4 Things Banks Need to Know About FATCA in 2014

February 13th, 2014

Congress passed the Foreign Account Tax Compliance Act in 2010 in an effort to prevent offshore tax abuses committed by U.S. citizens. This legislation has broad implications for foreign financial institutions. Among many other things, FATCA imposes reporting obligations on financial institutions, requiring them to disclose certain information to the Internal Revenue Service pertaining to U.S. account holders.


Although FATCA was passed nearly four years ago, many of the key requirements will not take effect until later this year. These requirements affect a broad cross-section of stakeholders and policies within financial institutions including, but not limited to, client onboarding, investment banking, documentation, treasury and collateral management. Here’s what global banks need to know about FATCA for 2014:

Registration. April 25, 2014, is the last day for foreign financial intuitions to register if they are to appear on the IRS’ first foreign financial institution list, scheduled to be published on June 2, 2014. The definition of a financial institution is quite broad under FATCA and encompasses any institution that accepts deposits in the ordinary course of a banking or similar business; holds financial assets for the account of others; or is engaged primarily in the business of investing, reinvesting or trading in securities. This broad definition means that, at a minimum, non-U.S. hedge funds, insurance companies, broker-dealers, investment vehicles and banks are subject to the legislation if they receive certain income arising from sources within the U.S.

The FATCA registration portal is a Web-based system that permits FIs to register their FATCA classification with the IRS completely online. According to the IRS, FATCA registration can be accomplished most efficiently and effectively through the online registration process. Concerns were raised by the Treasury Inspector General for Tax Administration’s report alleging inadequate system security protocols and the untested nature of the information technology system. However, the online system is now active and registrations may be finalized on or after January 1, 2014.

Read the full article here.