taking control of fatca - pwc · the foreign account tax compliance act (“fatca”) is a us tax...
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Taking Control of FATCA
www.pwc.com.cy
What is FATCA?
The Foreign Account Tax Compliance Act (“FATCA”) is a US tax legislation which was enacted as part of the Hiring Incentives to Restore Employment (“HIRE”) Act in March 2010 to prevent and detect US tax evasion and improve taxpayer compliance.
FATCA forms a new chapter of the US Internal Revenue Code – Chapter 4 – and is focused on strengthening information reporting and withholding compliance with respect to US persons that invest through, or in, non-US entities, such as Cyprus resident financial institutions.
The FATCA withholding tax is coming into force as early as 2014, hence now is the time to act.
July 2013
Most financial institutions in Cyprus, including banks, Cyprus investment firms and insurance companies, are affected by FATCA. The penalties of non-compliance are significant and include a 30% withholding tax on any incoming payments relating to US-sourced income. In addition, failure to comply with FATCA may involve reputational issues which could disrupt business relationships with other financial institutions which are FATCA compliant (e.g. counterparties) and lead to loss of business.
What will FFIs need to do to comply with FATCA?
Who is impacted by FATCA?
Two broad categories of entities are impacted by FATCA:
• Foreign Financial Institutions (“FFI”): An FFI is any financial institution which is a foreign entity and is not created or organized under the laws of a possession of the United States. For this purpose, an FFI is any entity that: (i) accepts deposits in the ordinary course of a banking or similar business; (ii) as a substantial portion of its business, holds financial assets for the account of others; or (iii) is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities. Examples of FFIs include Cyprus based banks, custodians, brokers, investment funds, pension funds and insurance companies.
• Non-Financial Foreign Entities (“NFFE”): Any foreign entity that does not meet the definition of an FFI. Examples of Cyprus based NFFEs may include privately held operating businesses, professional services firms and certain other non-publicly traded entities which are not involved in banking or investment management.
FATCA requires FFIs to employ enhanced due diligence procedures in order to identify, document and report on all US persons to the Internal Revenue Service (“IRS”). In addition, FFIs must withhold and pay to the IRS, 30% of any payments relating to US-sourced income where the payment is made to either:
• A non-participating FFI; or • Recalcitrant account holders, i.e. those who have not provided sufficient
information to determine whether or not they are US persons or substantially owned by US persons.
Such “withholdable payments” include any sources of US income that is a fixed and determinable annual or periodical payment (“FDAP”), for example wages, dividends, interest, rents, royalties, or the gross proceeds from the sale of US property that is capable of producing US source interest or dividends.
The 30% withholding tax also applies to any withholdable payment paid to any NFFE unless the NFFE identifies each substantial US person that owns a direct or indirect interest (generally owners with more than 10% interest), or certifies that it has no such substantial US owners.
What will NFFEs need to do to comply with FATCA?
In general, in order to avoid 30% FATCA withholding, an NFFE (other than an excepted NFFE) must provide the withholding agent with either:
• A certification that the NFFE does not have any substantial US owners (generally owners with more than 10% interest); or
• The name, address and US Taxpayer Identification Number (“TIN”) of each substantial US owner.
Where the NFFE provides information in regard to substantial US owners, the withholding agent must report that information to the IRS.
How can PwC help?The FATCA provisions start to take effect with the registration of FFIs via the IRS FATCA Registration Portal which is scheduled to be accessible on August 19th, 2013. In addition, the 30% withholding tax will be enforced as early as July 1st, 2014 along with the requirement for enhanced account opening procedures. As a result, many financial institutions in Cyprus have already begun to prepare in response to the fast approaching deadlines as well as the operational complexities introduced by FATCA, which will need to be addressed within the context of a strategic solution.
We can help you: • understand FATCA and its impact in the context of your specific business needs • conduct a gap analysis against the FATCA requirements • assess the costs and benefits of FATCA compliance for your individual business • strategically refocus your business in the context of the FATCA requirements • implement FATCA and adapt your business systems and processes accordingly • define the FATCA related specification requirements for your individual IT platform • by providing support to reinforce your implementation efforts • by giving guidance during the testing and go-live phase of your FATCA implementation
The global PwC network of firms maintains close relationships with key stakeholders and decision makers at the US Treasury and the IRS. Our experience and expertise also give us a deep understanding of the operational implications and process changes companies will face as a result of FATCA.
To help you prepare, PwC has formed a network of FATCA specialists in key markets throughout the world, including many territories in Europe. These professionals are part of a global network of specialists that includes highly specialised tax, legal, assurance and advisory experts in the banking, insurance and asset management industry.
PwC treats every company and industry differently and distinctly. In Cyprus, our dedicated team of FATCA experts will provide you with tailored advice and support on the technical and operational consequences of FATCA as well as other regulatory changes.
Your benefits
What are the consequences of non-compliance?
Most financial institutions in Cyprus, including banks, Cyprus investment firms and insurance companies, are affected by FATCA and could face significant economic and reputational consequences if they fail to enter into an agreement with the IRS and meet the FATCA requirements.
The penalties to be imposed include a 30% withholding tax on any incoming payments relating to US-sourced income. In addition, failure to comply with FATCA may involve reputational issues which could disrupt business relationships with other financial institutions which are FATCA compliant (e.g. counterparties) and lead to loss of business.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2013 PricewaterhouseCoopers Ltd. All rights reserved. PwC refers to the Cyprus member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
George LambrouPartnerRisk Assurance [email protected]:+357 22 555 728
Elina ChristofidesSenior ManagerRisk Assurance [email protected]: +357 22 555 718
Yiannis ZarvosManagerRisk Assurance [email protected]: +357 22 555 465
PwC CyprusJulia House3 Themistocles Dervis StreetCY-1066 Nicosia, CyprusP O Box 21612, CY-1591Nicosia, CyprusTel:+357-22555 000Fax:+357-22555 001
To plan your transition, please contact:
Dr. Karl KupperPartnerFinancial Services [email protected]: +49 69 9585 5708
Mark D. OrlicSenior ManagerFinancial Services [email protected]: +49 69 9585 5038
Kathryn StruveManagerFinancial Services [email protected]: +49 69 9585 2972