Banking executives are predicting that the majority of banks will miss the deadlines for complying with new requirements under the Foreign Account Tax Compliance Act for reporting on foreign bank accounts and assets held by U.S. taxpayers.
The controversial FATCA provisions were included by Congress in the HIRE Act of 2010, requiring foreign financial institutions to report to the Internal Revenue Service on the holdings of U.S. taxpayers. Foreign banks and governments have balked at many of the provisions, arguing that they impinge on national sovereignty, and the provisions have provoked concern among expatriate groups such as American Citizens Abroad. The IRS and the Treasury Department have tried to address some of these concerns by delaying some requirements and issuing proposed regulations (see IRS and Treasury Propose New FATCA Rules).
In a new survey by KPMG, 250 finance and tax executives in the banking industry (150 from U.S. based banks and 100 from banks not based in the U.S.) were asked about FATCA compliance. They indicated that preparing to comply with FATCA is very challenging and many predict that the majority of banks that need to comply with the law’s requirements will not be ready to meet its deadlines, some of which begin on Jan. 1, 2013.
Forty percent of the 150 respondents with U.S.-based banks, and 44 percent of the 100 respondents with foreign banks, said that getting their organizations ready for the FATCA regime has been very challenging.
In addition, 28 percent of the survey respondents with U.S.-based banks and 36 percent of the respondents with foreign banks did not believe the majority of banks affected by FATCA would be ready in time to comply.
“FATCA is changing the way impacted banks do business and a significant amount of time and resources are required to meet the deadlines,” said Mark Price, national tax leader of KPMG’s Banking and Finance practice. “It’s clear to bank executives that FATCA is an operational change—and more than just a tax issue—for foreign and domestic banks alike. Bank executives also are learning it is critical to coordinate many areas—operations, tax, IT, legal, and KYC / AML departments—to successfully address FATCA’s significant compliance, reporting, and monitoring risks,” added Price.
Account identification requirements were cited by 31 percent of respondents with U.S.-based banks and 30 percent of respondents with foreign banks as the biggest compliance challenge for their institution. Reporting requirements were identified as the second most difficult compliance hurdle (24 percent with U.S.-based banks and 28 percent with foreign banks).
When asked to identify the largest unresolved area of FATCA compliance for the industry, pass-through payments was cited most frequently by 32 percent of respondents with U.S.-based banks and 49 percent of respondents with foreign banks. Account identification requirements (22 percent for both groups) were the second largest unresolved area.
“Foreign and domestic banks will need to refine current systems and processes in order to comply with FATCA, and in some cases create new ones,” said KPMG Washington National Tax principal Laurie Hatten-Boyd. “Conducting an internal assessment to understand what entities within the bank will be impacted by FATCA and the steps needed to ensure compliance can help bank leadership teams get a game plan together.”
While 37 percent of respondents with U.S.-based banks and 46 percent of respondents with foreign banks said their institution was currently conducting an internal assessment, and 13 percent with U.S.-based banks and 18 percent with foreign banks had already completed one, 18 percent with U.S.-based banks and 20 percent with foreign banks said they had not started one.
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