As originally announced, the application of FATCA to Australian
AFSL holders was optional, with no apparent downside to
non-compliance, other than the fact that US-source income may be
withheld. However, following Australia entering into the IGA with
the United States, FATCA compliance has become mandatory for
certain AFSL holders.
The key question is of course, does FATCA apply to me?
FATCA is the Foreign Account Tax Compliance Act, enacted by US
Congress in 2010. The purpose of the Act is to improve compliance
with US tax laws, particularly in relation to schemes where US
reportable income is moved offshore, to and through foreign
financial institutions, without being reported to the IRS.
The principal way FATCA does this is by requiring Foreign
Financial Institutions (FFIs) to report whether they have US-source
clients, or US-source income. Obviously the US government has no
jurisdictional power over foreign entities, so to implement the
FATCA regime, the Act mandates that US entities must withhold 30%
of payments they make to FFIs. This has the potential to have wide
ranging operational and financial implications for those entities
dealing with US clients, partners, suppliers and/or service
Australia has recently entered into an Intergovernmental
Agreement (IGA) with the US that is designed to assist Australian
entities captured by FATCA (reporting Australian Financial
Institutions) meet their FATCA reporting obligations. While the IGA
exempts many Australian Financial Institutions from FATCA
compliance, it makes FATCA reporting mandatory for those still
covered by it.
Does FATCA apply to me?
This is the key question. Unfortunately answering it is not as
simple as whether or not you have US clients. If your organisation
meets the definition of an Australian Financial
Institution (and does not meet the exceptions, of which
there are many), then FATCA will apply to you. This means you will
need to implement a due diligence program that determines whether
any of your current and future clients are US based or if you or
they receive US source revenue.
The key to understanding FATCA, and whether it applies, is in
understanding the relevant definitions.
Below are a couple of key definitions:
Australian Financial Institution (AFIs): A
Financial Institution in Australia.
Financial Institution: A custodial institution,
depository institution, Investment Entity, or
specified insurance company.
Investment entity: Any entity that conducts as
a business one or more of the following activities or operations
for or on behalf of a customer:
trading in money market instruments (cheques, bills,
certificates of deposit, derivatives etc.);
exchange, interest rate and index instruments;
commodity futures trading;
individual and collective portfolio management; or
otherwise investing, administering or managing funds or money
on behalf of other persons.
Are there any exceptions?
FATCA has a range of exceptions. Four are listed below:
Investment Advisors/Managers: if your
activities are limited to giving investment advice or managing
portfolios, investment schemes/funds, and you do not hold legal
title to the relevant assets, offer custodial services or offer
financial accounts, it is likely you will meet this exception. This
is designed to exclude financial planners and some managers of
investment funds from FATCA. The determinative feature in this
exception is whether you hold legal title to the relevant assets,
Superannuation Funds: includes all types of
Australian superannuation schemes (including SMSFs).
Local client base financial institution: if at
least 98% of your accounts (by value), are held by residents of
Australia and New Zealand, you might meet this definition.
Sponsored entity & controlled foreign
corporation: if you are controlled and wholly owned
(directly/indirectly) by a foreign corporation, share a common
electronic accounts system, and the controlling foreign corporation
is FATCA compliant (and reporting), then they may be able to report
on your behalf and you will be exempt.
The FATCA regime is complex, the application broad, and the
exceptions many. If you are a non-super product issuer, provide
custodial or depository services, or provide forex, CFD or
remittance services then it is likely that FATCA will apply to
If you're unsure of its application to your business, seek
We are able to look at your business operations and advise as to
whether they are impacted by FATCA.
We are also developing a FATCA due diligence policy for
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).