Fatca To Catch Trust Companies, Trustees


Tribune Business Reporter


Financial institutions must determine their classification under the US Foreign Account Tax Compliance Act (FATCA), a US-based attorney said yesterday, warning that they could be subject to penalties or excluded as a Non-Financial Foreign Entity (NFFE).

Gennette Faust, an associate at US-based firm Greenberg Traurig, said how an institution complies with FACTA - and whether it is subject to penalties - can be determined by whether it is an Foreign Financial Institution (FFI) or NFFE.

NFFEs do not have FATCA reporting or withholding obligations towards the Internal Revenue Service (IRS). But an NFFE, which is a client of, or investor in, a participating FFI may be asked to provide FATCA certification on the US or non-US tax status of their direct or indirect owners.

Speaking at a Higgs & Johnson’s annual client seminar yesterday, Ms Faust said four entities, namely custodial institutions, depository institutions or banks, certain types of insurance companies and investment entities such as trust companies, were considered FFIs under FATCA.

“An investment entity would be any entity that trades in financial instruments, managing a portfolio or managing, administering or investing funds on behalf of another person. It’s a broad category, and generally you wouldn’t think that a trust company or a corporate trustee would fall as a financial institution under FATCA, but it is. Any entity that is managed by a company that is considered an investment entity is also an FFI. If you have a company that has a professional asset manager, that company is an FFI,” said Ms Faust.

The Government has chosen a Model I intergovernmental agreement (IGA) with the US Treasury for FACTA compliance. FATCA, which was brought into law in March 2010, is a set of rules set out by the US Internal Revenue Service (IRS) designed specifically to limit tax evasion by US persons living abroad.

Under FATCA, US taxpayers holding financial assets outside the US must report those assets to the IRS or face penalties. FATCA will also require foreign financial institutions to report directly to the IRS certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.


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