FATCA Portal Provides Both Clarity and Challenges

The recently opened IRS FATCA Portal provides financial institutions with a tool to strategize, plan and manage FATCA compliance. But it also creates operational challenges.

After a five-week postponement from its original scheduled opening, the Internal Revenue Service’s Foreign Account Tax Compliance Act (FATCA) portal launched on Monday, Aug. 19. The FATCA Portal is a secure, web-based system that Financial Institutions (FIs) may use to register online as a Participating Foreign Financial Institution (PFFI), a Registered Deemed-Compliant FFI (RDCFFI), a Limited FFI (Limited FFI) or a Sponsoring Entity. This stage of the regulation has provided the industry with some clarity on the mandate, but it also creates many operational challenges that firms will need to face if they have not begun to prepare already.

All About the Data

Under FATCA, withholding agents must withhold tax on certain payments to Foreign Financial Institutions (FFIs) that do not agree to report certain information to the IRS about either their U.S. accounts and/or accounts with substantial U.S. ownership.

FFIs may agree to report certain information about its account holders by registering to be FATCA-compliant on the FATCA Portal or by paper submission of IRS FORM 8957. Simultaneous with the opening of the FATCA portal, the IRS issued two FATCA instructional materials: FORM 8957 instructions and a FATCA online registration user guide.

Online Registration

Rather than using the paper Form 8957 to register under FATCA, FIs are encouraged to register electronically via the FATCA registration website, which enables FIs to register online from anywhere in the world without the need to print, complete and/or mail paper forms. The website is accessible at: www.irs.gov/fatca-registration.

Through Dec. 31, 2013, an FI will be able to access its online account to modify or add registration information, including, for example, its appropriate registration status by signing an intergovernmental agreement (IGA). Further, prior to Jan. 1, 2014, any information entered into the system, even if submitted as “final” by the user, will not be regarded as such and will merely be stored until the data is submitted as “final” on or after Jan. 1. Thus FIs can use the remainder of 2013 to become familiar with the FATCA registration website, input preliminary information and refine it. On or after Jan. 1, each FI will be expected to finalize its registration information by logging into its online account on the FATCA registration website, making any necessary additional changes, and submitting the information as final.

[Related: “Future-proofing beyond FATCA with bulk auto-classification“]

Global Intermediary Identification Number (GIIN)

As registrations are finalized and approved in 2014, FIs will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN). The IRS will electronically post the first IRS FFI list by June 2, 2014, and will update the list on a monthly basis thereafter. An FI will need to finalize its registration by April 25, 2014 to ensure inclusion in the June 2014 IRS FFI list, which prevents U.S. withholding agents from withholding 30% on U.S.-sourced interest and dividend payments beginning July 1, 2014.

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Addressing the Challenges

Initially the IRS provided a period of slightly more than three months (July 15 – Oct. 25) for FIs to register under FATCA. With the postponement announced on July 12, nearly a four-and-a-half-month period (Aug. 19 – Dec. 31) has been provided for FIs to become familiar with the FATCA Portal, and almost five months to actually register. This expanded time frame reflects how challenging the legal entity analysis and resulting FATCA registration is expected to be for the estimated 260,000 FIs that will register under FATCA.

The IRS literature refers to FATCA Registration website as a “streamlined environment for financial institutions to register in one place.” Ultimately, this may become the case, but all input by FIs to the FATCA Portal is currently done manually, substantially increasing the burden for medium and large financial institutions.

Among the most challenging sections to manually input are questions 9a, 9b, and 9c, relating to listing each jurisdiction (other than the U. S.), but including U.S. territories in which the FI maintains a branch. Another tricky question is 12, where the lead of an Expanded Affiliated Group (EAG) must manually input the legal name, country-of-residence for tax purposes and FATCA member type for each member of its expanded affiliated group. Question 12 is likely to involve hundreds of members for medium sized EAGs and thousands of members for large EAGs. To compound this issue for EAGs, each member must manually input its own registration including questions 9a, 9b, and 9c.

Hopefully, the IRS FATCA Portal will be enhanced in order to provide for the electronic upload of files for the more burdensome questions. In the meantime, affected FIs will be well served to comment regarding the burden that manual input of data creates. Manual input is much more prone to error, resulting in potential data quality issues both for the FIs and the IRS.

Finally, for the time being, Sponsoring Entities will not need to input their sponsored FFIs on the FATCA Portal. The IRS literature promises more guidance regarding Sponsoring Entity Registration.

IRS FATCA Portal: The Engine on the FATCA Train

For FIs that prefer approaching major challenges with a top-down risk-based approach, the IRS FATCA portal provides them with a tool to strategize, plan and manage their long FATCA journey. FIs are well advised to consult their tax and legal advisors regarding the multiple FATCA registration options available to them.

FATCA is one of the many mandates firms need to address in order to achieve full regulatory compliance. By preparing ahead of the final deadline, this will allow institutions to organize their data, operations and processes to ensure the proper steps are taken to address each piece of the FATCA regulation. FATCA compliance can be a heavy burden for the industry and organizations should maximize the time allotted to prepare for this complex regulation. The extra time should not be overlooked and firms need to act now before it’s too late.

Hugh J. Campbell Jr., CPA, is SVP – Regulatory Reporting GRC, at AxiomSL.

Credit: TABB FORUM