This is a great time to discuss a transformative tax legislation affecting Americans with foreign assets. Correspondingly, banks and governments around the world: the Foreign Account Tax Compliant Act or FATCA. The law affects how financial institutions report holdings to the IRS and MFT will be a core enabler for doing so.
In this Q&A, Shalom Lewis, Director, Customer Success, Axway, shared his thoughts on what financial institutions need to know to ensure FATCA compliance.
- What is FATCA?
Passed in 2010, FATCA is a law that requires foreign financial institutions and governments to report information about U.S. taxpayers who have holdings in their countries, for tax to be applied to those holdings. As an incentive, the federal government will provide foreign governments reciprocal information on foreigners with accounts in the U.S. The U.S. has also stated it will penalize foreign banks that do not comply by withholding funds on their operations here
2. What are important dates related to FATCA that organizations should know about?
The first year of required reporting was 2014, meaning that all foreign institutions have to register with the IRS this year. Most organizations then have to submit taxpayer data to the IRS by March 31st. It required the remaining institutions to submit account data by September 30, 2015.
3. Which kinds of organizations are affected by this legislation?
This legislation primarily affects organizations in the financial sector. This includes banking institutions and investment companies, and foreign governments. But the legislation is ultimately relevant to any organization that can maintain financial holdings.
4. Are there any particular technology requirements organizations need to meet in order to be able to submit their data to the IRS?
The IRS has built a system called the International Data Exchange Service, which allows financial institutions and host country tax authorities to access and transmit data securely in an encrypted format. Once institutions are enrolled in the system they are able to upload files allowing encrypted account information to be shared on a secure pathway. This system then notifies the receiving entity, in this case, the IRS, that content has been uploaded, allowing the IRS to log in, decrypt and review the files.
Organizations can follow guidelines presented from the IRS showing detailed instructions on encryption, compression and delivery. After following the guidelines, the IRS gives organizations opportunities to test out the system.
5) How can the use of MFT help organizations?
The system allows for two different approaches to uploading data: a web interface and secure file transfer. Using secure file transfer or MFT can help institutions, particularly larger firms. This saves significant time by efficiently automating the upload and sending process, even for large amounts of data, all while ensuring governance mandates are met. The list of accepted file transfer clients, including Axway Secure Client, can be found in the System Availability section of the user guide.
6) Are there any other key considerations for organizations?
As you can expect with filing periods that have strict deadlines, traffic has the potential to increase as the deadline approaches resulting in time delays on the sender’s server. Here, file transfer technology can help as it is capable of meeting high demand during peak traffic periods.
The IRS website has addressed and listed specific protocols and products that are capable of connecting to its system. Organizations should ensure they have met all the encryption requirements and security regulations by purchasing a certificate from an approved authority and testing the upload process.
If you’re thinking of using MFT for your International Data Exchange Service needs, learn more about Axway MFT here.