Two-thirds of foreign banks fear they might face financial sanctions from the US tax authorities because they cannot identify their clients to comply with FATCA.
The problem is poor data management by banks and other financial institutions is leaving them with a struggle to identify their clients as the global tax law come into effect.
They have until January 1, 2014, to ready themselves for the Foreign Account Tax Compliance Act (FATCA).
This legislation compels foreign financial institutions (FFI) to register with the Internal Revenue Service (IRS) and reveal details of any US taxpayer with more than £31,000 in their accounts.
Failure to do so will lead to harsh financial penalties, with US authorities withholding a 30% tax on all transactions related to the FFI involved.
Missing the deadline
Since the UK government signed up to an international agreement to enforce the act – and then created its own version of the law – critics have said the costs involved in providing the information is going to be excessive.
Around two thirds of banks will fail to meet the deadline because of the haphazard way they keep and manage client records, says Fenergo, a firm which provides financial services software.
A spokesman said: “Our survey found that many institutions are making real progress in identifying and classifying clients but many have found serious gaps in their data which will have an issue in complying with FATCA.
“That’s because they have client data in different places which makes identifying and classifying US citizens and their account balances extremely difficult.”
The survey took in all of the financial service sectors which come under the FATCA umbrella, including corporate, retail and private banks.
However, Fenergo has highlighted that nearly 80% of financial institutions will have to rewrite or amend their due diligence processes for customers.
The spokesman added: “One issue that is coming through loud and clear is that those institutions which haven’t started their FATCA compliance process yet are going to struggle because they don’t yet know the size of their data challenge.
“But they will find that by complying with FATCA they are in a much better position to meet other classification-based regulations which will come into effect.”
But many US taxpayers with foreign bank accounts are finding another issue to contend with – many financial institutions are increasingly finding it easier – and cheaper – to not have any American account holders on their books and avoid having to comply with FATCA.
If you are a US Expat and concerned about your tax liabilities and FATCA implication please contact us via the contact form here for a referral to FATCA specialist firm.
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