In a survey of finance executives, 67% report that the complexity of FATCA requirements is the top hurdle to achieving compliance.
The complexity of the Foreign Account Tax Compliance Act (FATCA) requirements is the top hurdle to achieving compliance, according to a Strategies for Achieving FATCA Compliance survey conducted by the technology firm Mindtree.
In an effort to eliminate noncompliance by US taxpayers, FATCA requires foreign banks to identify, report, and disclose US accounts. Before financial firms can even worry about the reporting element (which includes correctness of reporting toward 1042, 1042S, 8966, and W8BEN forms), they have to accomplish the most basic of obligations: Identify the products and customers that fall under the scope of FATCA withholding and reporting.
According to Subhasis Bandyopadhyay, head of capital markets at Mindtree, banks are still struggling with effective account identification. This includes the linking of accounts of an individual or entity across different business units (e.g., banking, custodial, depository, and insurance) and within the same business unit (like individual and joint bank accounts).
Though the tax law went into effect July 1, the IRS announced in May that calendar years 2014 and 2015 would be regarded as a "transition period" for the purposes of enforcement and administration of the due diligence, reporting, and withholding provisions under the act. Helpfully, the IRS says, it "will take into account" the extent to which entities such as foreign financial institutions and withholding agents made "good faith efforts" to comply with their obligations.
Entities that cannot demonstrate that they have made good faith efforts will not be entitled to relief from IRS enforcement during the transition period.