Dion
Since FATCA’s introduction, there has been a slew of predictions on how the financial services industry will adapt. AST talks to Colin Camp of Dion, who explains that things are not as bad as they might appear
What do you think of the most recent FATCA delays?
I think that there was a widespread expectation that the US IRS would delay implementation. Deadlines were coming up very fast and the requirements have still not been finalised. The Foreign Account Tax Compliance Act (FATCA) regulations are very complex and reach deep into the operations of financial firms across the world.
It seems that the key factor was the negotiations that are taking place between the IRS and many countries on Inter Governmental Agreements (IGAs), which have slowed the IRS’s ability to finalise requirements and dates. These negotiations are uncovering a number of local obstacles that need to be overcome, either through the FATCA regulations or individual IGAs. Also, the issue of reciprocity leads to an increased burden on the US financial services industry, which is something that was probably not foreseen when the regulations were drafted.
With the delay in the initial timeframes, the IRS is giving itself time for it and the various countries to iron out these issues so that timeframes for the FATCA regulations and the IGA regulations are in sync. It offers some breathing space, but it does not reduce either the scale or the complexity of the challenge ahead so it’s important that firms do not ease up in their efforts here.
Is the delay a good thing for a solutions provider?
Dion has spent a significant amount of time understanding the requirements and building our solutions to ensure that they are configurable and flexible enough to cater for future changes. Consequently, these solutions are ready to go whenever the regulations are confirmed.
It’s important for everyone to have the regulations confirmed as soon as possible. However, experience has taught us just how complex the implementation of such regulations can be.
One thing is certain though—the delay means financial firms will follow one of two paths. Some will push the requirements to one side for six months or so, potentially returning to them no further down the line than they are now, but with a significantly shorter timeframe in which to get systems and procedures in line with the requirements. Others—the smarter firms—will use the time to think about what solution needs to be deployed strategically to handle the uncertain future, rather than implementing a tactical solution that will need to be changed before too long.
The advisory firm deVere Group said that it had seen an increase in Americans renouncing citizenship—what do you make of this?
There have been a number of statements since FATCA was introduced about financial services firms refusing US clients or, indeed, Americans renouncing their citizenship. I think that this is a classic knee-jerk reaction. People are now accepting that economic circumstances dictate that countries will focus on trying to identify any areas where they can increase their tax revenue.
In reality, once the appropriate systems are in place, these regulations should have limited impact on financial services firms.
We shouldn’t forget that the vast majority of US citizens living abroad report their taxable income as required. These laws are simply being implemented to ensure this is happening across the board.
What about foreign governments seeking a quid pro quo arrangement?
Absolutely, this is one of the main components of the IGAs currently being negotiated. It isn’t just the US government that is keen to learn where their tax payers have their wealth.
It is not unreasonable to expect that FATCA could be the first step on a global client tax identification and reporting network. If this comes to fruition, firms will need to know much more about their clients and be responsible for reporting to overseas tax bodies.
With our partner, Mahindra Satyam, we have developed two solutions with modules that can assist firms with their FATCA compliance management and checks, client data management and FATCA eligibility, withholding tax management, and reporting to the IRS, fiscal authorities, clients and MIS. Both of these solutions have been built on top of frameworks that were deployed across our client base.
Our solutions, FATCA FORCE and FATCA TRAC, have been designed from the outset to be highly configurable in order to handle both impending changes and similar taxation initiatives from other countries.
