From FATCA to GATCA: Bracing for the next wave of compliance | Wolters Kluwer Financial Services
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  • From FATCA to GATCA: Bracing for the next wave of compliance

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    As tax-related compliance obligations evolve, how can financial institutions respond and cope? The question has become even more pressing amid clear signals the regulatory burden is only poised to increase. Just as the financial services industry struggles to digest the US Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to provide reports on US clients to the Internal Revenue Service (IRS), the effective sequel to FATCA has already taken shape, and is set to drive additional data generation, cross-border coordination and client information reporting duties in the years to come. All signals suggest the industry is due for even more complexity around compliance ahead, despite a chorus of pleas for streamlining and simplicity.  

    Led by the Organisation for Economic Co-operation and Development (OECD) and the G20 club of major economies, the Automatic Exchange of Information (AEI) seeks nothing less than to set a global standard for the sharing of tax-related data among institutions and the revenue authorities of different jurisdictions. Informally it is referred to as Global FATCA or ‘GATCA,’ and not without reason, since FATCA has essentially paved the way for the adoption of a more international framework. By requiring information to be sent to US authorities from all over the world, FATCA provided a model and motivation for the many other governments seeking more details on their taxpayers. The GATCA standard has also arisen at a time of increasing concern about tax evasion and scrutiny of so-called tax havens worldwide. 

    Consisting of two main parts -- Common Reporting and Due Diligence Standards (CRS), which outline the documentation needed to properly identify and report on foreign accounts; and the Model Competent Authority Agreement (CAA), which provides a template for the legal exchange of financial account information across jurisdictions -- GATCA shares a number of similarities with FATCA. Government entities, central banks, retirement funds and credit card issuers are largely exempt. However, other financial institutions located in participating jurisdictions will need to collect and share a number of details on their customers, including names, places of residence and holdings or movements in accounts, as well as changes in status. The opening of new accounts will also be subject to additional verification and diligence procedures.

    Over 60 countries have committed to GATCA, and 50 are stated ‘early adaptors’, including major economies such as the United Kingdom, France, Germany, India, South Korea and South Africa. In these markets client documentation requirements for new accounts will kick in as early as January next year, and full GATCA reporting and platforms for the exchange of information with other jurisdictions will be introduced in 2017. Even more jurisdictions, including Canada, Australia, China, Hong Kong and Japan, will follow suit in 2018. In other words, regardless of where an organization happens to sit or conduct operations, for many financial institutions GATCA will soon become an everyday business reality. This also means that regardless of progress in the adoption of FATCA, the window of time to prepare for GATCA implementation is swiftly closing. 

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