Stanchart conducts FATCA session for banking leaders
Standard Char tered’s Head – Compliance Training, India and South Asia, P. Ananthakrishnan (Ananth) conducted an interactive and impactful session on the Foreign Account Tax Compliance Act (FATCA) for senior managers and compliance officers of banks and financial institutions (FIs) in Colombo recently. The event was organised under the auspices of the Association of Compliance Officers of Banks, Sri Lanka (ACOB).
Ananthakrishnan, during his presentation, said over the years the United States (US) government had investigated a number of instances of US citizens, US residents, US Green Card holders and foreign entities where there is more than 10 percent US ownership (together termed as ‘US Persons’) of tax evasion through investments in overseas assets.
As a consequence, FATCA was enacted in March 2010 to detect and prevent tax evasion by US Persons. He said the main provisions of FATCA will come into effect from January 1, 2014 and this deadline was only about six months away now. Ananthakrishnan explained that FATCA requires ‘Foreign Financial Institutions’ (FFIs) i.e. banks and FIs in Sri Lanka to identify and report on the financial accounts (i.e. current accounts, savings accounts and fixed deposits) of their customers who are US Persons or suspected US Persons (i.e. those who are not able to give documentary evidence to the contrary) to Internal Revenue Service (IRS) of the US. Any FFI that does not comply with FATCA by December 31, 2013 and does not sign an agreement with IRS will face Withholding Tax (WHT) of 30 percent on the Income they receive from ‘US Sources’. Besides this, FFIs will also have the obligation to deduct 30 percent WHT on any US Source Payments they are making to any other FFI or any other Non-Financial Foreign Entity which is not compliant for FATCA.
Ananthakrishnan emphasised that FATCA will have a widespread impact on banks and FIs and will require banks to adopt significant changes to their KYC systems and processes to identify US Persons and report the details required to IRS. This will also have a huge impact on cost to implement these changes.