FATCA - Another legal binding - A boon or a burden
Guest post by
Shraddha Bafna, Consultant, Infosys
Another recent development in Legal regulation is the Foreign Account Tax Compliance Act - proposed and implied to restrain tax evasion by US persons through offshore accounts. As per this act, the Foreign Financial Institution needs to get into Inter Governmental Agreement (IGAs) with US to disclose the information of their American Clients to the Internal Revenue Service. Noncompliance of which would slam 30% as withholding tax on the 'withhold able payments' on the FFIs.
Although there have been apprehensions in few countries while acceptance in a few, but this law aims to curb down the losses from tax evasion which accounts to nearly $100 billion p.a. However the question which can hover is will the implementation of FATCA not stimulate other economies to come up with their own designed domestic laws in similar lines as FATCA. If that is the case, how complex would this entire structure be? This might help to eventually judge this legal binding as a boon or burden!
Though this law is definitely the boon for the world's largest economy, but there have been skepticism and uneasiness among the countries with respect to its scope and justification on its rewards in comparison to the expenses. The expected revenue to be generated as per the US President is round $ 210 Billion over ten years. For the other economies of the world this legal binding calls for huge additional operational cost and time spreading strategizing to prepare for the compliance, due diligence of accounts. Biggest challenge and cost would be for the revamping of the technology and software to accommodate the new customer KYC norms and facilitate the new regulations and reporting, in addition to manpower hiring and training, education and training of the customers and the staff - just to list a few.
The law is being effected in a phased manner and by June 2018 the institutions are required to be fully compliant. It's critical for the organizations to take a leap and proactively do project and implementation planning. The major challenges with the institutions lie in areas like the impact assessment, classification of the existing customers, overhauling their existing process of Customer on boarding and KYC norms, implementing functionality for withholding payments and most importantly keep a track of this as an ongoing process.
A structured and flexible FATCA Solution can help the institutions in a big way to address these challenges while giving greater organizational utility. Lots of vendors have come up with their offerings to address the requirement. One such offering to help abide the regulation by Oracle is Oracle Financial Services Foreign Account Tax Compliance Act Management - which is designed to provide full FATCA compliance and minimize impact to the current architecture. The awarding feature of this Oracle Solution is that can be incrementally deployed to leverage the existing infrastructure and data sourcing , besides facilitating data consolidation into single repository. The solution can help provide real time interfacing and feedback to existing On Boarding system. The pre-configured and flexibility to configure business rules for US Indicia and FATCA Status Validation enables due diligence as per the best practices. Using these features the institutions can streamline their compliance processes, maintain central repository for data, perform the assessment and generate requisite reports to meet the reporting requirements - ultimately being FATCA Compliant.
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