Getting It Right On FATCA

In the words of the famous fictional character, Homer Simpson, “D’oh!” I made a mistake.  And I’m not going to waste any time in fixing it. This isn’t the first time I have made a mistake and it most likely won’t be the last.  While no one likes to make mistakes, I’ve learned from my experience as an improviser and performer on an “improv” team that “mistakes” are often times gifts.

This makes me think of the famous quote by John C. Maxwell:

“A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them.”

The mistake I’m referring to appeared in a recent blog I authored on TaxConnections entitled, “Ten Facts About FATCA … A Law That Is Changing Banking Worldwide.” In that blog, I stated the following:

“Because non-compliant institutions could be saddled with onerous penalties and isolated from U.S. markets, financial institutions have become as submissive in their willingness to comply with FATCA as a Labrador Retriever who rolls on its back after being given a treat. Very simply, virtually every financial institution is complying.”

The ink was barely dry on this blog before several readers posted comments that, shall I say, did not require any “reading between the lines” to realize that I had misstated a critical fact. Yes, they were not too flattering.

Now for the nitty-gritty: Not all financial institutions are “rolling over” on their backs to comply with FATCA. On the contrary, in an article entitled, “FATCA FFI Update and it Doesn’t Look Pretty. September Did Not Break 100,000,” author William Byrnes — my former professor of international tax law and a man who I have enormous respect for — reported a dismal increase in FFI registrations for FATCA for the month of September.

According to Professor Byrnes, only 99,861 FFIs were registered on the IRS’s September list. That represents an increase of just “4,500 registrations since the August list,” which contained 95,239. This anemic growth has caused industry watchers to sound the alarm:

“Most pundits thought at least 20% of the FFIs requiring FATCA registration would have done so by September – with only 120 days left before the precipice of 30% withholding begins against IGA countries. 120,000 is the minimum number brought up by industry for the September list that would need to be registered to show wide compliance buy-in. The declining increase is indeed troubling. Total global compliance remains less than 20% by both the IRS and foreign government estimated numbers.”

What is the takeaway? FATCA isn’t gaining widespread acceptance — at least not yet. As Professor Byrnes eloquently states, the “disappointing September result is a harbinger of the rough waters ahead for general FATCA compliance.”

For all of you who posted comments bringing this to my attention, I express my sincere gratitude. If I learned anything from this experience, it’s that I will be more thorough in doing my research next time.

Original Post By:  Michael DeBlis

As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.

Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.


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3 comments on “Getting It Right On FATCA

  • This Comment is From William Byrnes and was asked to be placed on this post. It reads:

    Thank you very kindly for the shout out Michael!

    The actual response to your previous TaxConnections post (I’ll go check that out next) is that you “should” be correct. I have now lost three bets (July, Aug and Sept) as to the number of registrants.

    My educated ‘guess’ (I prefer to call it ‘analysis’ but I’ve been too far off to use that term) put the number of GIIN registrants at close to 200,000 at this point. Moreover, I calculated with some precision, and understanding of the industry, that the UK would have 10,000 FFI GIINs registered, while France and Germany would each have 5,000.

    In my defense, back in April and May I was still of the opinion that only 300,000 FFIs, by that FATCA definition (after exemptions by regulation and by IGA, after sponsored entities), would need to actually register. However, I have been later convinced, in talking with high level bank and financial institution compliance officers in charge of FATCA, that the number if certainly north of 500,000. How far North? There is much disagreement.

    How many sponsored entities will there be? Will sponsored entities seek a GIIN anyway (I have heard that this may be the case)?

    For countries without a USA DTA, will FFIs simply divest because collecting all the W8s / equivalents is costs more than the relative safety of the T-bill? Some investment professionals say the precipice of divestment is the quarter leading up to gross proceeds withholding. Others say that gross proceeds withholding is the real FFI registration deadline.

    And anyway, with the probably adoption of the OECD’s Common Reporting Standards, whether it’s a W8 or an OECD equivalent, all institutions investing in the OECD (and likely BRIC) are going to be collecting tax information.

    So one potential for the foot dragging is that institutions are figuring out how to handle the back office complexities of collecting the required tax information for at least each country of investment/doing business in. It’s not that they are protesting FATCA. It’s just that FATCA is one piece of an increasingly complex data gathering, management and dissemination puzzle, along with the UK’s requirements and its tax forms (the UK we know about), and how many other countries? And the OECD.

    On the other hand, in 2003 I wrote a 900 page report about this exact same FATCA type issue. Same horror stories except then it was called the European Union Tax Savings directive. While compliance for the EU states’ institutions, territories that were drug into it, and 3rd party states like Switzerland, may have been expensive, they survived. Capital flight from Switzerland and the Channel Islands to SIngapore was exactly as predicted. But the compliance was like a snow ball rolling down a cliff. Most of the institutions came on-line only at the last moment.

    Will October finally see the big jump? Probably not based on the decline of September’s results. But just looking at the UK for a moment, the UK professional associations set an internal suggested best practice deadline of October 25th for GIIN registration. So the November list – I expect to see the UK registration to be higher than the Cayman Islands. The UK Revenue stated, after the IGA was signed, that 75,000 UK entities were still impacted (and I read that as most requiring registration). Cut the 75,000 in half – so at least 30,000 for UK November seems reasonable.

    China, Brazil? They’ll register in big numbers – on December 31st. I have read on other blogs that their institutions will roll it all up into bonds and hold out another year. But why? Automatic financial information exchange has reached inevitability.

    Regards from William Byrnes

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