The Foreign Accounts Tax Compliance Act (FATCA), is a U.S. legislation designed to improve tax compliance by U.S. persons, both individuals and entities, who hold financial Assets and accounts outside the U.S.
FATCA promotes cross border tax compliance by implementing an international standard for the automatic exchange of information related to US taxpayers. FATCA regulations require tax authorities obtain detailed account information for US taxpayers on an annual basis.
FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to US persons that may be investing and earning income through non-US institutions. While the primary goal is to gain information about US persons, FATCA imposes tax withholding where the applicable documentation and reporting requirements are not met.
Financial institutions must collect and verify appropriate client information and then report to relevant Tax Authorities who acts liaison for the communication of such information to the US Authorities.
Current strategies implemented to tackle FATCA may not be sufficient to handle the increasing volume of tax reporting required moving forward. As a result, financial institutions must expand their tax operations capabilities to meet increasing regulatory demands.
Financial institutions need a market-leading compliance tool that will analyze and monitor local tax laws, compile data from a myriad of sources, produce and validate tax information reports and transmit those reports to the proper tax authorities.