Financial services firms may “struggle” with compliance burdens as the July 1 deadline for the Foreign Account Tax Compliance Act (FATCA) looms, according to a business law firm.
Hall & Wilcox partner Harry New said the taxation changes relating to FATCA and anti-money laundering laws “may also require financial services providers to implement additional compliance processes and procedures”.
“These new compliance requirements kick in from 1 July (anti-money laundering from 1 June) and many industry participants are struggling to be ready by that time, together with other regulatory requirements,” Mr New said.
He said that in order to comply with FATCA and the recent Intergovernmental Agreement between Australia and the US on border tax issues, fund managers in Australia will need to obtain sufficient information on any US tax resident investors and submit reports on any income they derive.
While the FATCA changes are effective from 1 July 2014, a transition period until 31 December 2014 is allowed for due diligence on existing investors.
“Australian fund managers with US-sourced income may also need to register with the US Internal Revenue Service (IRS) to avoid FATCA withholding being charged on US-sourced income,” Mr New added.
Mr New also said that recent changes to the Commonwealth Anti-Money Laundering and Counter Terrorism Financing Act 2006 ('AML Act') and the Anti-Money Laundering and Counter Terrorism Financing Act 2006 Rules will place an additional administrative burden on financial services firms.
“Anti-money laundering requires reporting entities to take reasonable steps to identify and verify the beneficial owners of customers who are companies, trusts, partnerships, incorporated/unincorporated associations, registered cooperatives and government bodies as well as enhanced due diligence on politically exposed persons,” Mr New said.
“Beneficial holders are generally persons who ultimately have direct or indirect control or ownership over the entity which is the customer for AML purpose.”