Thursday Sep 19, 2024
Thursday Sep 19, 2024
Monday, 30 June 2014 00:00 - - {{hitsCtrl.values.hits}}
During the panel discussion Brindley De Zylva pointed out that Lanka ORIX Finance PLC as a policy decided not to appoint the compliance officer of the company as the Responsible Officer (RO) for FATCA at the point of registration, as they foresaw such a situation leading to conflict of interest situation. The compliance officer’s role is to ensure that officers of the company are following the correct procedures and to highlight non compliance. If the compliance officer is entrusted with the RO’s duties, the defaults committed by him could go unnoticed and unreported and pose a risk to the institution.
Suresh Perera in his presentation pointed out that approximately 37 Sri Lankan institutions names appear as having been registered for FATCA in the US Internal Revenue Service website in the list published on 2 June. He explained the definition of ‘Foreign Financial Institutions’ (FFI) who should register for FATCA. A FFI would include deposit taking institutions such as banks and finance companies, custodial institutions such as stock brokers, primary dealers, Investment entities such as private equity funds, hedge funds, life insurance companies and holding companies and treasury centres who are identified to be in a financial group.
Expanded Affiliate Group
Perera pointed out that although most of the banks have registered many of the other FFIs have still not registered especially holding companies are not even aware that they may fall in to the definition of FFI. Perera went on to explain the concept of ‘Expanded Affiliate Group’(EAG) which is any group of companies where it would include any one or more of the FFI’s and the shareholding by the holding company would be more than 50% in the FFI within the group of companies.
If the EAG is identified as a finance group by the application of the ‘three rule test’, the holding company and its financial institution members should register as an FFI. Upon application of the three rule test if the EAG is identified to be a non financial group i.e if less than 25% gross income of the group to be passive income, less than 5% of the Group total gross income to be contributed by the financial institutions of the group, less than 25% of the net assets of the group should be attributable to the financial institutions, then the holding company need not register as an FFI for FATCA purposes.
He also mentioned that due to the complicity of applying the three test rule, many holding companies in other countries prefer to register and enter in to the FFI agreement. Suresh also explained that if the registration is not done properly by effecting an accurate entity classification, the registration maybe invalid and would even taint the registration of the whole group. Suresh also highlighted in the panel discussion that although 37 registrations have taken place, many of the group companies has affected their registrations erroneously and it should be rectified immediately.
Guidance on FACTA reqiurements
Dedigama in the panel discussion mentioned that only a couple of stock brokers have thus far registered while there are 28 stock brokers in Sri Lanka. He also stated that guidance from the regulators would be welcome in order to ensure that all financial institutions are aware of FATCA requirements.
Perera also spoke of the fact that year 2014 and 2015 have been identified as a transition period and the US Internal Revenue Service would be lenient on FFI’s who have attempted to comply with FATCA on a ‘good faith basis’. Furthermore he explained that the latest FFI agreement 2014-38 dated 24 June, carries an amendment which has been introduced to reduce the burden on the withholding agent, where a withholding agent or FFI would treat obligation held by an entity on or after 1 July, and before 1 January 2015, as a pre-existing obligation for purposes of implementing the applicable due diligence, withholding, and reporting. Hence withholding on entity accounts may not apply till 1 January 2015, however it further states that the withholding would apply immediately irrespective of this amendment if a FFI identifies itself as a non-participative FFI for FATCA purposes. The proposed amendments will not be available for obligations held by individuals therefore the FFIs should ensure that the onboarding procedure for individual accounts will have to be in place from 1 July.
