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International Finance Group Seeks Resolution to Issues, Better Coordination Under FATCA Regs

AUG. 2, 2013

International Finance Group Seeks Resolution to Issues, Better Coordination Under FATCA Regs

DATED AUG. 2, 2013
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August 2, 2013

 

 

Mr. Mark Mazur

 

Assistant Secretary for Tax Policy

 

U.S. Department of Treasury

 

Washington DC, USA

 

Re: Public -- Private Sector Dialogue on FATCA

 

Dear Mr. Mazur:

The Institute of International Finance (IIF) would like to take the opportunity to provide further views on behalf of the international financial industry on the final FATCA regulations and related information reporting by foreign financial institutions (FFIs) finalized by the Internal Revenue Service (IRS) on January 17, 2013.

Although the IIF does not normally comment on national tax regulations, the Foreign Account Tax Compliance Act (FATCA) has such international significance as well as implications for the global financial system that an exception seemed in order.

The IIF supports the goal of FATCA to prevent tax evasion and reiterates the willingness of the financial industry to work with authorities in pursuing this goal. At the same time, the IIF welcomes the IRS's acknowledgement that implementation of FATCA provisions presents a significant undertaking for financial institutions and appreciates the efforts made by the IRS and Treasury to address industry concerns. We particularly acknowledge Notice 2013-43, issued on July 12, 2013, revising timelines for FATCA implementation and providing additional guidance on the treatment of financial institutions located in jurisdictions that have signed intergovernmental agreements for the implementation of FATCA. This Notice, and the amended regulations that it provides notice of, is very welcome and addresses a good number of our concerns.

However, despite these important steps, as I am sure that you are aware, a number of important issues remain unresolved (detailed below). In order to address these, we are also respectfully making a proposal on how to promote a more effective coordination process and exchange of views between the U.S. authorities and the industry, outlined in more detail below. And, while we appreciate the extension of implementation timelines, our members tell us that timing is still a concern for jurisdictions in Africa as the awareness of FATCA and its implications has been very low. Our remaining concerns are on:

  • Need for IGA Implementation Guidance: We understand the Treasury's emphasis on the importance for jurisdictions to sign IGAs and solve many of the issues at a bilateral level. There is however a strong need for internationally consistent guidance on how to implement IGAs. In particular, without a harmonized approach, the consequences of implementing FATCA across jurisdictions will be multiple and inconsistent compliance regimes, which could be counterproductive in combating tax evasion and create unnecessary burdens on international transactions because of the challenges of sorting through different requirements for different clients and counterparties. This will naturally create further compliance risk for firms.

  • Withholding: We have a general concern on the withholding process, both with regard to the interpretation of definitions and with regard to implementation. Despite the revised timeline for implementation, compliance with FATCA rules for capital markets transactions and interaction with clearing houses, especially where payment is made to the clearing house, (which distributes payments to underlying intermediaries and beneficial owners) needs further clarification and guidance.

  • Affiliated Group Compliance: FATCA requires FFIs to be compliant on an affiliated group basis. From July 2016, an FFI can only be compliant with FATCA if its entire affiliated group is compliant. An FFI benefiting from an IGA is permitted under certain circumstances to have affiliates or branches that are non-compliant because of local law restrictions prohibiting compliance. However, such an FFI must treat those affiliates or branches as non-participating FFIs, or transfer their U.S. account/activities over other compliant affiliates. Furthermore, an FFI in a non-IGA jurisdiction is not allowed to do so and a non-compliant FFI would taint a group's overall compliance status. These conditions will create a dilemma for financial institutions operating in a mixture of IGA jurisdictions and non-IGA jurisdictions where FATCA compliance is legal, and non-IGA jurisdictions where FATCA compliance is illegal, with potential harmful effects of Limited FFI status. Similarly, there is considerable ambiguity about registration of affiliates, especially where a jurisdiction's intent as to signing an IGA is unclear.

  • Further Implementation Guidance: There is still no guidance on many aspects relevant for FATCA implementation, including guidance for Dividend Equivalent Payments, IRC QI-Alignment and registration. For business implementation, this increases the risk of not being compliant on time. We would be grateful if you could address this. Agreement on FFIs and revision of the QI agreement would help here as would final versions and instructions to the revised W8 forms series, as these are a critical part of an organisation's understanding as to what it should program.

  • Responsible Officers (RO): Firms remain concerned about the need to appoint a so-called responsible officer (RO) to make periodic certifications to the IRS about the FFI's compliance with its agreement. Our members feel that the description of the legal responsibilities and duties of the person occupying that role is insufficiently clear and comprehensive and would therefore make it very challenging to recruit people.

  • In addition, given that the function of the RO is not mentioned under Model Intergovernmental Agreement 1 (M-IGA 1), it is unclear to our members whether [FATCA Partner] FIs under an IGA 1 have to create a specific RO position. We assume that appointing ROs under M-IGA 1 is not mandatory but further clarity would be useful. We would also welcome confirmation that "signature under penalties of perjury" for any ROs in M-IGA 1 countries will only serve for registration purposes and will not extend to FATCA compliance in general.

    We are also concerned at the requirement in Form 8957 for the lead FFI RO to have responsibilities over all entities in the group, particularly when the lead FFI is an IGA 1 country. We believe that this would be duplicative and confusing given the possibility that the Group might include subsidiaries and branches in jurisdictions which have not signed an IGA. We hope that you will consider removing this obligation and replacing it with the more practical requirement to state that the list of entities in the Group is complete.

  • Registration process. A global, homogenous and standardized solution is very important, especially for international institutions, in order to be able to set-up organizational instructions on registration within a group. We therefore hope that you will confirm the possibility to choose between a centralized approach (head office registers for all entities) or a decentralized one (each entity registers for themselves) within an expanded affiliated group (EAG). A multitude of different national registration portals that might differ with respect to processes and logics must be avoided. Furthermore, it needs to be clarified briefly, if [FATCA Partner] FIs under M-IGA 1 will be required to register with the IRS, even they might be already registered with their national tax authority.

  • We also recommend that the efficiency of FFI registration could be increased significantly if you were to put in place the following:

    • Simplified registration requirements;

    • Reducing the registration effort for multinational firms with thousands of legal entities and branches, e.g., allow the upload of Excel sheets or other batch processes to facilitate the registration process for multinational companies;

    • As noted above, clarifying whether ROs in M-IGA 1 will be required; and

    • Ensuring consistent implementation of the registration process among all FATCA regimes.

One final concern is on transitional provisions. As currently written, there are specific reporting requirements that will apply for 2015 and 2016 alone. In order to comply with these, firms will have to put in place new reporting systems at substantial cost for these two years alone and at a level that would outweigh any benefits that would be gained. A further problem is a lack of detail in the definition of the requirements. This would not only increase the implementation burden and compliance risk for international FFIs, but could also make the reported numbers highly inconsistent and difficult for IRS to interpret. We are sure that this is not the intent, and hope that you will reflect on whether such requirements are indeed necessary or whether an alternative solution can be found. Alternatively the discussions between the industry and the Treasury and IRS proposed below could find ways to mitigate the problem.

Proposal

While the concerns and challenges outlined above are significant, we believe that a closer and more efficient dialogue with financial institutions could alleviate and address a number of such concerns. The IIF and its members would therefore welcome the opportunity to work with the U.S. Treasury and IRS to address the multiple and complex issues raised by FATCA.

In this regard, we would like to propose the establishment of a permanent private/public sector joint FATCA group, aimed at institutionalizing prior FATCA consultation processes, thereby ensuring an effective exchange of views and information between the Treasury, the IRS, and the industry with the goal of improving the implementation process. Such a group could also discuss the implications of the related work mandated by the G8 and G20 on tax information exchange. Regular meetings of international industry participants with the Treasury and IRS would, in addition to addressing FATCA-specific questions, contribute to feeding practical information into the regular meetings that take place with the OECD Business and Industry Advisory Committee. Given the more restricted membership of the latter committee, additional views and the perspectives that dialogue with the IRS and Treasury would generate would be beneficial to international consideration of these issues.

Meanwhile, should you need additional information on the issues raised in this letter, please do not hesitate to contact Crispin Waymouth at cwaymouth@iif.com or 202 682 7447.

Sincerely,

 

 

[signed]

 

Institute of International Finance

 

Washington, DC
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