Thursday, July 14, 2011
Thursday, July 14, 2011
Financial institutions must get up to speed on their US accounts before stringent accounting regulations come into force in 2013 or face serious penalties, according to tax attorney Ryan Pinder.
The Foreign Account Tax Compliance Act (FATCA) comes into force January 1, 2013, and will require foreign financial institutions (FFIs) to disclose information on all their US clients.
Speaking at the Bahamas Association of Compliance Officers’ (BACO) Money Laundering Reporting Officers (MLRO) Day, Ryan Pinder, a tax attorney with Becker-Poliakoff warned attendees: “It is essentially a regime that penalizes each and every FFI worldwide for the purposes of collecting US tax dollars. That is what we have to prepare for; there is no way to get around it and conduct international business.”
Failure to disclose details of any US transactions could render an institution liable for a 30 per cent withholding tax.
Lawrence Lewis, partner at Deloitte & Touche, who also spoke at the conference warned: “The 30 per cent is not on gains; it is actually on gross proceeds, so if you don’t sign up, what you effectively have is that every one of your [US] assets is worth 30 per cent less. That is what you are facing.”
“You cannot operate in the financial security sector against that kind of a burden. Nobody can withstand 30 per cent on gross transactions. This is not small money we are talking about.”
Both speakers stressed that not even non-traditional financial institutions can consider themselves exempt from the FATCA requirements, as the new legislation widens the scope of who can be considered a Qualified Intermediary (QI)–encompassing institutions such as brokers and investment companies.
Lewis told attendees: “Pretty much everyone gets swallowed by this. There is a wide array of organizations that get captured within the gamut of a FFI.”
“Fund administrators need to be aware of this, and broker dealers need to be aware of this. Every financial institution that touches [US] transactions,” agreed Pinder.
With the legislation coming into force in 2013, institutions were urged to prepare well ahead of time.
“January 2013 does not seem that close, but when you actually cut the timeline down of what needs to be done it is a very, very short period of time to get a lot of work done, particularly if you have to coordinate across multiple institutions,” said Lewis.
US lawmakers are still inviting comment on FATCA from various jurisdictions, publishing guidelines periodically to address concerns. Pinder called for a concerted response to these, suggesting that a Bahamian lobbying effort could submit feedback on the country’s behalf.
“We need to get together as an industry and take this seriously,” he said. “We need to identify what is important for our industry and our jurisdiction.
“The rules and procedures are not set, the legislation is in place, but the devil is in the details.”
Lewis agreed, saying: “We really do have an opportunity to impact this rule-making. Particularly with things that would unduly burden us. It is just a question of us being able to shape this into something we can at least live with.”