• Service: Financial Services
  • Industry: Insurance
  • Date: 9/14/2012

FATCA: Challenges for pension funds 

The "Foreign Account Tax Compliance Act" (FATCA) is a complex legal framework on reporting and withholding tax. The Act was adopted in 2010 to ensure that US persons fulfill their global US tax liability by fully declaring their assets and income.
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To this end, FATCA imposes substantial documentation, identification, reporting and withholding tax requirements on (from a US perspective) Foreign Financial Institutions ("FFI"). If an FFI does not satisfy these requirements, a withholding tax of 30% is levied on its gross investment income, salaries and gross revenue from direct and indirect American sources. This withholding tax is levied irrespective of a transaction's addressees and is solely based on the status of the FFI through which the transaction is settled. Thus, this withholding tax could also be levied on a Swiss client (non-US person) if the FFI processing the payment (e.g. dividend) is not FATCA-compliant. Pension funds also are affected by FATCA: they not only have to be FATCA-compliant themselves but also need to be aware of their business partners' compliance status. They must ensure that no cash flows liable to withholding tax are handled via an FFI (e.g. custodian) that does not meet the requirements.

FATCA Competence Center

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FATCA was adopted by the U.S. congress as part of the HIRE Act on 10 March 2010. FATCA follows the guidelines of the “US Stop Tax Haven Abuse Act 2009” and aims primarily at preventing tax evasion by U.S. persons.