Facta compliance a challenge for US banks - KPMG

Source: KPMG

Finance and tax executives in the banking industry expect compliance costs to increase significantly as a result of the Foreign Account Tax Compliance Act (FATCA) and say they will face numerous challenges trying to comply with the legislation given its broad scope and expanded reporting and monitoring requirements, according to a survey from KPMG LLP, the U.S. audit, tax and advisory firm.

Fifty-five percent of the 70 banking executives who participated in the KPMG survey said compliance costs would increase significantly as a result of the FATCA regime. Seventy-three percent of the respondents indicated it would be difficult for their business to become FATCA-compliant, with account identification requirements cited as the most significant compliance challenge for their enterprise.

"The FATCA regime creates significant challenges in the areas of compliance, reporting, and monitoring risks that need to be addressed and organizations are realizing the commitment and effort needed across all disciplines and processes to tackle them," said Mark Price, KPMG's Banking and Finance practice national tax leader. "In essence, finance and tax departments at banks will need to be in sync with their IT, operations, and regulatory departments, while keeping bank leadership informed of issues."

When asked to name the discipline or process within their organization that would have the hardest time preparing for FATCA, 41 percent of the banking executives said operations followed by IT (20 percent). Fifty-seven percent of respondents reported that their company was currently working across several departments to prepare for the FATCA regime.

In other findings, when asked what presented the greatest FATCA-related compliance challenge for their tax department, 38 percent said identifying the scope of work required, while 30 percent said "assuring compliance across our businesses and departments."

The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) expect foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The effective date for this new regime is January 1, 2013 (though the Treasury and IRS have recently issued Notice 2011-53 that contains transition rules coveres covering the initial years). Banks and other financial institutions that do not agree to disclose this information could be subject to a 30 percent punitive withholding tax.

"CFOs and tax directors should be aware that most U.S. financial institutions and foreign financial institutions have concluded that implementation will take between 18-24 months and many banks are taking action now, working across various disciplines in order to prepare for FATCA," said KPMG Washington National Tax principal Laurie Hatten-Boyd.

"The good news is that banks do have current documentation processes in place due to know your customer (KYC) and anti-money laundering (AML) rules," continued Hatten-Boyd. "But they will need to refine current systems and processes -- and in some cases develop new ones -- for FATCA purposes in order to obtain, retain, and report the required information to the authorities when the rules go live."

The KPMG survey was conducted during a KPMG TaxWatch event focused on FATCA.

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