I speak English, French and FATCA
Acronyms have two main uses. The first is to facilitate efficient communication between professionals within a given discipline where the long form of technical terms would be unwieldy. This is particularly prevalent in the medical, IT and finance sectors but it is ultimately becoming a ubiquitous part of our societies. The second use is to create a barrier to communication, a secret language, that you can only understand if you are within the profession. Most parents come across this with the changing use of language by teenage sons and daughters, but professionally, its extremely common again, in the medical, IT and finance sectors. Which of these two purposes is fulfilled depends on the intent and whether you are in or out of the circle. Does ‘Deoxyribonucleic acid’ make you any the wiser or is ‘DNA’ sufficient to your need to understand?
Let me give you an example of a very clear and concise summary of US tax evasion rules.
FATCA does not really exist. It is actually the HIRE Act in US law. It is not complicated. Most financial firms are FFIs and entities are NFFEs. Individuals are, well, individuals. There are two types of NFFE, P-NFFEs A-NFFEs. FFIs also fall into two categories, P-FFI and NP-FFI, dependent on whether you are in an IGA jurisdiction. FFIs and some NFFEs need to register with the IRS and get a GIIN. This will be in addition to an EIN if you have one of those. If you fail to comply, you may have to hit clients with a 30% tax in IRC Chapter 4. You have to be careful because there are several types of IGA, M1 and M2 are the most common, although there are IGA M1A and M1B subtypes which all depends on whether your government has a TIEA, a DTA or both with the USA. The IGAs determine reporting routes but also allow a suspension of FATCA penalties in certain circumstances. Some types of P-FFI have subcategories, notably RDC-FFI and CDC-FFIs. What you are, such as a QIV, L-FFI, OD-FFI determines which group you may qualify to be a member of. The type of IGA determines where you send your FATCA reports to. The IRS has a system to receive FATCA reports. You or your IGA government will send reports to IDES, in XML format, although messages about reports submitted to IDES are submitted and received at ICMM. P-FFIs will generally send their reports to their HCTA. FATCA due diligence does leverage your KYC and AML efforts and has some similarities to CRS and AEoI. All these frameworks use ISDs to obtain tax status. It also has some overlap to QI regulations. Of course, if you are an FFI and part of a group, you can elect to be an EAG to gain benefits of scale, but in all cases, P-FFIs will need to appoint an RO and, if you’re a QI also you’ll need to make sure you conduct a PR and have a written CP before you can certify compliance to the IRS. If you are in an EAG, then you’ll need to decide who is the POC-FFI as well as your lead-FFI. If you’re an FFI and a QI but also a QDD or QSL, the rules can get more complex irrespective of whether you are a WQI or NWQI. The IGAs also provide some exemptions to certain types of beneficial owner such as CIVs and T-DCs. At heart, FATCA is about identifying and reporting US persons, so you better have W-9s and those had better have valid SSNs or EINs on them (the collective term being a TIN).
Clear? Thought not.
Happy to act as an interpreter, just give me a call. English language preferred.
Ross McGill is the CEO and subject matter expert for TConsult. Ross is a specialist in QI and FATCA operational compliance, cross border tax reclaims, relief at source and information reporting. He over 23 years of experience in financial services, including 19 years at C level; and 30 years’ senior management experience in blue chip FMCG, including sales, marketing and operations.