If you need to ask that question, then you probably need one.

At TConsult we’ve been working with financial institutions and tax regulation for over 20 years, which means we’ve pretty much seen it all and done it all. In the last few years, we’ve developed something called an Exposure Map Report, to help financial institutions understand where their risks and liabilities lie and what they need to do to address them. And today, we’re going to explain what exactly that is.

What Is An Exposure Map Report?

In essence, it’s an analysis of a financial firm’s exposure to certain cross-border tax regulations. It’s a quick, easy and painless way to establish if you’re doing the right thing. We look at your institution and your current situation, and then map it against the regulations that might impact you.

An Exposure Map Report typically starts with deciding what the report is going to address. Our reports can cover a wide range of regulations, but the most popular (by a wide margin) is US withholding tax. We also cover:

• FATCA/CRS
• DAC6
• TRACE
• GDPR
• DORA
• FASTER
• BEPS

We start out with a simple questionnaire that gathers a lot of information about your firm and its unique circumstances, so that we can understand the issues you might face. We then map that (hence the name) against the regulatory and contractual obligations that you have, and then identify any areas that you’re not compliant in, or where you could improve your compliance or operational efficiency. Then we deliver the report to you, and schedule in a post-EMR call to clarify any areas you’re confused by, need more information on or have questions about.

Exposure Map Reports also typically address some more technical issues that you might otherwise completely overlook. While dealing with the IRS, you’ll be communicating with them using platforms and portals like:

• FIRE (1042-S)
• IDES (FATCA for governments)
• QAAMs (QIs)
• FFIRAAMS (FATCA GIINS)
• IRIS (1099-X)
• MeF (1042)

For each of these, you’ll need to register and set up access privileges, and keep track of personnel changes and use them regularly to ensure they don’t expire.

Why Do I Need An Exposure Map?

Most people know that the US withholding tax landscape is one of the most challenging out there, especially if you happen to be a Qualified Intermediary, or QI. The QI agreement states that you are obligated to undergo independent oversight once every three years in order to keep your status. But if you are a QI, you might want to think about checking your compliance status more often than that, especially if you only have a small compliance function.

If you’re a non-qualified intermediary (or NQI), you’re not subject to the commercial terms of the QI agreement. You are, however, still subject to the extraterritorial regulation in the US tax code, just by receiving US-sourced income on behalf of your clients. The questions there are focussed on disclosure, because whether or not you are a Disclosing NQI determines many operational and compliance issues. Not least of which is the extent of your information reporting (1042-S) and tax return (1042) obligations.

For US tax purposes, your exposure could be to one or more components of Chapter 1 and Chapter 3. On top of that, all financial institutions are also subject to Chapter 4, otherwise known as FATCA. There are a lot of different niches that can come up to bite you, including:

• Chapter 1, Section 871(m) if you trade derivates like CFDs or ETFs with an underlying exposure to US securities.
• Chapter 3 Section 1446(a) and (f)

The latter, 1446(f) is a tax on the gross proceeds of the sale of publicly traded partnerships (PTP), while the former, 1446(a) taxes distributions from PTPs, like dividends. And you’d better know the differences if your clients trade PTPs, because there are two possible tax rates on distributions under 1446(a), such as dividends from PTPs while gross proceeds withholding means you need to keep track of trading transactions as well as corporate actions.

The extent of your exposure depends on a number of things, including your circumstances, the type of financial institution you are, what kinds of clients you allow and what kinds of financial instruments you allow your clients to own. It can also be influenced by the policies of the financial institutions(s) immediately above you in the payment chain. Bringing this all together yourself can be a difficult task, especially with all of the other regulatory stuff you need to contend with. The difference here is that your exposure is typically to the regulator of the largest and most important capital market on the planet – the USA.

Not something you want to screw up!

How Long Does It Take?

Generally, an exposure map report (or EMR) takes about 10 business days to complete. Creating one brings together our subject matter experts, who have extensive experience in the financial sector across twenty-seven countries.

These reports are the most common way that clients come to us because it’s a great place to start if you’re in a hole and don’t know where to start. It’s a fixed cost that can help you to identify and manage both regulatory and operational risk within your firm. It’s particularly useful if you’re looking to become a QI – it’s the perfect way to get started because it includes a section about how and where to apply. So it all flows smoothly, ensuring you have the information you need.

With our exposure map reports, we can provide you with:

• A clear picture of how you are impacted by the various regulations
• An overview of the operational choices available to you
• Practical recommendations to remediate any issues or choose more efficient procedures.

If you want to know more, just get in touch with the team today using our contact page, and select Exposure Map Report.