Multinational enterprises underestimate impact of FATCA
Belgium has recently signed the FATCA Agreement (Foreign Account Tax Compliance Act Agreement) with the United States. Consequently, Belgian financial institutions will soon report to the Belgian tax authorities on financial accounts they are holding on behalf of their US clients (both individuals and corporations controlled by US individuals). The Belgian authorities will exchange the collected data with the US Internal Revenue Service (IRS) yearly. However, there are significant differences in the required preparations affecting the financial sector in Belgium. Particularly the impact on multinational enterprises is seriously underestimated. And yet it is estimated that hundreds of Belgian businesses will feel the consequences of FATCA.
Application
FATCA is the US government's reaction to taxpayers placing income offshore in order to avoid taxes. Belgium concluded an intergovernmental agreement with the US and undertook to implement FATCA into national legislation. As a result, Belgian financial institutions are under an obligation to provide the US Internal Revenue Service with yearly data on US taxpayers (through the Belgian tax authorities). It concerns the identity of the account holders, the TIN (tax identification number), an overview of the balances and, in the future, the income in the accounts as well as the revenue from financial instruments. The first reporting is to be done in 2015 and relates to 2014.
Impact in Belgium
FATCA imposes obligations on so-called "Foreign Financial Institutions", in short "FFIs", thus bringing Belgian banks, insurers and investment institutions within its range and requiring them to exchange the requested information. The term "FFI" is very broad, however. For instance pension funds, group insurance schemes, private equity funds as well as treasury centres of multinationals fall under the definition of an "FFI", while the status of holding companies is the subject of numerous discussions. Accordingly, those organisations also have to be FATCA compliant by 1 July 2014, the date FATCA becomes effective.
"So shortly before the deadline, FATCA should be higher on the priority list of multinationals and financial institutions," Geneviève Colot, Director at PwC Belgium, explained. "In many cases, however, it is not clear in what way an enterprise has to be FATCA compliant. That's why PwC is working closely with Febelfin [the Belgian Financial Sector Federation] and the Belgian department in charge of finance [FOD Financiën/SPF Finances] to develop a Belgian FATCA practice note or "circular" to provide businesses with practical guidelines and explanation on the implementation of this legislation. BEAMA and Assuralia, the other sector representatives in Belgium, are also involved in the process."
Consequences in the case of non-compliance
Financial institutions have to be FATCA compliant by 1 July. If a financial institution does not adhere to the FATCA rules and it is identified as a ‘bad' financial institution, a FATCA withholding tax of 30% will be applied to certain payments of US origin made to the financial institution concerned.
"We should definitely not underestimate the resulting potential reputation damage," Geneviève Colot emphasised. "In Belgium, hundreds of financial institutions are feeling the impact of FATCA. Those institutions have to identify their clients and contact them once their file contains one or more elements that can lead to the conclusion that they fall within the scope of the relevant legislation. They also have to contact clients whose FATCA classification needs to be clarified. This requires a major effort in terms of IT, documentation, training and communication, both in-house and with clients. In other words, FATCA creates substantial costs in terms of identification and reporting, with the financial institutions being the instances that incur the costs to the benefit of foreign authorities. In the future, Belgium will also receive information from foreign government agencies since FATCA was the initial impetus for a series of initiatives aimed towards the automatic exchange of information, including the Common Reporting Standards. The trend towards transparency is obvious."
