28 November 2014

Regulatory Client Onboarding

Marc Murphy - Fenergo

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Will FATCA turn banks into tax advisors?

28 January 2013  |  3646 views  |  0

 

What a difference a week makes! Since the announcement of the final regulations, it seems that every financial institution has just hit the accelerator button on their FATCA programmes. As a result, we’ve been powering through presentations and demonstrations on how our FATCA solutions work in practice.

As part of this, I’ve been giving more thought to the whole process behind self-certification and the role that banks play in this. The self-certification portion of the FATCA programme entails the provision of information through the completion of IRS-approved forms (e.g. W-9 and W-8BEN), along with the provision of additional documentation (depending on the indicia identified). For example, a person or entity:

  • that is a U.S. citizen or permanent U.S. resident should complete a W-9
  • who was born in the U.S. but resides elsewhere will be required to complete a W-9 or W-8BEN, provide documentary evidence in the form of non-U.S. passport (or other documentation establishing citizenship), along with a written submission renouncing U.S. citizenship.
  • with a U.S. address (residence, correspondence or hold mail address e.g. U.S. PO Box) will need to complete either a W-9 or W-8BEN form, and provide documentary evidence in the form of non-U.S. passport or other similar documentation establishing citizenship
  • in receipt of a transfer of funds to U.S. accounts or directions from a U.S. address will be required to complete a W-9 or W-8BEN form and provide documentary evidence proving non-U.S. status
  • whose only address is a “hold mail” or “in care of” address will be required to complete a W-9 or W-8BEN form and provide documentary evidence proving non-U.S. status
  • whose Power of Attorney or signatory authority is granted to a person with a U.S. address is required to complete a W-9 or W-8BEN form and provide documentary evidence proving non-U.S. status.

It is important to note that W-9 or W-8BEN forms are not mandatory from a FATCA compliance perspective. The legislation states that the evidence to support U.S. or non-U.S. status “… may be on an IRS form W-8 or other similar agreed form…”. However, having said this, most banks will err on the side of caution and use the W-9 and W-8 forms.

That aside, what’s puzzling me is this: when a bank identifies a customer with some US indicia and contacts them asking them to self-certify if they are or are not a U.S. person or entity, should the bank instruct the customer as to which form to complete? If they do divulge which form (either W-9 or W-8BEN) they should complete and submit, are they, in fact, inadvertently giving tax advice to that particular customer? Is it the bank’s responsibility to tell them which form they should complete based on the information that they hold on the customer?

There is no doubt that, upon proper cleansing, remediation and identification of customer data banks should have a solid basis for knowing which form should be completed. And it would certainly take some of the confusion and ‘work’ out of the equation for the customer if they could direct them towards the right form and make it as easy as possible for them to complete e.g. through online portals. However, the question is, does this push the role of the bank over the line to tax advice?

In my humble opinion, I don’t think banks should become tax advisors in this sense. Instead, I believe that the solutions put in place for self-certification should be flexible enough to pose a series of dynamic questions to customers that will guide them towards  the correct tax form – thereby, ensuring they make the ultimate decision on which form best suits their particular tax situation. This should serve to reduce user error while eliminating the bank’s role and responsibility in giving tax advice. Just my humble opinion… 

 

TagsRisk & regulationWholesale banking

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