Foreign Financial Institutions (FFIs) have multiple FATCA reporting compliance responsibilities and face the possibility of penalties for not complying. Understanding and interpreting more than 1,000 pages of FATCA regulations requires an underlying comprehension of their words (a new vocabulary) and the spirit behind their wording to avoid being inadvertently victimized by FATCA sanctions and problems with correspondent U.S. Financial Institutions (USFI). An interconnected web of regulations, governmental procedures, agreements with financial institutions, Intergovernmental Agreements (‘IGAs’), forms and instructions form the body of knowledge for FATCA implementation and compliance.
Providing appropriate FATCA consulting services to FFIs requires years of experience working with U.S. Taxpayers and with the U.S. Internal Revenue Code in the space of U.S. International Taxpayer Compliance as well as working within the internal compliance environment of Financial Institutions (FI). Furthermore, being able to effectively communicate compliance in the language of FI is a qualification for working and consulting effectively in the FATCA space. U.S. licensed CPAs working in the U.S. International Taxpayer Compliance space and working within the internal compliance environment of FIs are best able to communicate with FFI clients in the FFI language. Those that offer FATCA implementation consulting services who are not part of this U.S. licensed and trained set of consultants do not possess the same inherent FATCA consulting services qualities.
Many Foreign Financial Institutions rely on local or regional consultants to help them to:
- Interpret and Implement the FATCA Regulation
- Provide Technical Solutions for the Creation, Encryption, and dispatch of their FATCA Reports via IDES (International Data Exchange Service) or their Host Country Tax Authority (HCTA).
IDES publishes a User Guide (Revised 9/2019). The User Guide states that: “The document assumes that the reader is familiar with the FATCA regulations and is experienced with extensible markup language (XML) and schema technology”.
IDES is a single point of delivery for both Financial Institutions and Host Country Tax Authorities to electronically exchange FATCA data with the United States. IDES also enables the United States to make reciprocal exchanges as described in the IGAs. The objective of IDES is to provide authorized users with secure exchange services to complete data transmissions to the IRS.
FFIs and HCTAs have been facing issues with reports being rejected by IDES and/or the IRS
- FATCA Reports and technical specs have received multiple adjustments during the last few years. Multiple technical solutions that were designed and worked initially were not updated regularly causing last minute transmission issues resulting in FFIs missing their reporting deadlines.
- A number of solutions in the market misinterpret FATCA reporting instructions (8966 Report and Detailed Instructions) resulting in incorrect reporting. For example, one solution automatically assigns a zero balance to an account that has been closed during the reporting period. This is incorrect as the regulation and instructions require that the balance on the day before closure, or before the final funds in an account are transferred out, be reported for each closed account.
FFIs and HCTAs remain liable
Regardless of whether their noncompliance results from incorrect or incomplete advice or technical solutions provided by third parties providers, FFIs and HCTAs who choose to work with a third-party consultant remain responsible for their own FATCA and local compliance.