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FATCA


“At this point in time, nobody in the world is ready for FATCA – and that includes the IRS,” says Tony Mancini, Executive Director for Tax at KPMG, Channel Islands, who argues that all Channel Island funds must start preparing for FATCA now by using the IRS’s preliminary guidance. “The regulations and formal guidance required have not yet been issued, although many organisations are eager to make sure they have the systems in place. Without the regulations, you can’t bring in meaningful changes,” adds Laila Arstall, Advocate and Senior Associate at Carey Olsen in Guernsey, who points out the IRS has pushed back the commencement of its withholding tax regime until January 2014 because of concerns over the absence of final regulations. The cost, time and manpower required to


meet FATCA’s requirements represent other major concerns. Cameron points out that banks have already calculated that FATCA will cost FFIs millions of pounds globally in system development and resources. However, Chris Clark, Managing Director at Prosperity 24.7 in Jersey, says that some companies are already starting to undertake significant remediation programmes or getting new systems in place, but is concerned that despite the volume of comment on the subject and the potential implications, many businesses are not undertaking sufficient planning to fully prepare for the impact this legislation could bring. “Many are simply relying on increased client due diligence to adopt process changes retrospectively,” he says. Clark continues: “The ‘big four’ have provided valuable public briefing notes regarding the preparation required. Hopefully, businesses that could be affected will review the relevant papers and take proper action. The thing businesses need to remember are that ‘disparate multi-jurisdictional systems’ are not an excuse for non-compliance. Record keeping for FATCA commences from initial contact through to closure – even if a prospect never becomes a client.”


Losing out According to Gary Trehiou, Director of ACA Compliance (Jersey), Channel Island businesses could find themselves among the biggest losers. “The costs of implementation will proportionally hit the smallest businesses the hardest, and they will find it a very expensive exercise,” he says. “While there


36 businesslife.co October/November 2011


are a lot of quality businesses in Jersey, they are not big organisations.” This is picked up by Tom Carey, Partner at Carey Olsen in Guernsey, who says: “Large fund administrators with US connections have teams in place to deliver this. The question for smaller fund administrators is whether they have the scale to do it.”


Carey, nevertheless, believes that larger fund administrators will start to offer FATCA services to smaller businesses – a view shared by Mancini, who points out that the bulk of FATCA expertise currently lies with global accounting and legal firms and global financial institutions. “The actual requirements of FATCA are not so complex that the smaller local practices – with the right help at the start – can’t adapt and introduce systems and procedures that will enable them to offer FATCA-compliant services to clients if required,” he says.


“Some administrators will see it as an opportunity, because once they have the systems in place they can pass the costs on to the fund manager,” adds Wendy Dorman, Tax Partner at PricewaterhouseCoopers in Jersey – though she adds: “Others may be less optimistic about passing costs on.” Chris Clark, however, remains quite


upbeat: “The problem of compliance is often perceived as ‘the cost of doing business’,” he says. “We believe systems that both assist the reporting mechanisms for FATCA but additionally the wider business – and thus


ensure operational and commercial benefit – can be implemented cost effectively.”


Turning business away? There are suggestions that many Channel Island funds and administrators may seek to cut their losses by closing their doors to US investors. “This will affect many funds’ strategies as far as their US client base is concerned,” says Trehiou, pointing out that funds will assess the size of their US client base and its value to them in relation to the costs FATCA brings. However, according to Mancini, the issue is not that simple: “The problem is not just with having US investors – the problem also arises from holding US assets. An FFI with no US investors that receives US-source income will still have to comply with the regime and be able to adequately demonstrate that it has no direct or indirect US investors,” he says. “There are some funds that are considering selling US assets or not investing there, but that could make their investment strategy very difficult. The US is still the world’s largest economy.” Similarly, Dorman points out that some


Channel Island funds may hope to become ‘deemed-compliant FFIs’ by excluding US investors, so as to benefit from less onerous requirements – but will still have to account for their US investments. “For many funds, FATCA will result in an increase in administration costs without adding to the bottom line,” she says. She adds that funds


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