The incidence of US citizens holding unreported financial assets overseas is increasing. The United States government is losing substantial amount of revenue each year due to citizens owning and operating financial accounts in foreign jurisdictions and not paying tax on incomes generated from them.
To curb this problem, the US government enacted The Foreign Account Tax Compliance Act (FATCA) which requires citizens, including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires Foreign Financial Institutions (FIIs) to report to the Internal Revenue Service (IRS) about their US clients.
Preparing for FATCA compliance is quite challenging for FIIs as:
A healthy solution should enable banks to comply faster and not roil them. Banks must invest in a solution with robust data model that supports both current and future business requirements, be flexible to accommodate enhancements and add-ons in the future, improve efficiency and cause least disruption.
As the first step, banks should thoroughly assess their existing IT systems with respect to FATCA compliance. The systems have to be analysed against FATCA on-boarding, account identification, reporting and withholding requirements, and a detailed report identifying the business and IT gaps has to be prepared.
A webinar by my colleagues Subhasis Bandopadyay, Siddharth Sakhardande and Chiradip Ray in which they explain the four steps for effective FATCA compliance is quite comprehensive. They also give a live example of how a leading commercial bank in the US achieved the same.