International fund managers still have concerns about how the US Foreign Account Tax Compliance Act (FATCA) will work.
Fund managers around the world feel the law lacks consistency and leaves many uncertain about what they need to do to comply.
More than half (51%) the fund managers polled by fund manager Northern Trust who shared their views about FATCA spoke about their uncertainty.
This is in line with a similar FATCA survey by Northern Trust last year, when 55% of managers expressed the same view.
Between the two polls, the US government has issued a swathe of guidance notes, draft legislation and draft forms to help financial institutions understand their obligations under the law.
Flood of regulations
FATCA calls on US taxpayers to disclose their offshore holdings and earnings of $50,000 or more a year – and also obliges foreign financial institution to report on the accounts they hold for American citizens.
If the financial institution fails to make a report, the US Internal Revenue Service (IRS) can order US banks to deduct a 30% withholding tax on any transactions made on their behalf.
“Although the US government has put back the start date until January 2014, fund managers still have many of the same worries that they had last year,” said Kathleen Dugan, FATCA product manager at Northern Trust.
“Financial firms already face many non FATCA regulatory changes and the FATCA timescale and the wide ranging technological changes called for are major concerns. Another issue is the differences between FATCA regulations and the multitude of intergovernmental agreements.”
Nevertheless, more funds are working towards FATCA compliance. Last year, the survey revealed only a fifth were working on systems to follow the rules, whereas nearly half are running projects now (48%).
More fund managers are aware of the implications of FATCA, having taken legal and regulatory advice.
Almost two-thirds were unaware of their full obligations under FATCA last year, while this year the number has dropped to 46%.
“We anticipate most fund managers will have a FATCA compliance system up and running by the trigger date of January 1,” said Dugan. “Many companies have teams of professionals well-versed in FATCA requirements working on the databases and customer identification processes.
“Hopefully, none will fall short and face the tough consequences of non-compliance.”
An estimated 60 countries have already signed up to FATCA or indicated their willingness to do so, including many of the world’s leading financial jurisdictions.