Foreign Account Tax Compliance Act (FATCA)

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What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is US legislation designed to prevent and detect offshore tax evasion by US persons (US citizens, US tax residents or US legal entities). FATCA came into effect on 1 July 2014.

Foreign governments around the world have agreed to comply with the legislation and have signed FATCA into local law by implementing bilateral agreements with the United States called Inter-Governmental Agreements (IGA).

What is the objective of FATCA?

FATCA has been designed to remove barriers. It allows the US tax authority (IRS) to view details of offshore accounts held directly or indirectly by US persons where they suspect tax evasion.

Foreign financial institutions (FFIs), such as ING, must identify their financial account holders, then report details of reportable US account holders and their accounts to the IRS. This is usually done indirectly via the FFIs local tax authority and it depends on the IGA in place.

The IRS compares the FFI data to what private individuals and legal entities disclosed on their tax returns. Prior to FATCA, the IRS was unable to do this comparison and was reliant on taxpayers to be forth coming.

What Is an Inter-Governmental Agreement (IGA)?

An IGA is an agreement between the US and another country to implement FATCA. The ‘other’ country is referred to as a partner jurisdiction. The partner jurisdiction commits to implementing FATCA in local law and making it mandatory for its financial institutions to comply. There are several agreements that partner countries choose from.

Model one IGA – FFIs are required to report their US accounts to their local tax authority. The tax authority will then report this information to the IRS on an automatic basis.

These agreements can be reciprocal, which means the IRS will report back to the partner country on information about accounts held by their tax residents in the US.

Model 2 IGA – Countries who sign a model two agreement will not ask FFIs to report information to their local tax authority. Instead, FFIs report details of their US accounts directly to the IRS.

Participating FFI Agreement – This is not an IGA; the FFI agreement is available to FFIs in countries that have not signed an IGA. The FFI itself can sign the agreement to comply with FATCA and reports directly to the IRS.

Who are reportable persons for FATCA?

Reportable persons for FATCA are US persons - individuals who are US citizens, US tax residents or US legal entities.

US citizens:

  • Private individuals born in one of the states of the United States, District of Columbia, Puerto Rico, Guam, Northern Mariana Islands (born on or after 4 November 1986), or Virgin Islands;
  • Foreign-born children, under age 18, residing in the US with their birth or adoptive parents, at least one of whom is a US citizen by birth or naturalization; and
  • Individuals granted citizenship status by the US Citizenship and Immigration Services (USCIS) (naturalised US citizens).

US residents:

  • US citizens;
  • US green card holders;
  • Persons who spend a substantial time in the US, regardless of their citizenship or
  • Those who choose to be treated as a US resident for part of the year.

Read more on US citizenship.

US legal entities:

  • US domestic corporations, companies, partnerships and trusts that are organised under the laws of the United States
  • The US government and its agencies and the states.

If you are not sure whether you qualify as a US person, check the IRS website. You may also find the website of your local tax authority useful. If you are still not sure, reach out to a tax advisor.

Who is impacted?

FATCA directly impacts FFIs, such as ING, as well as customers who hold accounts with us. It also affects our suppliers and other businesses that interact with ING where that interaction will generate a US source payment.

ING - Our policy is to be fully compliant with FATCA in all locations in which we operate.

  • Customer identification: We must confirm a customer’s FATCA classification which in turn will determine how their accounts are treated for reporting.
  • Reporting: We are required to annually report the financial accounts held directly or indirectly by US reportable customers.
  • Withholding: If any of our non-US customers do not provide required information to allow ING to confirm a FATCA classification, we are required to report these account holders and withhold a 30% penalty withholding tax from US source payments.

ING customers who are US persons – (private individuals and legal entities)

For ING customers that are US persons, the information they are required to provide to ING has not changed. Customers must provide: name, address and tax identification number (TIN), usually on form W9 or a self-certificate. This requirement is the same for any FFI where customers wish to open a financial account.

ING customers who are non-US persons - (private individuals and legal entities)

Customers need to provide a self-certificate when opening a financial account with ING or enter into any agreement with ING which will generate a US source payment. This document serves as confirmation that the customer does not have any US persons associated with their business, meaning the customer’s account is not reportable under FATCA.

US source payment

This is a term used to describe a payment that is in some way connected with the US. For example, a transaction paid by a US person or a payment connected in some way to a US person.

This can be payments of income such as dividends, interest, royalties, and certain payments for personal services.

For example, Apple is a US legal entity (US person). If you hold shares in Apple, any dividends you receive from your shares are deemed to be US source.

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