What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a US law aimed at foreign financial institutions (FFIs) and other financial intermediaries to prevent tax evasion by US persons through the use of offshore accounts.
The FATCA provisions were enacted in the Hiring Incentives to Restore Employment (HIRE) Act, which was signed into U.S. law on 18 March 2010. FATCA is supplemented by guidance issued by the U.S. Treasury Department (commonly referred to as the FATCA regulations).
The FATCA provisions are additional – and not substitutive – to the current QI regime already in place.
What is the intent behind FATCA?
The primary objective of FATCA is to uncover and discourage offshore tax evasion by U.S. citizens or residents by requesting information about such persons to increase transparency for the U.S. Internal Revenue Service (IRS) and by imposing a withholding tax where the appropriate documentation and reporting requirements are not met.
How does FATCA work?
FFIs are required to register and enter into an "FFI agreement" with the IRS, which will confer the status of "participating FFI". The FFI agreement mainly obligates a participating FFI to:
state its intent to comply with FATCA;
conduct a due diligence process for preexisting and new individual and entity accounts to identify, based on so-called "U.S. indicia", the account holders or investors as either U.S. or non-U.S.;
withhold 30% when individuals fail to provide the appropriate documentation or when doing business with non-compliant entities;
report account information directly to the IRS or indirectly through their national governments which have signed Intergovernmental Agreements.
FFIs will have a strong incentive to enter into an FFI agreement with the IRS and to comply with FATCA. If an FFI does not enter into such an agreement, relevant U.S.-sourced FDAP payments (fixed, determinable, annual, or periodic payments), such as dividends and interest paid by US corporations, will be subject to a 30% withholding tax. The same 30% withholding tax will apply to gross proceeds from the sale of relevant US property of a type that produces dividends or interest.
When does FATCA start?
FATCA will come into force progressively; the first stages should begin on 1 July 2014.
Who qualifies as an FFI?
Under the FATCA regulations, an FFI is defined as a foreign financial institution that:
accepts deposits in the ordinary course of banking or similar business;
holds financial assets on behalf of others as a substantial portion of its business;
is an investment entity (as defined by the regulations issued by the U.S. Treasury);
is an insurance company or is a holding company belonging to an expanded affiliated group that includes an insurance company; or
is a holding company or is a treasury center.
Generally speaking, foreign entities such as banks, broker/dealers, insurance companies, hedge funds, securitization vehicles, holding companies, certain trusts and private equity funds will be deemed to be FFIs. Entities that are exempt from this legislation include publicly traded corporations, foreign governments and wholly owned agencies of organizations or foreign central banks.
A number of Edmond de Rothschild Group entities will qualify as FFIs.
What is an Intergovernmental Agreement (IGA)?
An Intergovernmental Agreement is a bilateral agreement between a given country (partner jurisdiction) and the U.S. government that facilitates the implementation of and compliance with FATCA and furthermore reduces the burden on FFIs for certain procedures. It is mandatory for FFIs located in partner jurisdictions to be FATCA compliant. To this end, the model agreements enable FFIs in the designated partner jurisdictions to comply with FATCA, especially where privacy laws exist.
There are currently two types of IGAs:
Model I: FFIs in a Model I partner jurisdiction report information about U.S. accounts to their national tax authority, which in turn provide the information to the IRS (automatic exchange of information).
IGA Model I countries: UK, France, Germany, Spain, Norway, Cayman Islands, Ireland, Costa Rica, Denmark, Mexico, Netherlands, Mauritius, Malta, Jersey, Italy, Isle of Man, Hungary, Guernsey and Canada. Belgium and Luxembourg (in negotiation)
Model II: FFIs in a Model II partner jurisdiction report information about U.S. accounts directly to the IRS. FFIs also report aggregate information with respect to account holders who do not consent to have their account information reported. On that basis the IRS may make a "group request" for more specific information from the partner jurisdiction’s tax authority.
IGA Model II countries: Switzerland, Japan, Bermuda
How does FATCA impact Edmond de Rothschild Group and its clients?
Edmond de Rothschild Group entities that qualify as FFIs must either enter into an FFI agreement with the IRS (if IGA model II or the Final Regulations apply) or become "reporting FIs" (if IGA model I applies). Alternatively, other FFIs that fulfill the conditions may obtain specific compliant FATCA status.
As a result, the aforementioned entities will have to collect and verify appropriate client and/or counterparty information. Then, depending on the applicable regulations (in an IGA country or not), they will have to report certain information to their local tax authorities and/or to the IRS. FATCA regulations further compel these entities to review existing onboarding and withholding processes and, where required, adapt them accordingly to the new regulations
The Edmond de Rothschild Group is proactively implementing changes to its current business practices and processes, in order to comply with FATCA, while continuing to best serve its clients and counterparties.
Like all banks and securities dealers in Switzerland, Edmond de Rothschild (Suisse) SA is required to sign the Depositor Protection Agreement for Swiss Banks and Securities Dealers. Our clients’ deposits are therefore insured for up to CHF 100,000.- per client. Savings bonds deposited with the issuing bank in the depositor’s name are also deemed to be deposits. Deposit insurance in Switzerland is provided by esisuisse and the deposit insurance system is explained in detail on the website : http://www.esisuisse.ch/en/.