In 2010, the U.S. government enacted the Foreign Account Tax Compliance ACT (FATCA) as part of a larger law that provided payroll tax breaks and incentives for businesses to hire unemployed workers.
With the goal of diminishing tax evasion, FATCA requires foreign financial institutions (FFIs) and individuals to report any financial accounts held by Americans to the U.S. Internal Revenue Service (IRS). Because of this, according to a recent Forbes.com story, FATCA is influencing how governments around the world share tax information.
But on a practical level, this is creating a bit of a havoc, as banking institutions, for instance, must find a way to classify preexisting and new customers to meet this requirement.
Put a plan in place today
Fortunately for the banking industry, the U.S. government is still working out the details. The deadline for FFIs to finalize the registration of these foreign accounts owned by Americans in the IRS Registration Portal has been delayed from the initial statutory date of January 1, 2014 to July 1, 2014.
This gives banks a bit more time to figure out a strategy for this compliance. While it sounds like an easy process, classifying this information is a bit more complicated than one might think – it can be a time-consuming, costly process that may require extensive manual labor. And to comply on an on-going basis, it makes sense for banks to find a way to modify their systems so there is an automated classification and reporting process permanently in place.
Make compliance easier with an automated solution
To comply by the 2014, smart financial institutions should look for a best-in-class automated process that includes:
- A comprehensive framework with adaptable rule sets for classification and reporting that can easily integrate with your existing banking software
- Functionality that helps you meet the classification rules of intergovernment agreements (IGAs) and
- Rule sets that can be customized upon delivery to meet jurisdictional requirements
- XML-based reporting features to help you create and submit regulatory compliance reports to the IRS as well as local authorities
- Workflows that can integrate into your existing classification and reporting processes
- The ability to extract account balances and other information directly from your account management software, eliminating the need for additional data storage
With a solution that provides automated classification and reporting processes, flexible rule sets, and customization services, you can begin classifying customers right away and easily meet the 2014 deadline.
To help you with this, SAP offers the SAP Tax Classification and Reporting for FATCA solution as a low-TCO option for these purposes. Integrated with the SAP for Banking solution portfolio, this solution is helping customers around the world become FATCA-compliant with minimal cost and effort.
To learn more about how this solution can help your institution, read the solution brief entitled, “Comply with FATCA Regulations Quickly and Cost-Effectively Using SAP Software,” or visit the SAP Custom Development Services page.