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Arab Banking Forum discusses FATCA applications

 

Governor of the Central Bank of Jordan (CBJ) launched on Sunday, March 2nd 2014, at the Dead Sea, the forum on FATCA, the final legislations and developments: the last Reminder, which will come into force by the beginning of March 2015.

 

Deputy CBJ governor Dr. Khaled Sheikh said in a speech delivered on behalf of the governor that the “down count to implement the Foreign Account Tax Compliance Act (FATCA) began, after stirring controversy at the local, regional and international levels for the repercussions and difficulties that accompany its implementation.”

 

He added that, although targeting American tax payers, the act surpasses the borders of the USA when implemented, the matter that would lead to adding more financial and administrative burdens on financial institutions, their activities and consequently their profitability and risks.

 

 

He said FATCA impelled The Organization for Economic Cooperation and Development (OECD) to issue unified standards for the automatic exchange of information by the various efforts of the G20, in a way that confirms the necessity of fighting tax evasion abroad, while making sure to decrease the compliance costs to the minimum level possible.

 

He stressed that decreasing the costs of compliance and optimizing interest for the largest number possible of countries “should remain two goals that everybody is keen to achieve.”

 

Sheikh explained that the CBJ, keen on the Jordanian banks’ compliance with FATCA rules to avoid the risks of non-compliance and to ensure banks’ readiness for this, “worked with a consultant company to examine local banks’ readiness to abide by FATCA.”  

 

The ascertaining process passes in two stages, he said. The first includes sending a survey to banks with questions that test the procedures taken by banks to ascertain their and their subsidiary companies’ compliance with FATCA. The banks gave detailed answers to the survey.

 

 

At the second stage, joint teams of the CBJ and the consultant company visited banks to ascertain the results of the survey and review banks’ procedures. Every bank was provided with a detailed report of the results of the evaluation process that includes detailed remarks on all aspects of FATCA implementation at the bank, the sufficiency of procedures taken and what are the aspects that still need addressing.

 

 

He told participants that a unified report is being prepared to reflect the situation of banks in general, based on the evaluation results of banks’ procedures vis-à-vis FATCA.

 

 

He added that Jordanian authorities decided that financial institutions would enter individually into the FATCA, pointing out that “there are consultations between relevant parties to consider the possibility of entering into an agreement between the government and the US Internal Revenue Service (IRS).”

 

On his part, ABJ general director Dr. Adli Kandah said FATCA, endorsed by the American government in March 2010, obliges American taxpayers who have assets outside the USA to submit statements on those assets to the IRS. It also obliges foreign (non-American) financial institutions to send direct reports to the IRS that include information on the financial accounts of American tax payers or the parties for whom those tax payers work.

 

He added that compliance means that financial institutions should sign direct agreements with the IRS, and that governments should sign a similar agreement directly with the American government so that the government works as a link between the financial institutions of its country and the IRS.

 

The ABJ, he said, responded to the FATCA and organized many workshops on the act and its implementation, in cooperation with outstanding firms such as Deloitte and Touche, in addition to a series of meetings with banks at the level of senior and executive managements to clarify the act, its implementations and the challenges it raises.

 

 

Dr. Kandah stressed that the most important challenges facing Jordan in abiding by FATCA revolve around confidentiality of bank accounts, closing accounts of uncooperative individuals, deductions and tax deductions on uncooperative individuals, in addition to the monitoring institutions and the importance of raising awareness among clients of the act and its implementations.

 

 

In regard of the first element, Dr. Kandah said there is a conflict between FATCA and Jordanian laws, especially in respect of the confidentiality of bank accounts. Closing the account of a client who refused to sign a written consent to disclosing his financial statements to the IRS might be construed as illegal or arbitrary.

 

 

As for closing the accounts of uncooperative individuals, Dr. Kandah said FATCA doesn’t oblige financial institutions to close down the account, but it imposes a 30% tax on non-compliance, the matter that propels banks to close uncooperative accounts.

 

 

As regards the third element, Dr. Kandah said that the bank’s deduction of 30% of American sources of income for uncooperative accounts and transferring them to the IRS is illegal and breaches local laws. Furthermore, there is no clear mechanism to define the deductible American sources of income by virtue of FATCA.

 

 

Dr. Kandah pointed out that there are financial institutions, subsidiary to Jordanian banks, which exist in countries that do not abide by FATCA. This would lead to deeming all members of the financial group uncooperative. The law considers banks that signed direct agreements with the IRS as “collection agents”, the matter that would lead the officials who signed the agreement to bear legal consequences in case of non-compliance.

 

 

He pointed out that monitoring authorities of financial institutions such as insurance companies and financial intermediary companies are bound by FATCA. However, they issued no instructions in this regard.

 

 

He went on to say that the updating of clients’ statements to comply by FATCA led some clients to close their accounts and open new ones at banks that did not implement the amended forms according to the FATCA requirements.

 

He called for raising awareness among clients on the requirements of FATCA so that the client’s relationship with the financial institution he is dealing with is not negatively affected.

 

Secretary General of the Union of Arab Banks Wissam Fattouh said implementing the FATCA has two stages: the first is relevant to the financial institutions’ recognition of FATCA and registering in it. The second is sending information of American clients at the financial institution, “and here lies the discussion,” he said.

 

Exchanging information with IRS takes place either by signing a direct agreement between a financial institution and the IRS, or by the creation of a governmental commission that represents the central bank, the ministry of finance, the association of banks and the anti money laundering unit, provided that the commission signs a direct agreement with the US treasury Department.

 

Fattouh said the Union of Arab Banks believes that entering into such an agreement should be done between an official commission with the Treasury Department rather than with individual financial institutions.

 

 

Participants in the three-day conference discussed issues of the final legislations and the executive procedures of FATCA, legal issues and challenges relevant to FATCA, the way Arab governments and central banks should deal with FATCA and policies and procedures relevant thereto and the link between the task of compliance and the implementation mechanisms of FATCA.

 

Participants included representatives from Jordan, Saudi Arabia, Kuwait, Qatar, Yemen, Oman, Palestine, Lebanon, Syria, Iraq, Egypt, Sudan, Tunis and Libya.

 



 

12

Arab Banking Forum discusses FATCA applications

posted on
Arab Banking Forum discusses FATCA applications

 

Governor of the Central Bank of Jordan (CBJ) launched on Sunday, March 2nd 2014, at the Dead Sea, the forum on FATCA, the final legislations and developments: the last Reminder, which will come into force by the beginning of March 2015.

 

Deputy CBJ governor Dr. Khaled Sheikh said in a speech delivered on behalf of the governor that the “down count to implement the Foreign Account Tax Compliance Act (FATCA) began, after stirring controversy at the local, regional and international levels for the repercussions and difficulties that accompany its implementation.”

 

He added that, although targeting American tax payers, the act surpasses the borders of the USA when implemented, the matter that would lead to adding more financial and administrative burdens on financial institutions, their activities and consequently their profitability and risks.

 

 

He said FATCA impelled The Organization for Economic Cooperation and Development (OECD) to issue unified standards for the automatic exchange of information by the various efforts of the G20, in a way that confirms the necessity of fighting tax evasion abroad, while making sure to decrease the compliance costs to the minimum level possible.

 

He stressed that decreasing the costs of compliance and optimizing interest for the largest number possible of countries “should remain two goals that everybody is keen to achieve.”

 

Sheikh explained that the CBJ, keen on the Jordanian banks’ compliance with FATCA rules to avoid the risks of non-compliance and to ensure banks’ readiness for this, “worked with a consultant company to examine local banks’ readiness to abide by FATCA.”  

 

The ascertaining process passes in two stages, he said. The first includes sending a survey to banks with questions that test the procedures taken by banks to ascertain their and their subsidiary companies’ compliance with FATCA. The banks gave detailed answers to the survey.

 

 

At the second stage, joint teams of the CBJ and the consultant company visited banks to ascertain the results of the survey and review banks’ procedures. Every bank was provided with a detailed report of the results of the evaluation process that includes detailed remarks on all aspects of FATCA implementation at the bank, the sufficiency of procedures taken and what are the aspects that still need addressing.

 

 

He told participants that a unified report is being prepared to reflect the situation of banks in general, based on the evaluation results of banks’ procedures vis-à-vis FATCA.

 

 

He added that Jordanian authorities decided that financial institutions would enter individually into the FATCA, pointing out that “there are consultations between relevant parties to consider the possibility of entering into an agreement between the government and the US Internal Revenue Service (IRS).”

 

On his part, ABJ general director Dr. Adli Kandah said FATCA, endorsed by the American government in March 2010, obliges American taxpayers who have assets outside the USA to submit statements on those assets to the IRS. It also obliges foreign (non-American) financial institutions to send direct reports to the IRS that include information on the financial accounts of American tax payers or the parties for whom those tax payers work.

 

He added that compliance means that financial institutions should sign direct agreements with the IRS, and that governments should sign a similar agreement directly with the American government so that the government works as a link between the financial institutions of its country and the IRS.

 

The ABJ, he said, responded to the FATCA and organized many workshops on the act and its implementation, in cooperation with outstanding firms such as Deloitte and Touche, in addition to a series of meetings with banks at the level of senior and executive managements to clarify the act, its implementations and the challenges it raises.

 

 

Dr. Kandah stressed that the most important challenges facing Jordan in abiding by FATCA revolve around confidentiality of bank accounts, closing accounts of uncooperative individuals, deductions and tax deductions on uncooperative individuals, in addition to the monitoring institutions and the importance of raising awareness among clients of the act and its implementations.

 

 

In regard of the first element, Dr. Kandah said there is a conflict between FATCA and Jordanian laws, especially in respect of the confidentiality of bank accounts. Closing the account of a client who refused to sign a written consent to disclosing his financial statements to the IRS might be construed as illegal or arbitrary.

 

 

As for closing the accounts of uncooperative individuals, Dr. Kandah said FATCA doesn’t oblige financial institutions to close down the account, but it imposes a 30% tax on non-compliance, the matter that propels banks to close uncooperative accounts.

 

 

As regards the third element, Dr. Kandah said that the bank’s deduction of 30% of American sources of income for uncooperative accounts and transferring them to the IRS is illegal and breaches local laws. Furthermore, there is no clear mechanism to define the deductible American sources of income by virtue of FATCA.

 

 

Dr. Kandah pointed out that there are financial institutions, subsidiary to Jordanian banks, which exist in countries that do not abide by FATCA. This would lead to deeming all members of the financial group uncooperative. The law considers banks that signed direct agreements with the IRS as “collection agents”, the matter that would lead the officials who signed the agreement to bear legal consequences in case of non-compliance.

 

 

He pointed out that monitoring authorities of financial institutions such as insurance companies and financial intermediary companies are bound by FATCA. However, they issued no instructions in this regard.

 

 

He went on to say that the updating of clients’ statements to comply by FATCA led some clients to close their accounts and open new ones at banks that did not implement the amended forms according to the FATCA requirements.

 

He called for raising awareness among clients on the requirements of FATCA so that the client’s relationship with the financial institution he is dealing with is not negatively affected.

 

Secretary General of the Union of Arab Banks Wissam Fattouh said implementing the FATCA has two stages: the first is relevant to the financial institutions’ recognition of FATCA and registering in it. The second is sending information of American clients at the financial institution, “and here lies the discussion,” he said.

 

Exchanging information with IRS takes place either by signing a direct agreement between a financial institution and the IRS, or by the creation of a governmental commission that represents the central bank, the ministry of finance, the association of banks and the anti money laundering unit, provided that the commission signs a direct agreement with the US treasury Department.

 

Fattouh said the Union of Arab Banks believes that entering into such an agreement should be done between an official commission with the Treasury Department rather than with individual financial institutions.

 

 

Participants in the three-day conference discussed issues of the final legislations and the executive procedures of FATCA, legal issues and challenges relevant to FATCA, the way Arab governments and central banks should deal with FATCA and policies and procedures relevant thereto and the link between the task of compliance and the implementation mechanisms of FATCA.

 

Participants included representatives from Jordan, Saudi Arabia, Kuwait, Qatar, Yemen, Oman, Palestine, Lebanon, Syria, Iraq, Egypt, Sudan, Tunis and Libya.

 



 

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