New legislation aimed at ensuring that United States (US) persons with financial assets outside the US are paying the correct amount of US tax was the subject of discussion on Wednesday at the Ernst & Young forum where stakeholders in the Nigerian banking industry, investment companies, asset managers, brokers, others gathered to consider the relevance and implications of the US tax compliance obligations.
The US Foreign Account Tax Compliance Act (FATCA) rules, which were issued in January 2013, are provisions of the US HIRE (Hiring Incentives to Restore Employment) Act, enacted by Congress and signed into US law in 2010. This regulation governs the investment in the US via non-US financial institutions and was designed to counter offshore tax avoidance by US persons with money invested outside the US.
FATCA, which is to be administered by US financial institutions and foreign (non-US) financial institutions, requires foreign financial institutions (FFI) to identify, document and report US-owned accounts (existing and new customers) to the US Internal Revenue Service (IRS). The institutions are expected to enter into an agreement and register with the IRS.
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Henry Egbiki, regional managing partner, West Africa at Ernst & Young, said: “Full implementation of FATCA is fast approaching, and most financial institutions in Nigeria have either not started or just heard of FATCA, but are not aware enough of what to do next. In South Africa, the big banks are ahead of the game in completing an impact assessment and optimising solutions.”
According to Eugene Skrynnyk, senior manager, FATCA Specialist & Solution Lead for Africa, FATCA rules will impact financial institutions worldwide and their customers effective January 1, 2014 and therefore local financial institutions need to understand the extent of the impact and what they need to do to comply. Registration opens by July 15, 2013.
He noted that a negotiation of an intergovernmental agreement (IGA) between Nigeria and the US was being expected, adding that the CBN, FIRS and the Committee of Chief Compliance Officers of banks in Nigeria had discussed FATCA.
“The US is currently talking to over 60 countries, including South Africa where the IGA is expected to be signed in September 2013. In Ghana, the Government Tax Policy Advisor and the Ministry of Finance are assessing the FATCA regulations and studying the option of going to IGA,” he said.
Countries including Ireland, Mexico, United Kingdom, Spain, Norway and Denmark have signed the IGA, while some are in the solution design stage.
Nigerian banks will have to register with the IRS by October 25, 2013 to ensure that potentially withholdable US source income will not be reduced by the 30 percent withholding tax beginning January 1, 2014 on incoming withholdable payments. Under the regulations to administer FATCA, implementation will commence in 2014, with additional provisions being phased in through 2017, said Egbiki.
FFIs are expected conduct an impact assessment as FATCA will impact every financial institution in Africa, either directly in their core business or indirectly through relationships with other financial institutions and the financial market infrastructure. Based on the impact assessment, they can make an informed decision on FATCA compliance and which areas to prioritise, according to Mike Kane, partner, advisory, FATCA Solution Owner for Africa.
