FATCA is important: it is going to affect our business lives and we have no choice but to accommodate it.
It is an American piece of legislation, the Foreign Account Tax Compliance Act, which seeks to target the accounts of American citizens overseas. Even if you have no American clients, you will still be affected.
What has American legislation to do with us? The legislation requires payments of income from the US to suffer withholding tax at a punitive rate of 30% unless it is made to a registered person. It is not just American legislation; as a result of the UK-US intergovernmental agreement it was introduced into UK legislation by section 222 Finance Act 2013 and supporting legislation. As already stated, even if you have no American clients, you will still be affected.
Your practice All UK entities are subject to the UK rules, and they will be asked for their FATCA status, together with the usual money-laundering and client identification processes when dealing with financial institutions, and will need to be familiar with the detailed requirements.
You must appoint a reporting person who will carry the responsibility for reporting, identifying and recording US persons and payments to or for them. This is not as easy as it may seem; suppose your clients form a trust for their grandson. His father’s employer sends him to America to work for a few years. He will have permission to work in the US (green card) and his family and any trust distributions will come within the FATCA provisions.
You must review your practice and identify your practice for any Financial Institutions (FIs) and register them for a Global Intermediaries Identification Number (GIIN).
Make any necessary changes to your:
engagement letters – it is important that these set out clearly the scope of your work. If you are acting for a trust or other FI, you must make it clear whether or not you are assuming responsibility for any FATCA work for them. You should also make it clear that the client is responsible for informing you of any change to their FATCA status or American connections. The letter must also deal with data protection issues as it may be necessary for you to share details of the client’s FATCA status and GIIN with other financial institutions and make reports to HMRC
client acceptance: the usual know-your-client information will need to be supplemented by enquiries as to whether the client has any US connections. You are required to ensure that you have current ID for each client and must consider how this can be monitored. Changes of circumstance may impact upon the FATCA status. Members or their employees must carry out an annual check as part of the accounts or tax return work
Client identification guidance is determined by US indicia which include:
US citizenship or lawful permanent resident (green card) status
A US birthplace
A US address
Standard instructions to transfer funds to an account in the US
A ‘care of’ address in the US
A power of attorney granted to a person in the US.
These are not conclusive evidence that an account is owned by a US person, but mean that it must be given closer scrutiny.
Having established whether you have US clients, the acceptance and monitoring systems must be updated on a regular basis. You should also realise that if you have a computer searchable database, its integrity could be examined in compliance checks.
If there is no computer database, paper records such as copy passports etc. must be maintained, but unlike the money laundering records, should constantly be maintained up to date.
Reporting the actual payments should be considered when the UK reporting process has been established. Staff training on FATCA, as with anti-money laundering, will be essential.