KPMG ROMANIA SRL

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SERBAN TOADER

  |  25.03.2013

The final FATCA regulations and financial institution preparedness

With the Final Regulations having been issued, the preparations for implementing the FATCA provisions have entered the home stretch; still, the level of readiness among financial institutions varies greatly.

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KPMG ROMANIA SRL

SERBAN TOADER

SERBAN TOADER

SENIOR PARTNER ROMANIA SI MOLDOVA at KPMG ROMANIA SRL

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These provisions deal with the issue of tax evasion by U.S. taxpayers using foreign accounts. At the same time, publication in the official journal corresponds with the coming into force of the Final Regulations, bringing about far-reaching implications for the financial services industry.
 
 
The issuance of the Final FATCA Regulations is a long-awaited event at global level, both by financial institutions, as well as national governments, as it represents a key step in the achievement of a common approach at intergovernmental level to combating international tax evasion. These guidelines offer a better understanding for organizations with regard to their roles under the new regime, and thus enable planning and implementation efforts that have been, up to the present, uncertain and irresolute.
 
 
FATCA represents a series of information reporting and withholding tax provisions published on 18 March 2010 by the IRS as part of the HIRE Act (Hiring Incentives to Restore Employment Act), adding new clauses to the United States Internal Revenue Code. According to FATCA, foreign financial institutions (FFIs) are required to report to the IRS certain information with respect to U.S. accounts or accounts held by entities with substantial U.S. ownership. Recalcitrant individuals and FFIs not participating in FATCA will be penalized by having 30 percent of certain U.S.-source payments made to them withheld. The US Department of the Treasury has reached out to governments across the world, stating that there are more than 50 countries engaged in discussions to implement FATCA through intergovernmental agreements (IGAs).
 
 
Against this backdrop, KPMG International conducted a survey between May and August 2012 of 129 executives at financial institutions that fall under the scope of FATCA, of which 57 percent are headquartered in the United States and 43 percent are headquartered in other jurisdictions. The respondents comprised global banks (32 percent), insurance companies (22 percent), regional banks (19 percent), asset management companies (9 percent) and other organizations (18 percent) such as global investment banks and brokers/dealers, securities companies and transfer agents. The survey participants answered a number of questions, focused mainly on non-tax technical issues, to ascertain what planning and implementation actions they are taking in readiness for FATCA, the resources they are committing, and the challenges they face.
 
 
The FATCA provisions affect a broad swathe of the financial sector. Almost all the organizations surveyed (93 percent) believed the Act would apply to their company. Most of these (89 percent) had started taking some sort of steps towards achieving compliance. However, the level of preparedness varied, with action having been centered primarily on undertaking an impact assessment. Some organizations had gone further, with 11 percent in the process of revising policies, procedures and systems, at that time, and 10 percent building an operating model. By contrast, 12 percent were waiting for release of the final regulations before committing to further action.
 

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