FATCA, a reality for South African financial institutions
Included in the 2013 KPMG Insurance Survey is an article on FATCA, and the related considerations for the South African long-term insurance industry. Notwithstanding the initial global resistance to FATCA, the move to the Intergovernmental Agreement (“IGA”) model has resulted in significant global acceptance of FATCA and its aims. This is evidenced by the increasing number of jurisdictions that have signed up to the IGA model. South Africa is no exception to this global trend, and SARS have committed to entering into a Model 1 IGA with the U.S, with the result that FATCA is a reality for South African financial institutions (as defined), which will now need to consider their IGA impact and steps needed to ensure compliance.
FATCA is a piece of U.S legislation, which introduces onerous identification and reporting obligations on foreign financial institutions in an effort to curb tax abuses. Failure to comply with FATCA may result in a punitive withholding tax of 30% on U.S source income. The challenges of FATCA implementation, particularly with regard to local legal impediments to reporting and information sharing, resulted in the development of the IGA model, under which such considerations no longer arise Under the SA IGA, compliance with FATCA will become a statutory obligation under local South African law.
The SA IGA imposes the client identification and reporting obligations on a wide variety of South African financial institutions and will have a significant impact on the South African financial services industry as a whole. The article provides some detail around the definition of financial institutions in terms of the SA IGA, and particularly the inclusion of Specified Insurance Companies as financial institutions. The result is that insurers that meet the definition of Specified Insurance Companies will need to consider the implications of the SA IGA.
The article touches on the more significant obligations for financial institutions under the impending SA IGA. With the deadlines for compliance fast approaching, Financial institutions must start considering their SA IGA obligations, and take the necessary steps to meet these if so required. It is clear that there are a number of steps that South African financial institutions, including many long-term insurance companies, are required to take in order to ensure compliance with the SA IGA.
The signature of the SA IGA and the promulgation of the local FATCA laws (which will likely take the form of regulation) will render compliance with the SA IGA obligations mandatory for all South African financial institutions. It is therefore advisable that South African financial institutions commence this process as soon as possible, as the deadlines are fast approaching (with the first effective date being 1 July 2014, by which time all financial institutions must commence onboarding clients in accordance with the SA IGA procedures).
In a short interview, Finn Elliot talks about FATCA and how to combat its misunderstandings and many challenges.
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