Fatca Fault Lines

Covering the US Foreign Account Tax Compliance Act (Fatca), I have heard industry professionals find fault with two groups—their own colleagues, who appear to be slow implementing compliance measures, and of course, the US Internal Revenue Service, for failing to provide adequate guidance on what is required under the Act.

The latest aspect of guidance to get attention is whether securities that were "grandfathered" out of being subject to the Act's provisions will stay that way if any modifications are made to them. SIX Financial Information's Dominique Tanner, who is focused on Fatca compliance services for the data services provider, says his company is working on a way to monitor potential status changes for securities grandfatherered out of Fatca. But "prescriptive" guidance on this issue, as with many other parts of Fatca, appears to be lacking, Tanner adds. He isn't the only industry professional saying so.

The IRS and the US Treasury have another potential Achilles heel concerning Fatca, as well. That is the registration systems for tax withholding under the Act. While the systems have just begun operating on a "beta" basis now, months in advance of the April 25 deadline for completing Fatca entity lists and the July 1 deadline for onboarding procedures to have begun, there is no telling when many or most foreign financial institutions (FFIs) will be registering, according to Dean Marsan, formerly US tax counsel at Lloyds Banking Group and a tax expert who serves on several industry taxation compliance groups.

"It may not be 600,000 FFIs coming in on January 1. They may want to come in at end of February, all at once, create accounts, and download all the information that they already put in," he says. Although the time available in which testing of the system could occur is a lot more than HealthCare.gov had, the Fatca registration system is still cloaked in mystery around how it will function.

That said, earlier this fall, a significant segment of the industry still hadn't started to consider Fatca compliance measures. The US Treasury and the IRS might point to this as a bigger problem than a lack of specificity in their directives, but both the government and industry certainly have a lot of work ahead of them.