Taking control of FATCA: Building effective internal controls and certifying compliance
In March of 2010, the Foreign Account Tax Compliance Act (“FATCA”) was enacted as part of the Hiring to Restore Incentives (“HIRE”) Act. FATCA was enacted with a primary goal of providing the Internal Revenue Service (“IRS”) with an increased ability to detect US tax evaders concealing their assets in foreign accounts and investments. It aims to accomplish this goal by encouraging non-US entities to comply with a new set of tax information reporting and withholding rules or suffer the consequences of non-compliance, primarily being subject to withholding tax on income from US sources. Ultimately the consequence of non-compliance will include withholding on gross proceeds from the sale of US securities and income from non-US sources.
The purpose of this paper is to highlight the need for entities impacted by FATCA to develop and maintain:
- Sufficient controls around operational and financial functions that are impacted by FATCA;
- Adequate infrastructure to ensure ongoing compliance with FATCA’s requirements; and
- A FATCA-compliant program sufficient to make periodic certifications to the IRS as needed.