New Survey Reveals Inaccuracies in FATCA FilingsOctober 07, 2016
Comply with FATCA or face stiff penalties!
A new survey put out by the Aberdeen Group on behalf of Sovos Compliance, a software company, reveals that less than half of filings for the Foreign Account Tax Compliance Act (FATCA) have been accurate. While the survey was focused on the compliance issues of large financial institutions subject to FATCA reporting it nevertheless is an illustration of the difficulties inherent in complying with these complex new rules. Furthermore, FATCA compliance is not just limited to large foreign financial institutions and will impact a broad range of foreign entities making payments to US persons.
More about the survey
- Out of the 100 financial institutions examined, only 44% of the filings were accurate. The remaining 56% had some sort of error, according to the survey.
- The financial institutions that were part of the survey are subject to the Automatic Exchange of Information (AEOI) under the Organization for Economic Cooperation and Development (OECD), which is supposed to make them more prepared to handle FATCA compliance.
- The lesson taught by the survey was that large financial institutions need to have an appropriate information system in place - Successful institutions need a single centralized information retrieval and reporting platform. This allows businesses to automate the cleansing, consolidation and reconciliation of essential data for filing, as well as ensuring accurate compliance in an efficient manner. Having separate software programs for each AEOI requirement has not been proven successful
What’s at stake?
Inaccurate filings can result in significant business damages, including excessive costs (due to penalties for late, failed, or inaccurate filings), harmed reputations, and lost customers.
It is clear that much of the blame for inaccurate filings can be put on the unpreparedness of reporting entities. For large institutions the implementation of a centralized AEOI system is critical to meeting its reporting responsibilities. For smaller foreign entities that may be less obviously subject to FATCA reporting, the challenge is first to recognize their obligations and then to properly meet them.
The poster child for FATCA related complexity for the rank and file FATCA filer is the Form W-8BEN-E. The form is eight pages long and requires the entity to indicate its FATCA status from a list of over thirty often non-intuitive choices. The pre-FATCA version of the Form still in use for individuals only was the W-8BEN. It was a one page form and consisted of little more than filling in one’s name and address. The W-8BEN-E in its current version is presented to businesses by the foreign financial institution (FFI) where the entities have accounts. The form’s primary use is for the institution to be able to determine if there are any substantial U.S. owners or controlling U.S. persons of the entity. Take a look at our blog, ‘Important Instructions for IRS Form W-8’ for filing help.
Contact our Global Tax Services Practice for more information.