ABBL

The Foreign Account Tax Compliance Act (FATCA) is currently high on the worry list of financial intermediaries around the world. In order to provide an insight into FATCA and its provisions and to help members to make the right decisions, the ABBL held an ABBL meets members information session dedicated to this issue. Members had the unique opportunity to discuss the political, technical and operational aspects of FATCA with renowned local and international experts.

Following an introduction by Rüdiger Jung, Member of the ABBL Management Board and Head of Legal & Tax, Frederic Batardy, who chairs the European Banking Federation workgroup on FATCA, provided an overview of the results of the various lobbying efforts as well as an insight into the way forward in tackling this burdensome piece of legislation.

Frederic Batardy pointed out that, while it took quite a while to get people interested in FATCA, joint lobbying efforts by the European Banking Federation (EBF), the Institute of International Bankers (IIB), as well as the ABBL, did achieve some noteworthy results. A particularly important achievement, given the complexity and wide-ranging impact of FATCA, is the introduction of a phased implementation timeline. Initially scheduled to be implemented on 1 January 2013, the rules will now be implemented in phases from 1 July 2013 to 1 July 2015. This will give financial intermediaries more time to implement the rules. Batardy stressed the importance to prepare for FATCA in a timely manner, which includes identifying one’s status under FATCA as well as the needs based on the Act itself and the available IRS Notices. Evaluating one’s business model with respect to US clients and US securities is also crucial.

From a US perspective, David Moldenhauer (Assistant Professor at New York Law School and Partner at Clifford Chance, US) focused on FATCA as a diplomatic issue and elaborated on its impact on other countries. Not only does FATCA disregard local tax law and data protection rules, there is also no reciprocal information sharing from the US. “If Norway came to the US to ask about their citizens’ accounts in Miami, there’s very little information that the US authorities could give them”. As Moldenhauer summed up, the local economies bear the cost for FATCA with no benefit in return.

In conclusion, David Moldenhauer provided some advice on how other countries could respond to the US, which includes insisting on the lack of reciprocity and on the fact that FATCA is completely disproportionate to the size of the problem.

In the following panel discussion on the political and technical aspects of FATCA, Tania Saulnier of the French Banking Federation provided a summary of a French legal opinion on the incompatibilities of FATCA with French law. Under French law, banks and other financial intermediaries will need to get clients’ prior consent in order to process personal data. Without prior consent of account holders, disclosing information to the US tax authorities under FATCA would breach French banking secrecy. Getting consent from account holders is thus a key issue, and will be a lengthy and costly procedure for banks. In addition, applying a US tax on French territory is most likely a violation of French sovereignty. As Tania Saulnier pointed out this may even result in banks being sued by their clients.

Hugues Besson (Clearstream) informed members on a lesser-known aspect of FATCA: the challenges it will represent for data guardians. 18 March 2012 marks the end of grandfathering for certain obligations. Debt securities issued before this date are not subject to FATCA. Besson illustrated, however, that determining whether a Security is FATCA eligible or not is very difficult and tedious work in practice.

Christian Daws (Ernst & Young) gave members advice on how to deal with Private Banking accounts under FATCA. Indeed, what a bank may call a Private Banking account might not be one for the purposes of FATCA. Identifying which accounts are actually Private Banking accounts and which aren’t is thus an important aspect of preparing for FATCA.

Gerdy Roose (BDO) presented an overview of how the various entities are classified according to FATCA. Entity classification affects payments to a foreign account, and determines whether reporting obligations and the 30% withholding on passthru payments apply. The definition of an account under FATCA is very broad indeed. Conditions to be exempted as a Foreign Financial Institution (FFI) are, on the other hand, very restrictive.

In the final panel, Pascal Noël (Deloitte) also focused on the issue of passthru payments, providing various detailed case studies in order to illustrate the effect the passthru payment percentage can have in the context of payments to recalcitrant account holders.

Gérard Laures (KPMG) also provided a case study, concentrating on the disclosure requirements of the various entities in an expanded affiliated group. Laures stressed that entity level Compliance affects the FATCA Compliance of the entire group, since every entity is responsible for its own reporting.

In the last presentation of the case study panel, Kerstin Thinnes (PwC) discussed the multi-layered impact of FATCA at the operational and risk management level. Indeed, as Thinnes stressed, FATCA is a business issue NOT a tax issue. FATCA can only be tackled by being broken down, since it impacts all the different activities in the value chain.

In his conclusion, Jean-Jacques Rommes, CEO of the ABBL, reiterated panellists’ indignation at the US’s complete disrespect of national sovereignty. For states, the complete lack of reciprocity is particularly worrying. Indeed, the US would never have tolerated to be treated the way they are treating others with FATCA. For Non-US citizens it is the fact of being subjected to US law without any consideration for the legal problems this entails. For Rommes, FATCA will become a reality as a result of a number of deficiencies, including the de facto consent of the victims themselves (banks, EU bodies and national governments) who failed to unite in their opposition to FATCA. National governments and the EU Commission, in particular, have so far been very weak on the subject. This weakness has allowed FATCA to materialise in the first place. Considering the disproportionate cost of implementing FATCA, Rommes made the ironic point that in the end it would have been less costly to just send the US the money they hope to raise with FATCA.

Article published in Luxembourg Banking Quarterly 03/2011