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Quality Assurance for Foreign Account Tax Compliance Act (FATCA)

Overview of FATCA and quality assurance for the regulation

The Foreign Account Tax Compliance Act (FATCA) was introduced by United States in 2010 to prevent offshore tax evasion by US citizens and to improve compliance. Foreign Financial Institutions (FFIs) will need to report to the IRS, the financial accounts held by US taxpayers (even if they hold only non-US assets) or by foreign entities in which US taxpayers hold a substantial ownership interest or be subjected to 30% withholding tax on any US-sourced income and sales proceeds.

Complying with FATCA and managing Quality Assurance (QA) within the specified time frame is a complex task with multiple work-streams for the Program Office to deliver. Developing a quality assurance process, either internally or by a third party, will give the FFIs an independent assessment of the status and highlight any potential issues in time to take corrective action.

Key quality assurance challenges

  • Identifying impacted areas - Due diligence and understanding of FATCA related processes, systems and flow of information between different systems to ensure QA coverage of all impacted systems and applications under test.
  • Understanding business drivers - Changes in business process, integration of new Commercial off the Shelf (COTS) products and third party applications if needed.
  • Understanding compliance drivers - The data flow of FATCA-related information between interface systems and analyzing them to ensure coverage of all impacted systems and functionalities.
  • Understanding QA approach for technology drivers - New functionalities, feature enhancements, system upgrades and ongoing maintenance.
  • Managing FATCA documents and different forms with details of requirements for different systems and consolidating them into a QA requirement document.
  • Managing QA within limited timeframe and achieving FATCA compliance within US IRS timeframe.