Although the U.S. Foreign Account Tax Compliance Act (FATCA) went into effect in July 2014, new research from PayStream Advisors and Avalara shows there’s still much confusion about how it works.
In a survey of finance, tax and accounts payable professionals in U.S. companies, about 75 percent of respondents said FATCA has little to no effect on their organizations. Yet 66 percent of respondents also said their foreign payees provide business services that are regulated under FATCA.
This disconnect reflects a significant lack of knowledge about FATCA and its implications on U.S. organizations (learn more about FATCA in “FATCA Compliance: To Withhold or Not to Withhold. That is the Question”). Even worse, that disconnect can be costly, because as the IRS begins to enforce FATCA, businesses that are found to be noncompliant could face significant penalties.
When asked whether they’re familiar with the tax compliance policies of their organizations, 59 percent said “yes” and 41 percent said “no.” Those numbers are especially interesting when compared with the data from the next question, which asked where their organizations stand with the new FATCA requirements. Of those who responded, 61 percent said they don’t have any foreign payees that are classified as foreign financial institutions (FFIs). And here’s where the disconnect really widens – when asked about the business services their foreign payees provide, 66 percent said their payees accept deposits as banking and financial businesses. Respondents also said their payees trade, manage or invest financial assets (13 percent), hold financial assets on behalf of others (13 percent), act as a holding company in connection with an investment vehicle (12 percent), and qualify as foreign regulated insurance companies (10 percent). Bottom line: all of these payees potentially fall under FATCA regulations!
Given that the IRS is expected to start auditing businesses for FATCA compliance this year, organizations that do not take steps to comply now are putting their businesses at risk.
Basic Steps to Compliance
The first step you can take toward complying with FATCA is to educate your employees and customers. It’s likely better to jump in now, while the world is learning about FATCA together and the penalties stand a chance of being more lenient because of the newness of the regulations, than to wait and see what others do before implementing changes.
Here are some additional proactive measures you can take now to show a willingness to comply:
- Identify a person (or team) within your organization who is going to take responsibility for FATCA.
- When asked how organizations were handling the new FATCA requirements, only 23 percent of survey respondents said they have an in-house team responsible for FATCA compliance.
- Collect the new W-8 form for each foreign payee, and use the new W-9 (updated as part of FATCA) for U.S. payees.
- When asked if organizations were collecting the new W-8 and W-9 forms, 41 percent of respondents said “no” and 38 percent said “not sure.”
- Develop a process to collect, track and maintain the data and documents required for FATCA reporting.
- When asked if organizations have an automated system for collecting, validating and managing W-8 and W-9 forms, 71 percent of respondents said “no” and 8 percent said “no, this exists?”
FATCA is not an issue that will go away. If anything, it will grow more complicated. New rules likely will develop through trial and error as the IRS determines how the new guidelines are working.
Organizations that stay ahead of the requirements will be best poised to avoid being first to be penalized under the new law. The first step is to take proactive measures to comply.
To learn more about the 2015 FATCA Survey from PayStream Advisors and Avalara, view this new webinar on the results.