Industry slams FATCA rules on service providers

Banks and private equity firms subject to the controversial US tax law say all countries, whether 'FATCA partners' or not, should be able to use service providers to meet their reporting duties.

Foreign financial firms subject to the US Foreign Account Tax Compliance Act (FATCA) are lobbying US tax authorities to allow for third party service providers to handle certain reporting duties under the controversial bill.

In a recent letter to US Treasury the British Bankers’ Association (BBA) noted that only countries that sign an “Intergovernmental agreement”, which was revealed earlier this year, are able to use a third party to fulfill FATCA reporting obligations. Foreign firms outside of countries deemed “FATCA partners” must duplicate the efforts of any third party reporting service to meet FATCA. 

According to the BBA, current FATCA proposals define both a fund and its third party service provider a withholding agent subject to reporting rules. Accordingly, this presents a problem for many private equity houses who hope to appoint a third party to gather investor documentation, undertake due diligence and file reports.

“The potential for duplicate reporting under the latest agreement would be unwelcome,” the British Private Equity and Venture Capital Association (BVCA) stated in an email to PE Manager

Despite these concerns the BBA did welcome many of the provisions in the intergovernmental agreement model, including the “automatic exchange of information.” This reciprocal exchange of information could lead to a greater take of tax revenue for the UK’s Treasury from UK residents engaging in aggressive offshore tax avoidance schemes.