Last-Minute Considerations Still Needed for FATCA, Says GoldenSource's Engdahl

More than four years since the U.S. passed the Foreign Account Tax Compliance Act (FATCA), the thrust of the law has now come into effect, and while most institutions by and large appear ready, there are still a few potential problem areas, says GoldenSource’s Steve Engdahl.

The withholding and due diligence reporting requirements came into effect on July 1, and in the closing days, both Russia and China agreed to cooperate with the law, thereby allowing their domestic institutions to report to their national tax authorities, who in turn will report to the IRS.

In addition to these countries, nations around the world have signed on, and the Tier 1 institutions seem well prepared. Yet smaller firms have been running closer to the deadlines in terms of preparing to meet the baseline requirements, says Engdahl, who serves as GoldenSource’s senior vice president, product strategy.

For all firms, including those based in the U.S., certain areas could be a challenge, such as meeting the requirements for reporting on U.S.-based securities held abroad. FATCA “also applies to U.S.-based securities services firms who provide services to financial institutions with operations outside the U.S.,” explains Engdahl. “The deep implications of FATCA may not have occurred to such U.S.-based firms until later in the game, and thus they might also have catching up to do.”

For example, firms need to determine what cash flows are U.S.-sourced, thus affecting areas such as corporate actions.

“We’ve seen a few examples where firms are focused on gathering data on U.S.-domiciled clients but not paid as close attention to U.S.-based securities held by clients, which also fall under the requirement. As a result, we’re seeing a bit of a rise in urgent—or more last-minute—requests for corporate actions data and information on specific U.S. securities,” he says.