Thomson Reuters has introduced a new system to help foreign financial firms comply with the requirements of the Foreign Account Tax Compliance Act.
FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions, including hedge funds, to report on the assets of their U.S. account holders to the Internal Revenue Service, or face stiff penalties.
FATCA took effect on January 1, although some requirements have been delayed. The law will eventually require foreign financial institutions to collect, manage and report all information pointing to an individual’s liability for U.S. taxation. FATCA is supposed to help close the tax gap for the IRS and the Treasury Department. It is estimated that tax avoidance by U.S. citizens and entities using offshore bank accounts and other vehicles held at foreign financial institutions costs the U.S. government around $500 billion a year.
However, FATCA compliance has also been provoking controversy because of the high costs of compliance and complaints that the law violate national sovereignty and banking secrecy laws in other countries. The European Banking Federation and the Institute of International Bankers have estimated that the reporting requirements will cost foreign banks, with more than 25 million accounts, at least $250 million (or about $10 per account) to implement.
The impact of FATCA will be widely felt across the financial industry, with banks, investment funds, insurance companies, mutual funds, broker-dealers, custodians, intermediaries, hedge funds and private equity firms all required to comply. FATCA places significant reporting requirements on firms to identify their U.S. account holders. They need to classify and document their clients, and gather sensitive data from a various structured and unstructured sources.
Thomson Reuters’s new FATCA compliance system aims to help firms address the significant operational and systemic pain points that arise from FATCA, particularly around on-boarding, classifying and documenting new clients, and in gathering sensitive data from a variety of structured and unstructured sources.
The system is supported by Thomson Reuters’ other content and systems from the company’s Governance, Risk & Compliance, and Tax & Accounting businesses. The Thomson Reuters for FATCA Solution brings together technology already widely used by organizations around the world to solve issues with regulatory compliance, tax documentation and tax reporting to enable organizations to identify, maintain and validate their customer records to assist in FATCA compliance.
Thomson Reuters for FATCA Solution includes modules for on-boarding, featuring U.S. indicia search; self-assessment, featuring W-8 and W-9 form preparation and collection; and tax information reporting, featuring forms 1042, 1042S and 1099. The system also features configurable regulatory and management reporting. It is designed to integrate with organizations’ existing processes and technology and is offered as an installed or hosted solution.
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