What is FATCA law?
Origin: American legal arrangement adopted in March 2010 that has an extraterritorial scope.
Subject: Check the consistency between US taxpayers income reporting and the reporting of the income and assets held abroad by US taxpayers.
Objective: Fight against fraud and tax evasion
The regulatory context
The legislation applies to foreign financial institutions called FFI (Foreign Financial Institution) and requires the reporting of income paid to US taxpayers.
The implementation of the Fatca law is part of intergovernmental agreements (IGA).
Two models of IGA are provided:
- Model 1: Banks deal with tax authorities of their State, which will deal in turn with the IRS. (Bilateral Tax Information Exchange)
- Model 2: Banks deal directly with the IRS. (Unilateral exchange of information with the IRS)
France has signed an intergovernmental agreement IGA on November 14, 2013 that allows the implementation of FATCA in the French legislation. Belgium, Tunisia and Algeria are also included in this category.
Fatca law applies in a contractual framework between the IRS and financial institutions; it imposes penalties on non-compliant financial institutions or recalcitrant clients.
The Principality of Monaco and Lebanon are included in this category.
Who is concerned by the law?
Individuals and companies considered as “US Person” according to the standards of the US tax authorities.
- The impacts of FATCA for financial institutions
The projected schedule based on the different options
Set up of FATCA reporting under the IGA model
- Testing period for submitting the 2015 declarations through the TELE-TD: From 30/03/2015 to 18/05/2015
- Opening of FATCA collection department (reporting period): From 04/05/2015 to 15/07/2015
- Deadline for submitting Fatca declarations on situation on 31/12/2014: 15/07/2015
Set up of non-IGA Fatca reporting
- Test period for 2015 files delivery: From January to March 2015
- Maturity of the regulatory declaration: 31/03/2015
FATCA reporting occurs based on two stages from 2015:
- A reporting which type is 1042 (according to the models 1042-S, 1042-T and 1042) on 15/03 of each year on income of American source
- A reporting of 8966 type on 31/03 of each year concerning the amount of assets of US persons.
This reporting process is based on the data resulting from the classification processes and the withholding tax of the previous year.
The reportings for 2016 shall include, in addition to account balances on 31/12/2015 the income related to dividends, interest and other income
Set up of Fatca reporting under the non-IGA model
- Reporting on March 31, 2016 on the account balances and on all the income (Dividends, interest and other income) based on 2015 income.
Set up of Fatca reporting under the IGA model
- Reporting on March 31, 2016 for IGA model 2 based on 2015 income
- Reporting on September 30, 2015 for IGA model 1 based on 2015 income
Start of FATCA withholding tax on income and non-US proceeds from sales directly or indirectly linked to US assets.
DGFiP Fatca schedule (IGA) in the statement of work on 2014 income: http://www.impots.gouv.fr/portal/deploiement/p1/fichedescriptive_7015/fichedescriptive_7015.pdf (page 47)
FFI – Foreign Financial Institutions :
Foreign financial institution (non-US) which is particularly authorized to:
- Accept deposits
- hold financial assets on behalf of third parties
- Have investment or trading as a main activity
- Be an insurance company that issues payments or is required to make payments linked to a financial account
Financial accounts considered under FATCA:
Deposit or custody accounts, shares and bonds, insurance contracts with cash surrender value and annuity contracts
FORM W-9 :
Form that aims at requesting the TIN number of the American taxpayer. This form must be completed by the “US Persons”
FORM 1042 and 1042-S:
Forms that aim at reporting to the IRS the income of non-US clients holding US securities.
Form that aims at declaring the balances and information related to US accounts by the foreign financial institutions (in respect of the calendar year 2014)
GIIN (Global Intermediary Identification Number)
FATCA identification number
IGA (Inter-governmental agreement):
It is an agreement between the United States and another country specifying the implementation methods of FATCA in this country while taking into consideration the local laws.
The intergovernmental agreement signed by France specifies in particular that the French financial institutions will report the FATCA information to the French tax authorities to be transmitted to the US tax authorities.
IRS : Tax collection agency of the US Treasury Department
NFFE (Non-Financial Foreign Entity): Any non-US entity that does not fit in the definition of FFI.
To avoid the withholding tax of 30%, the entity must certify that it does not hold US taxpayers account or otherwise submit its name, address and taxpayer identification number.
Recalcitrant Account Holder:
Entity or person refusing to provide the information required for the identification of its account. To be more precise, they are clients who are likely to be “US persons” and did not provide justification to the contrary, meaning that they have recognized the status of “US persons” but refused the lifting of bank secrecy.
TIN : Taxpayer Identification Number
Individual or entity that meets identification criteria defined by the US tax authority (IRS). The term “US person” refers to:
- A citizen or resident of the United States
- A holder of the Green Card (green card)
- An American partnership
- A US company.