The Foreign Account Tax Compliance Act FATCA

The mode of collecting of tax information of FATCA (Foreign Account Tax Compliance Act, the Law on observance of the tax claims for foreign accounts) assumes that foreign financial institutions should sign agreements with federal tax agency of the USA for the purpose of detection of accounts of the American taxpayers and informing on them. The law begins to work since July 1, 2014, and registration of foreign banks in tax authorities of the USA lasted till May 5.

The law obliges the non American banks to send to tax department accounts information of the American residents - physical persons and legal entities. If banks do not sign the relevant agreement with the USA, then against them sanctions begin to work. Will levy a 30 percent tax on all payments in their advantage which are carried out using corresponding accounts in the American banks: at first only from the passive income gained in the territory of the USA (for example, percent), and since 2017 - from income from security sale and transit payments. Incorrect information representation will cause a penalty at the rate from 10 thousand up to 50 thousand dollars of the USA.

For compliance to requirements of the law to banks it is necessary to solve a priority: build technology of identification and classification of the American taxpayers. For the large Russian credit and financial organizations where the number of the accounts falling under conditions of FATCA is rather high, it turns into a labor-consuming and expensive complex of works.

Basic functional units of requirements to solution FATCA should include:

• A possibility of input and storage in the database of information (and also accounting of the change history) about clients of bank allowing to identify the American taxpayers.
• Implementation of the procedure of classification of the client according to requirements of FATCA (both for physical, and for legal entities).
• Implementation of identification procedure of the accounts belonging to the American taxpayers according to requirements of FATCA.
• Formation and sending reports to the Russian authorized bodies and IRS in the regulated format.
• Monitoring of transactions of the clients of bank falling under requirements of FATCA.

On January 5, 2015 the Tax administration of the USA released upgraded version of the management (User Guide) concerning an order of providing the reporting under FATCA with the help of use of the electronic IDES system (International Data Exchange Service).

On January 12, 2015 the website using which the financial institution can be registered in the electronic IDES system began to work and transfer the reporting to Tax administration of the USA.

By July, 2014 the Russian financial institutions should be registered in IRS and begin to collect data on clients, to monitor their transactions, and from the second quarter 2015 to transfer these data to the American tax specialists. For non-compliance with rules of FATCA different measures are provided: from deduction of 30% from the payments arriving into the account of banks, non-aligned to FATCA, from sources of the USA before freezing of the corresponding account of bank.

Russian "subsidiaries" of foreign banks began to be registered in May, 2014 in tax administration of the USA of IRS to join FATCA. The positive solution of the American tax was sluzhbpoluchit by UniCredit Bank, Raiffeisenbank and Home Credit (On materials of RBC). Unicredit, Raiffeisenbank and Home Credit submitted the application for accession to FATCA and got approval of the American tax authority, reported in these banks.

The representative of the press service of Unicredit specified that the bank received "the limited status providing cooperation within FATCA in that degree in which it does not violate the Russian law". The limited status allows bank to be considered joined FATCA, but not to transfer information.

Also in May, 2014 the Tax administration of the USA (Internal Revenue Service - IRS) confirmed registration of JSB RUSSLAVBANK (Ltd) within FATCA and assigned the international identification number GIIN: MLM78Q.99999.SL.643.

In June, 2014 the Nordea Banking group registered in Internal revenue service (Internal Revenue Service) of the USA the subsidiary banks, including JSC Nordea Bank which is given the status of the narrow participant (Limited FFI), for compliance with law about taxation of foreign accounts (Foreign Account Tax Compliance Act, FATCA). This status assumes accomplishment of those requirements of FATCA which do not contradict the legislation of the Russian Federation.

The group of Sberbank was registered in June, 2014 in internal revenue service of the USA for compliance to requirements of FATCA. Sberbank was registered in internal revenue service of the USA for compliance to requirements of FATCA. The group registered all the financial structures from the total number of 208 companies entering into group.

Accounts information of the American clients were agreed to provide to U.S. authorities of 515 Russian banks. According to the message of the U.S. Department of the Treasury, banks will send information directly to the Internal revenue service of the USA (tax department). It is connected with the fact that as a result of the sanctions against the Russian Federation imposed by Washington the USA stopped all negotiations with Moscow on accession to FATCA

For spring of 2014 the Russian laws prohibit financial institutions to disclose information on the clients (it is regarded as a bank secrecy, it is protected by the law on personal data, the Civil code and t.d.). That these regulations did not prevent accession to FATCA, the Ministry of Finance prepared, and the deputy Anatoly Aksakov introduced to the State Duma the bill which permits the Russian banks and participants of financial market (brokers, insurers, depositaries) to transfer to foreign tax specialists information on customer accounts. The bill was supported by the Bank of Russia and the government, bankers calculate that it will be adopted by July 1, 2014 — from this point by rules of FATCA financial institutions already should work with IRS. However at a meeting on May 15 of the State Duma Financial Market Committee a story with accession to FATCA received unexpected turn. The committee sent back the document for revision, and some deputies in general spoke against its acceptance.

The bill which will give the chance to the Russian financial institutions to fulfill the requirements of FATCA, encountered in May, 2014 serious resistance in the State Duma. The committee on security recommended it to reject. Deputies refer, in particular, on the fact that such law will be broken by "the mode of protection of the state secret" and "will threaten national security". The State Duma Committee on security on the bill specified in the conclusion that the Civil code does not provide transfer of the data which are a bank secrecy, to foreign tax authorities. The Chairman of the Committee Irina Yarovaya considers that using the document an attempt to create a priority of foreign law over the Russian legislation is made. "The bill should be rejected, being guided by the principles of national security" — Yarovaya on committee meeting told yesterday (On the materials "RBC daily").

In the absence of the law, the Russian financial institutions had a need to be registered independently in IRS, and in the future to transfer customer information there. But it prohibits to do the Russian legislation to them — to withdraw ban also the special law which was prepared by the Ministry of Finance and is approved with the Central Bank was required. In parliament the bill already then encountered resistance. The committee on financial market sent back the document for revision, and some deputies of special-purpose committee, in particular the first deputy chairman Vladislav Reznik, spoke against its acceptance.

IT systems for fulfillment of requirements of FATCA

• Siron FATCA
• Oracle FATCA Management
• Flextera: Fulfillment of requirements of FATCA