Rebecca I. Wolff
Senior Tax Manager Global Tax Services
Enacted in March 2010, the Foreign Account Tax Compliance Act (FATCA) is designed to ensure the collection of tax revenues for U.S. persons holding offshore accounts with foreign financial institutions (FFIs). Broadly, this law imposes a new withholding and reporting regime upon all FFIs that invest directly or as an intermediary in U.S. assets.
When fully effective, FATCA will require an FFI to conclude an FFI agreement directly with the U.S. tax authority, the IRS, to identify its U.S. accountholders and to annually report information about their accounts. In addition, an FFI will be required to withhold tax on passthru payments made to so-called “recalcitrant” accountholders (accountholders who are unresponsive to information requests by an FFI undertaking account identification procedures) and to FFIs that are not compliant with FATCA. Finally, if local privacy laws would prevent the FFI from reporting information about a U.S. accountholder, the FFI would be required to request the accountholder to waive the privacy law or to close that account if a waiver is not provided.
An FFI that fails to comply with FATCA will be subject to a 30 percent withholding tax on withholdable payments—i.e., certain U.S.-sourced payments including bank deposit and other interest, dividends and gross proceeds on the disposition of U.S. debt or equity securities.
Enhanced J.P. Morgan Operating Model
By July 1, 2014, J.P. Morgan will launch an enhanced operating model in response to FATCA regulatory requirements.
J.P. Morgan will update internal processes to electronically search and extract client account documentation to enable the firm to assess a client’s FFI status. Further documentation may also be requested for certain accountholder profiles.
As part of an enhanced client onboarding process, J.P. Morgan will obtain new versions of U.S. tax forms (e.g., W8 series documents) in order to identify, collect and store the client’s FFI status and other important client data. As new clients are onboarded, J.P. Morgan will begin imposing FATCA withholding tax payments on the U.S. assets of non-participating FFIs.
Additionally, J.P. Morgan is positioning itself to introduce new IRS reporting related to U.S. accountholders and recalcitrant accountholders. This reporting will commence in 2015 and will be aligned with the phased IRS requirements’ timeline. Significant differences exist between J.P. Morgan’s reporting requirements as a U.S. entity (including branches outside the U.S.) and its reporting requirements as a J.P. Morgan subsidiary outside the U.S. that enters into a FATCA FFI agreement with the IRS. For both U.S. and non-U.S. entities, J.P. Morgan must implement FATCA-required onboarding and account due diligence procedures. It must also report annually to the IRS on specific accounts and in certain instances collect FATCA withholding tax.