Kuwait commits to US mandated FATCA law

KUWAIT CITY, Oct 28: The US Foreign Account Tax Compliance Act (FATCA) model has spurred the rise of a global automatic exchange of information, informed Hannah Shipley, Director at Ernst & Young, while speaking about FATCA and its implications during a business panel discussion held at the Kuwait Chamber of Commerce and organised by the US Embassy, as part of its Discover America week.

In her presentation, Shipley gave a background on how FATCA came into play, who is impacted by it and why it is important to comply. She also covered the obligations for financial institutions, customers of financial institutions, US taxpayers and that of foreign government and regulators to FATCA.

She pointed out that there had been an increased focus in tax transparency with the US tax authorities looking for ways to increase tax compliance. FATCA was devised to overcome evasion caused by the problems and loopholes in financial reporting by placing the burden of reporting US accounts on foreign financial institutions through an agreement either with US tax authorities or by complying under an Inter-governmental agreement (IGA).

Foreign Financial Institutions (FFI) that are affected by FATCA include depository institutions, custodial institutions, investment entities, certain insurance companies, certain holding companies, certain treasury centres as well as FFI customers, both individuals and entities, US taxpayers and foreign governments.

The United States — Kuwait IGA to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA) was signed on 29 April 2015 by which FATCA requirements are brought under domestic law with FATCA administration under the jurisdiction of the Ministry of Finance, Central Bank & Capital Market Authority Kuwaiti Financial Institutions are thus required to undertake certain due diligence and verification procedures to identify accounts held by US persons and report information on these accounts to the Kuwait Ministry of Finance who will in turn report the information to the IRS.

According to the agreement, Shipley noted, non-financial Kuwaiti entities may also need to provide their FATCA classification and documentation of ownership to financial institutions and individual US taxpayers, as well as being account holders at financial institutions, also will have obligations under FATCA. Shipley stressed that US person is defined as an individual who is a citizen or resident of the US and even corporations, partnerships, estates and trusts formed under US law.

She described a US owned foreign entity as one with one or more ‘substantial US owners’ or ‘US controlling persons’, or a ‘substantial US owner’ is a specified US person which owns directly or indirectly more than 10% (stock/interest) of such foreign entity (0% for certain investment vehicles), or a ‘US controlling person’ under an IGA is interpreted in a manner consistent with Financial Task Force Recommendations. While it has been observed that FFI are restrained by the information they receive from customers, Shipley informed that officials are supposed to look at the certain indicators of a bank account for reporting, these include designation of account holder as US citizen or resident, unambiguous indications of a US place of birth, a current US residence address or mailing address (including a US post office box),a current US telephone number (regardless of whether such number is the only telephone number associated with the account holder), standing instructions to pay amounts from the account to an account maintained in the US, a current power of attorney or signatory authority granted to a person with a US address, an ‘in-care of’ address or a ‘hold-mail’ address that is the sole address the FFI has identified for the account holder.

In keeping with the IGA, Kuwaiti authorities now have to establish procedures for the automatic exchange obligations and prescribe rules and procedures as may be necessary for collaboration on compliance and enforcement. The Compliance model under the IGA encompasses general inquiries such as follow- up requests to the Kuwait Ministry of Finance, provision of additional information for US Reportable Accounts, including the account statements prepared in the ordinary course of a Reporting Kuwait Financial Institution’s business that summarize the account activity (including withdrawals, transfers, and closures) Significant noncompliance would bring action either under FATCA regulations or Kuwaiti law as identified by either the IRS or the Kuwait Ministry of Finance.

Shipley shared that the Kuwait Ministry of Finance could liaise with relevant regulator with a time period of 18 months to resolve the issue. Speaking about the global automatic exchange of information, Shipley stated that the OECD has developed a standard for global information exchange which has been widely endorsed. “On 21 July 2014 the OECD issued the Standard for Automatic Exchange of Financial Information in Tax Matters.

The Standard is a global ‘FATCAlike’ automatic information exchange regime aimed at preventing off-shore tax evasion and maintaining the integrity of tax systems and includes the Model Competent Authority Agreement (CAA), the Common Reporting Standard (CRS), accompanying Commentaries, guidance on the technology solution and Schema. The Standard is based on the FATCA Model 1 IGA but with notable differences. She revealed that more than 90 jurisdictions have already committed to the swift implementation of CRS. Of these, over 50 are committed to first exchange in 2017. Kuwait, Qatar and Saudi Arabia have committed to exchange first information by 2018.

By Cinatra Fernandes Arab Times Staff

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