The Foreign Account Tax Compliance Act (FATCA) is a U.S. tax law enacted on March 18, 2010 to deter U.S. taxpayers from avoiding U.S. tax on their income through reporting by non-U.S. financial institutions to the U.S. Internal revenue Service (IRS) of certain information.
The FATCA due diligence procedures for new accounts in RCBC became effective on July 1, 2014.
The Intergovernmental Agreement (IGA) between the U.S. and the Philippines was signed on July 13, 2015. At present, RCBC is a Philippine Financial Institution that is reporting under the Model 1 IGA.
What is a Foreign Financial Institution (FFI)?
An FFI is a foreign financial institution, which is any non-U.S. entity that:
Accepts deposits in the ordinary course of a banking or similar business (e.g., bank);
Holds, as a substantial part of its business, financial assets for the accounts of others (e.g., custodian, broker-dealers, U.S trust companies, clearing organizations);
Is engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities (e.g., hedge funds, private equity funds, investment managers, SPVs); or
Is an insurance company that issues annuities or cash value insurance policies.
What should RCBC do in order to comply with FATCA?
To comply with FATCA, RCBC must accomplish the following:
Identify if new clients (by virtue of the determination date that is 30 November 2014) are U.S. Persons and require them to submit necessary forms and documents;
Conduct certain identification and due diligence procedures with respect to its pre-existing account holders in accordance with the rules under the IGA;
Report to the BIR certain information relating to the accounts held by account holders who are U.S. persons.
Who is a US person?
A United States Person as defined by the IGA means:
U.S. citizen (including a dual citizen);
U.S. resident alien for tax purposes; or
A person who has substantial presence in the U.S.. Substantial presence is defined as 31 days during the current year and 183 days during the 3-year period that includes the current year and the 2 years immediately before that counting:
all the days you were present in the current year, and
1/3 of the days you were present in the first year before the current year, and
1/6 of the days you were present in the second year before the current year.
For Juridical Entities-
A domestic corporation, partnership, or association created or organized in the U.S. or under the laws of the U.S.;
A U.S. domestic trust;
A U.S. estate; or
A company that has a U.S. substantial ownership of at least 10%.
What is a U.S. Indicium?
A U.S. indicium is an information or datum that serves as an indicator that identifies an account holder as a potential U.S. person.
What are the US indicia under FATCA?
Designation of the account holder as a U.S. citizen or resident;
U.S. place of birth
For Juridical Entities-
Classification of an account holder as a U.S. resident in the withholding agent’s customer files (this means that the entity was incorporated/established /organized under U.S. laws)
For Both Individual & Juridical Entities-
A current U.S. residence address or U.S. mailing address (including a U.S. post office box)
A current U.S. telephone number
Standing instructions to pay amounts to a U.S. address or an account maintained in the U.S.
A current power of attorney or signatory authority granted to a person with a U.S. address
An "in care of" address or “hold mail address” that is the sole address provided
What is the impact of FATCA?
At the outset, FFIs were required to register online with the U.S.IRS to enter into an FFI agreement with the U.S. Treasury Department / U.S. IRS. FFIs that do not enter into an FFI agreement with the U.S. Treasury Department / U.S. IRS will be sanctioned with a 30% withholding tax against their U.S. source income. FFIs that entered into an FFI agreement with the U.S. IRS became "participating FFIs." In the same way, FFIs were required to disclose to the U.S. IRS certain account information of their account holders who are U.S. persons.
To address the conflict between FATCA and other domestic laws, the U.S. has entered and continues to enter into a number of IGAs with different countries/jurisdictions. The Philippines entered into an IGA with the U.S. on July 13, 2015. By virtue of this IGA, all participating Philippine Financial Institutions are deemed reporting financial institutions under the Model 1 IGA. Philippine FIs are now mandated to report to the BIR all required information under the IGA and the BIR will, in turn, coordinate with and forward these reports to the U.S. IRS.
When will the FATCA regulations be implemented?
RCBC began its implementation on July 1, 2014 as this was the original determination date under the FATCA Rules and Regulations. All new clients are required to disclose their FATCA statuses and submit their documentary requirements for validation.
What information with regard to account holders will be reported by virtue of FATCA?
For Individual Account Holders / Entities / Non-U.S. Entity with Controlling Specified U.S. Persons
the account number (CIF);
the account balance or value as of:
the end of the relevant calendar year or
other appropriate reporting period or,
if the account was closed during such year, immediately before closure;
For Custodial Account Holders:
the total gross amount of:
other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account) during the calendar year or other appropriate reporting period; and
the total gross proceeds from the sale or redemption of property paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Philippine Financial Institution acted as custodian, broker, nominee, or otherwise as an agent for the Account Holder;
For Depository Account Holders: the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period; and
Any account that is not a depository or custodial account - the total gross amount paid or credited to the Account Holder, including the aggregate amount of any redemption payments made to the Account Holder, with respect to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Philippine Financial Institution is the obligor or debtor.