FATCA reporting – help is on hand

 In Tax

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FATCA reportingCan I tempt you with a slice of reporting?

At thewealthworks, we first heard of FATCA about four years ago, when an offshore client rang us and asked if we’d heard of it.  Like most private client practitioners, we a) hadn’t and b) thought, really?  Surely no-one will sign up for that!

Fast forward to 2015 and most of us are fully aware of what FATCA means and the work that has to be done to ensure compliance.  However, we have noticed a split in the camp between practitioners.  There are those for whom the word FATCA will have them rocking in a corner and those for whom it appears to have passed them by and think it’s something to do with slimming.

And would you like a side order of fries with that?

Unfortunately for practitioners FATCA is just the start, a large side-order of reporting requirements are on the horizon, unofficially known as GATCA (the Global Standard for Automatic Exchange of Financial Account Information), that will add to the already onerous list of information that has to be obtained and maintained.

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The Organization for Economic Cooperation and Development (OECD) has been developing a standard framework over the last two years to bring more transparency to the financial sector.  In parts it is based on FATCA and its intergovernmental agreements.  The Common Reporting Standard (CRS) already agreed by many jurisdictions including the United Kingdom will need to be in place by 2017.

While FATCA reporting requires organisations to record and track balances and some payments for “US specified persons”, for many wealth structures that they administer (including trusts), the CRS, however, will have a wider remit than reporting payments made to “US specified persons” alone.  Reportable accounts will also include accounts held by individuals and entities (including trusts, foundations and collective schemes) and looking through passive structures to the individuals that control them.

Although the agreements are in place for CRS reporting, the exact detail of the information to be reported and the mechanism to submit returns is still to be agreed.  Yet, those organisations that prepared sufficiently for FATCA reporting are likely to easily digest this supersized order and be well positioned to fulfil the CRS reporting regime obligations.

Je voudrais moules et frites s’il vous plaît!

29 July 2011 is probably not a date etched in many of our minds, but it was on this date that the Sarkozy administration introduced a new law, Loi de Finances Rectificative,  often referred to as the French-mini FATCA rules.  These rules mean that trusts that have a French resident, settlor, deemed settlor, beneficiary, trustee or French situs assets, fall within these reporting requirements.

Trusts that are caught by the rules will need to complete an annual declaration (2182 Trust2) each year.  In addition where certain events occur, including the distribution of income, there are on-going reporting obligations (2182 Trust1).

There’s too much choice on this menu

So how do practitioners find a way to comply with all of this reporting as quickly and efficiently as possible?  Let’s face it, clients don’t really want to pay for compliance work that they probably feel has been forced upon them.  This makes it difficult for practitioners to recoup costs, yet they are duty bound to accurately report to the relevant authorities within the required timescales.

Many practitioners produce both accounts and keep track of the administration of their trusts using Excel.  Whilst Excel is an excellent tool for management accounting, it wasn’t really invented to produce financial accounts or act as a sophisticated database.  In addition, although many people can use Excel in a basic way, there are few of us that have the advanced skills required to extract the data for the kind of complex reporting that is now required.

Reducing the menu – starter

Of course, the initial problem is trying to find, at the risk of sounding like Donald Rumsfeld, what you know you don’t know.  For clients with large numbers of trusts, finding what information you do and don’t have can be difficult.

To assist practitioners we’ve developed a Disclosure/FATCA screen within the Administration module of Troika, with reporting being developed in Connect, the intranet part of the system.  To get practitioners started on their reporting meal, reports can be produced in Connect to identify the gaps in the information they hold on an individual, or to report on those individuals already identified as US specified persons.

Reducing the menu – main course

The Administration module enables our clients to hold a complete database of, not only the trusts they manage, but the individuals and companies connected with those trusts.  Each individual has a screen that enables their nationality, domicile, citizenship, nation of origin, residence and primary tax residence to be recorded, as shown below.

FATCA image 1

Once the status of individuals connected with the trust have been identified, the FATCA status of the trust itself can be recorded along with other key pieces of information such as the GIIN, details of Controlling Persons, the Sponsor etc.  The date the FATCA status was determined can also be entered and the date of the next review will automatically populate.

This date information then pulls through into the intranet system, Connect, which has a traffic light warning system to alert users that a review is coming up.

Work is also beginning on developing the system to alert practitioners where a trust falls into the French reporting rules.  The idea being that when various indicators are set, eg the Settlor’s residence is set to France this will again flag up to practitioners that the trust falls into the French rules.

For those practitioners who have clients that fall into the French reporting regime, reports are being developed to assist with completion of the 2182 Trust1 and 2182 Trust2 forms.  These forms must be completed in French.  However, beyond asking for a glass of red wine, our French doesn’t stretch to automatic completion of tax forms.  However we hope to produce a report that contains all the information needed for the forms, which will reduce the costs of using a French speaking lawyer as they will have all the information they require to hand.

Reducing the menu – pudding (crème brulee is my favourite)

By now you’re probably feeling rather full!  So whilst you’re working through your pudding, ask yourself these questions about your existing system:

  • Does it allow you to identify where any controlling person (individuals who exercise control over an entity such as a trust) is resident, domiciled and their primary tax residence?
  • Are you able to identify if there is a “French connection”?
  • Can you search your electronic records by jurisdiction to report on payments received and proceeds of the sale of assets?

Identifying now whether your system is fit for purpose and taking steps to ensure it can produce the reporting required, quickly and efficiently, will save you from suffering indigestion in the future.

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