The Foreign Account Tax Compliance Act ("FATCA") - United States

14 Aug 2013

The Foreign Account Tax Compliance Act ("FATCA") is US legislation which was signed into US Law in 2010 as part of the US Hiring Incentives to Restore Employment (HIRE) Act.

The Foreign Account Tax Compliance Act ("FATCA") is US legislation which was signed into US Law in 2010 as part of the US Hiring Incentives to Restore Employment (HIRE) Act. It is being implemented through a combination of US Regulations and Intergovernmental Agreements (“IGAs”) between the US and other third party jurisdictions. Under FATCA, financial institutions will be required to comply with a number of obligations from 1 July 2015, including reporting on accounts held by specified US persons. Failure to comply with the FATCA rules could result in the imposition of a 30% withholding tax on certain payments made to the institution and its account holders.


US Congress estimates that tax evasion by US persons equates to losses for the US Treasury of up to $100 billion annually. The fundamental objective of FATCA is to identify those US persons who may be evading tax through the use of offshore investment vehicles and to gather information on them that ensures the IRS can collect the appropriate amount of tax from all US persons.

FATCA is a mechanism whereby, for example, non-US banks, trusts/fiduciaries, custodians, investment banks and hedge funds which, under FATCA, are designated as Foreign Financial Institutions ("FFIs") and are required to register with the Internal Revenue Service ("IRS"), perform due diligence to identify US accounts and report certain client data. Under the FATCA Regulations, FFIs that do not comply will suffer a 30% withholding tax on all US sourced income or payments remitted to them by US paying agents or other FFIs.

An alternative approach has been introduced though Intergovernmental Agreements (“IGAs”) which amend some of the obligations for FFIs in countries with an agreement (such as removing the requirement to withhold). In return, governments in these jurisdictions will agree to enable compliance with the FATCA requirements through new specific local legislation.

To date, the UK and a small number of other countries have already entered into IGAs with the US and a significant number of other countries have approached the IRS to enter an agreement and a list of 50+ jurisdictions has been published. Additional countries are understood to be negotiating IGAs and Ocorian is constantly monitoring the market for notification of further agreements, in particular in those countries where Ocorian has a presence.

As and when further agreements/joint statements are published, Ocorian will review them to ensure compliance on a jurisdiction by jurisdiction basis.

FATCA will apply to all FFIs and their affiliates, Non Financial Foreign Entities ("NFFEs") and US withholding agents. The definitions used are very broad and the entities impacted will include a number of businesses that would not traditionally expect to be in-scope.

As a client of Ocorian, if you are subject to the requirements of the FATCA legislation, we can assist you with the necessary applications and putting in place agreements to conform to the FATCA requirements to avoid being subject to a withholding tax.

As noted above, in non-IGA territories, FFIs will be subject to a 30% withholding tax on any withholdable payment made to their proprietary accounts if they fail to comply with FATCA. Furthermore, account holders who fail to provide the FFI with the necessary FATCA-related documentation will be deemed recalcitrant and the FFI will be obliged to withhold 30% tax on any withholdable payment credited to their accounts. In IGA territories, compliance with FATCA will be mandatory for all FFIs and enforced under local laws.

In both IGA and non-IGA jurisdictions, there are a number of tasks for businesses to complete and there are significant risks involved with non compliance including:

  • Reputational damage as a consequence of not being on the publically available IRS list of participating institutions due to be released on 2 June 2014.
  • Commercial issues resulting from other institutions only dealing with FATCA compliant counterparties.

FATCA compliant FFIs will broadly need to:

  • Register with the IRS;
  • Identify services provided by the FFI that constitute a financial account under FATCA;
  • Identify pre-existing US financial accounts;
  • Amend client on-boarding procedures to identify new US financial accounts;
  • Report on US financial accounts and non-participating financial accounts annually;
  • Potentially deduct and withhold 30% tax on certain payments to recalcitrant account holders and non-participating FFIs (in non-IGA territories).

FATCA Timeline

[please refer to pdf document for table]


Ocorian fully intends to be FATCA compliant, in all the jurisdictions that it operates in, by 31 December 2013.

In order to meet the obligations that FATCA imposes, and to best serve Ocorian's clients' interests, Ocorian has initiated a Project designed to meet FATCA's requirements.

Part of the Project will be to assess the impact (if any) that FATCA will have on all our clients. This assessment will include establishing what the additional costs of meeting the requirements of the FATCA legislation are for our clients. Where applicable, these additional costs will be communicated to you.

It should be noted that if you are currently invoiced under a fixed fee arrangement, the costs of FATCA compliance will not be covered under this arrangement and you will be invoiced for FATCA related work in addition to pre agreed terms.

Steps that Ocorian are taking to become FATCA compliant are:

  • Analysing existing business in order to identify which clients have US Indicia;
  • Applying a FATCA classification to our clients;
  • Amending working practices; and
  • Updating client records, where appropriate.

Should we need to do so, we will contact our clients to request certain information and request any further documentation that the FATCA legislation requires Ocorian as an FFI to know or maintain.

In addition, for clients who will be affected by FATCA, Ocorian will:

  • Register those client entities with the IRS as appropriate; and
  • Report, to either the IRS or local governing body, as required.