participating FFI
US accounts
30%
withholding tax
Non-US
accounts
Deadlines for
FATCA
requirements
35 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
FATCA requirements have been pushed back by 6 months by the IRS (Notice 2013-43), July, 2013
Registration
• New registration deadline is April 25, 2014
Due diligence of clients
• Due diligence of preexisting accounts (accounts opened prior to July 1, 2014) July 1, 2014 - June 30, 2016
• New client identification process from July 1, 2014
Reporting
• 9th month following the given year is the deadline for the data exchange between the Countries
• No reporting is required for 2013
• First reporting is due by 2015 related to 2014 (year end balance)
Withholding
• U.S. source FDAP income from July 1, 2014
• Gross proceed and foreign passthru payments from January 1, 2017
Deadlines for FATCA requirements
36 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
FATCA Compliance Action Items 2013 2014 2015 2016 2017
Registration on the FATCA portal (IRS)
FFIs begin new customer onboarding
according to FATCA
FFIs begin remediation for existing
customers meeting FATCA criteria
Begin FDAP income withholding
Begin account and balance reporting
Begin gross proceeds withholding
Begin income reporting (e.g. interests,
dividends)
Begin foreign passthru payments
withholding
Begin gross proceeds reporting
Timing of the FATCA requirements
37
25 April 19 Aug
15 Jul 25 Oct
1 Jan
30 June
1 Jan
30 June 30 June
31 Dec
1 Jan
1 July
* 31 May
1 Jan
* 31 May
1 Jan
* 31 May
Actual deadlines
Original deadlines
Reporting (* based on UK MOU) Withholding Onboarding Program management
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Determination of
FATCA impact
38 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
Overview of the FATCA requirements
Registration
Due diligence of clients
Reporting
Withholding
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
FATCA classification of group entities
39
Company
group
Registration
FFI NFFE
Pre-existing accounts
(Entity / Individual)
New accounts
(Entity / Individual)
Accounts held
by a Non-
participating FFI
US accounts
30%
withholding tax
Non-US
accounts
Determination of FATCA impact
• As FATCA requires group level
compliance, FATCA impact must be
determined with respect to each members
of the group.
• Group members must be classified as FFI
or NFFE
• Foreign Financial Institutions, FFI
The four main FATCA specified financial
institution categories are applicable.
• Non-financial Foreign Entities, NFFE
Any other foreign (non-US) entity that is
not a financial institution.
40 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
Group level compliance
• Any member of an expanded affiliated group identified as an FFI must be participating
FFIs, deemed-compliant FFIs, or limited FFIs.
• Each FFI that is a member of an expanded affiliated group must register with the IRS
(except for certified-deemed compliant FFIs), and
• agree to all the requirements for the status for which it applies with respect to all of the
accounts it maintains.
• If a group member is non compliant with FATCA, then this makes the entire group non-
participating, unless, the respective group member has a limited FFI status.
Practical issue
• Is this rule applicable under the IGA?
Expanded Affiliated Group for FATCA purposes
© 2014 Deloitte Hungary 41 Foreign Account Tax Compliance Act (FATCA) Workshop
Effect of FATCA for entities which are not group members for FATCA
purposes
• FATCA compliance of entities outside the expanded affiliated group does not influence
the FATCA compliance of the group.
• Based on the Regulations, in the case of entities which are not part of the expanded
affiliated group, however qualify as FFIs under FATCA (e.g. funds, insurance entities) the
advantages/ disadvantages of becoming a participating FFI should be considered on a
single entity level under the Regulations.
Practical issue
• Is this rule applicable under the IGA?
© 2014 Deloitte Hungary 42 Foreign Account Tax Compliance Act (FATCA) Workshop
Expanded Affiliated Group for FATCA purposes
Overview of the FATCA requirements
Registration
Due diligence of clients
Reporting
Withholding
FATCA classification of group entities
Company
group
Registration
FFI NFFE
Pre-existing accounts
(Entity / Individual)
New accounts
(Entity / Individual)
Accounts held
by a Non-
participating FFI
US accounts
30%
withholding tax
Non-US
accounts
44 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Registration Process – general rules 1/2
• FFIs are required to register
• The registration can be done by filling out a paper form ('Form 8957') or
electronically through IRS’s portal
• FFIs must nominate a Responsible Officer ('RO'), who will be the
representative/contact person of the FFI with respect to the FATCA
requirements. The RO may designate five Point of Contacts ('POCs')
• IRS will issue Global Intermediary Identification Numbers ('GIIN') to
registered FFIs
• IRS will continuously (monthly) release an IRS FFI list containing GIINs of
registered FFIs (first list will be released in June, 2014)
45 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Registration Process - general rules 2/2
• The deadline for FFIs to register to appear on first IRS FFI list is
April 25, 2014
• FFIs operating in a country which signed a Model 1 IGA should not be
negatively discriminated until January 1, 2015 due to the lack of GIIN.
GIIN. According to Announcement issued in January 2014 – the registration
deadline is December 22, 2014
• FATCA classification of FFIs should be also indicated (e.g. participating FFI,
registered deemed compliant FFI, limited FFI)
• FIs resident in a Model 1 IGA country should register as registered deemed
compliant FFI
46 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Registration electronically through IRS’s portal
• The FATCA registration portal is available as of August 2013
• Detailed user guide is available for the registration on the website of the IRS
• From January 1, 2014 the registration can be submitted as final
• As first step of the registration, account should be created, for this (1) access
code should be chosen, (2) after that the system will assign a FATCA ID
• FATCA ID and access code is needed for entering the registration portal
47 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Registration of an FFI group
• In case of a group with more FFI members, Lead FFI should be designated
• It is possible to designate more than one Lead FFI, and to create
subgroups under different Lead FFIs
• Lead FI has to create an online FATCA account for its Members
1) Lead FFI obtains own FATCA ID
2) A Lead FI generates FATCA ID for Member FIs by providing identifying
information about its Member FIs (legal name, country of residence,
FATCA classification)
• Reporting FI under a Model 1 IGA must register prior to July 1, 2014 if it
intends to be a Lead FI for one or more Member FIs in countries which are not
covered by Model 1 IGA jurisdictions
48 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Registration of an FFI group
49 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Registration of a branch of an FFI
• The FFI can obtain GIIN for its
branches
• There is no need for separate
registration
• Deadline of the registration: If the
FFI has a branch in a country with
no Model1 IGA, the FFI should
obtain for GIIN prior to July 1,
2014 in order to avoid any
negative effect
50 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
Registration of a branch of an FFI
51 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Due diligence of clients
52 Foreign Account Tax Compliance Act (FATCA) Workshop © 2014 Deloitte Hungary
Overview of the FATCA requirements
Registration
Due diligence of clients
Reporting
Withholding
FATCA classification of group entities
Company
group
Registration
FFI NFFE
Pre-existing accounts
(Entity / Individual)
New accounts
(Entity / Individual)
Accounts held
by a Non-
participating FFI
US accounts
30%
withholding tax
Non-US
accounts
53 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Client identification
General rules
• Purpose of the client due diligence process is the identification of
1) US Reportable Accounts
Accounts of Specified US persons,
Passive NFFEs with Specified US controlling persons
2) Accounts held by Nonparticipating Financial Institutions
• The account identification process is different for pre-existing accounts
(exists on June 30, 2014.) and for the new accounts (opened on or after
July 1,2014).
• The IGA sets different identification processes for entity and
individual clients.
54 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
• Specified US persons:
1) a US citizen or tax resident individual
2) entity clients organized in the United States or under the laws of the United Stated
which do not fall into the exempted US person category (e.g. publicly traded US
entities, US governmental entities, US financial institutions, US nonprofit entities).
• Passive NFFEs
• At least 50% of the NFFE’s gross income is passive income or at least 50% of the
assets held by the NFFE are assets that produce or are held for the production of
passive income.
• Controlling person
• The natural persons who exercise control over an Entity.
• The term “Controlling Persons” shall be interpreted in a manner consistent with the
Financial Action Task Force Recommendations
55 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Client identification
General rules
Due diligence of pre-existing individual clients
• Pre-existing account: accounts opened prior July 1, 2014
• Exemption from due diligence
Accounts with an aggregated balance not exceeding $50,000 on June 30,
2014 do not need to be reviewed, identified or reported
The threshold is $250,000 in case of cash value insurance and
annuity contracts
The exemption rule can be applied to all accounts, or to clearly identified
group of accounts
Yearly remediation is required – if the balance of the exempted account
exceeds $1,000,000 at 31 December of any subsequent year are subject
to high value account due diligence
First yearly remediation has to be done in 2015
57 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Practical challenge - Aggregation rules
• The aggregation is driven by the IT system, aggregation is required if the
computerized system link accounts by reference to a data element
such as client number, or tax number
• If the IT system is able to link the accounts of the client held by
different members of the affiliated group aggregation is a must
• If due to domestic rules such „transfer of data” (i.e. account balance) is
not possible de minimis rules cannot be applied and all preexisting
individual accounts should be deemed to qualify as high-value account
subject to enhanced review
• Other group members using separate systems may apply de minimis
rules irrespective of the above (provided that there is no unique data
element based on which they can link accounts)
58 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Steps of the due diligence
1) Electronic or paper-based search
(depending on the account balance)
for US indicia.
2) If US indicia is found, further information
must be requested (self-certification and/ or
documentary evidence).
3) Flagging the accounts as 'reportable US
account' or as
'non-reportable account'.
59 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Due diligence of pre-existing
individual clients
© 2014 Deloitte Hungary
• US citizenship, US tax residency
• US place of birth
• US address
• US phone number
• Sole address on record with FFI is U.S. 'in-care-of ' or ' hold
• Power of Attorney granted to person with US address
• Standing instructions to transfer funds to account maintained
in the USA
© 2014 Deloitte Hungary 60 Foreign Account Tax Compliance Act (FATCA) Workshop
US Indicia
Due diligence process of lower value accounts
• Lower value accounts: accounts with an aggregated balance exceeding $50,000
but not exceeding $1,000,000 as of June 30, 2014
• FFI must review its electronically searchable data for US indicia
• The review of such accounts must be completed by June 30, 2016
• Yearly remediation – if the balance exceeds $1,000,000 at 31 December of any
subsequent year are subject to high value account due diligence
• Change in circumstances should be monitored
61 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Due diligence – lower value accounts
Due diligence – high value accounts
Due diligence process of high value accounts
• Accounts with an aggregated balance exceeding $1,000,000 June 30, 2014
• In addition to the electronic search, FFI must perform a paper search for US
indicia, and relationship manager inquiry
• The review of such accounts must be completed by June 30, 2015.
• No yearly remediation is required
• Change in circumstances should be monitored, in the monitoring process the
relationship manager should be involved
62 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
New accounts: accounts opened on or after July 1, 2014
• Exemption from due diligence
• Depository accounts not exceeding $50,000 at the end of any calendar
year
• Case value insurance contracts not exceeding $50,000 at the end of any
calendar year
63 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Client identification of new individuals
Steps of the client identification
1) The client has to provide self-certification to prove the US / non US
status.
2) FFI should confirm the reasonableness of the self-certification.
3) If the account holder is US resident, US TIN must be obtained.
4) If no valid self-certification is obtained, the client should be treated as
US reportable account.
5) Change in circumstances should be monitored.
Practical questions
• What should be the form and content of the self-certification?
• How should we check the reasonableness of the self-certification?
• How should we treat the new account of preexisting clients?
64 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Due diligence of individual clients
Passive NFFEs
Entity clients – FATCA statuses
Overview
Entity clients
US person Non-US person
FFI (foreign financial
institution)
Passive NFFE Active NFFE
NFFE (non-financial
foreign entity)
Non-specified US
person (exempted
from reporting)
Passive NFFE – no
US controlling
person
Specified US
person
Passive NFFE –
with US controlling
person
Participating
FFI
Nonpartici-
pating FFI
Deemed
compliant FFI
Exempt
beneficial
owner
66 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Due diligence of pre-existing entity clients
• Pre-existing account: accounts opened prior July 1, 2014
• Exemption from due diligence: accounts with a balance of $250,000 or less,
until account balance exceeds $1,000,000
• Steps of the due diligence
1) Determine whether the clients is a Specified US person based on the place of
incorporation/ organization, or address
2) Determine whether the non-US clients are financial institutions and the FATCA
status of the FFI clients (i.e. participating, nonparticipating, exempt beneficial
owner, deemed compliant)
3) Determine whether the non-financial foreign entities are active/ or passive
NFFEs
Practical questions
How should be determined the passive/ active NFFE status?
67 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Due diligence of pre-existing entity clients
4) Determine whether the passive NFFEs have US/ non-US controlling person
In case accounts below $1,000,000, FFI may rely on information collected
for AML/KYC due diligence to identify the status of the controlling person
Above $1,000,000 self-certification should be obtained
• The review of such accounts must be completed by June 30, 2016
68 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Client identification of new entity clients
• New accounts: accounts opened on or after July 1, 2014
• Exemption from due diligence
Credit card account or a revolving credit if the Financial Institution
maintaining such account implements policies and procedures to prevent
an account balance owed to the Account Holder that exceeds $50,000
Steps of the due diligence
1) Obtain self certification to determine whether the clients is a Specified
US person
2) Determine whether the non-US clients are financial institutions and the
FATCA status of the FFI clients (i.e. participating, nonparticipating, exempt
beneficial owner, deemed compliant)
3) Determine whether the non-financial foreign entities are active or passive
NFFEs
4) Determine whether the passive NFFEs have US/ non-US controlling person
69 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of the FATCA requirements
Registration
Due diligence of clients
Reporting
Withholding
FATCA classification of group entities
Company
group
Registration
FFI NFFE
Pre-existing accounts
(Entity / Individual)
New accounts
(Entity / Individual)
Accounts held
by a Non-
participating FFI
US accounts
30%
withholding tax
Non-US
accounts
71 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Phased in gradually between 2014 and 2017
Reporting in 2015 (with respect to 2014) • Participating FFI’s are required to report the following for U.S. accounts:
Name
Address
TIN
Account number
Year end account balance
In case of passive NFFEs with US controlling person the name, address and
TIN of the controlling person
Reporting in 2016 (with respect to calendar year 2015) • In addition to the above elements, FFI’s must also report income associated with
U.S. accounts
• Payments made to nonparticipating FFIs
Reporting in 2017 (with respect to calendar year 2016) • In addition to the above elements, FFI’s required to do full reporting, including
information on gross proceeds from broker transactions
Reporting Obligations
72 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Overview of the FATCA requirements
Registration
Due diligence of clients
Reporting
Withholding
FATCA classification of group entities
Company
group
Registration
FFI NFFE
Pre-existing accounts
(Entity / Individual)
New accounts
(Entity / Individual)
Accounts held
by a Non-
participating FFI
US accounts
30%
withholding tax
Non-US
accounts
74 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
• Not complying with the FATCA regulations may result 30% withholding from the
US source payments
• Withholding – The FFIs not complying with the FATCA will be affected
• Withholding may apply to payments made as of or after July 1, 2014. Transition
rules are in force between 2014 and 2017. The final system will be working
from 2017
• Withholding before 2017 concerns only the US payees
• The FFIs in IGA countries are not obliged to withhold. However, they need to
provide information for the US payees in respect to the FATCA status of the
entitled of the payments
Withholding General rules
© 2014 Deloitte Hungary 75 Foreign Account Tax Compliance Act (FATCA) Workshop
US Source FDAP: Fixed, determinable, annual and periodic income
• Includes any payment of interest, dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other fixed or
determinable annual or periodical gains, profits, and income
Gross proceeds:
• Sale, exchange, or disposition of property that produces or can produce
interest or dividend payments that would be subject to U.S. source FDAP
income
• Includes sales of securities; stock redemptions; retirement and redemptions of
indebtedness; entering into short sale; closing a forward contract, option, or
other instrument that is otherwise a sale; corporate distribution consisting of
capital gains, etc.
Withholdable Payments
© 2014 Deloitte Hungary 76 Foreign Account Tax Compliance Act (FATCA) Workshop
Phased in gradually between 2014 and 2017
July 1, 2014
• Withholding starts on income payments
• FDAP (Fixed, Determinable, Annual, and Periodic): Includes U.S. sourced
interest, dividends, OID, rents, royalties
January 1, 2017
• Withholding will be expanded to include gross proceeds as well as income
payments
• Gross proceeds from the sale of property that generates U.S. sourced
interest or dividends
January 1, 2017
• Earliest date required to apply withholding on Foreign passthru payments
(pending further guidance)
Withholding
77 © 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
Deloitte Hungary contacts
78
Takács Enikő
Manager
Phone: +36 1 428 6491
Mobile: +36 (30) 311 6945
E-mail: [email protected]
Winkler László
Director
Phone: +36 1 428 6683
Mobile: +36 (20) 582 1301
E-mail: [email protected]
© 2014 Deloitte Hungary Foreign Account Tax Compliance Act (FATCA) Workshop
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