Another abbreviation? Yes! The FATCA statement

In one of our previous articles, we already talked about abbreviations such as AML, PMT, UBO, PEP, CCD, or KYC, and we also talked about the FCPA. How many and how many abbreviations. If we want to see the whole picture, we cannot leave FATCA out of the list either. Our topic today is the Foreign Account Tax Compliance Act (hereinafter: FATCA).

The purpose of FATCA is to identify US taxpayers (natural or legal persons) who maintain accounts at financial institutions outside the US, and that their data be reported to the American tax authorities.

In short:

that these persons pay tax on their financial assets, and that they cannot hide or avoid their tax liability.

The law introduced a reporting system for financial institutions for specific accounts. Another purpose is that the IRS (Internal Revenue Service [American Tax Authority]) can track the withholding tax income paid to American taxpayers anywhere in the world.

The implementation of the FATCA law is mandatory for all Hungarian financial institutions.

On February 4, 2014, the government of Hungary and the government of the USA signed the intergovernmental agreement that regulates the automatic exchange of data between the tax authorities of the two countries. As a result, from July 1, 2014, all financial institutions in Hungary must use a customer identification system.

A financial institution is obliged to carry out an investigation aimed at establishing the identity of the Account Holder, during which the customer is obliged to declare that whether he/she is considered a US resident for tax purposes.

For example, a financial institution examines customer data in its records:

– citizenship,

– residential address, place of residence or mailing address,

– telephone or mobile phone number.

Based on the result of the identity check, the financial account:

– will be treated as a Reportable Account, if a new customer declares his/her US tax liability (until the relevant customer makes a statement to the contrary), or

– will be identified as a Non-Reportable Account.

The term “U.S. Reportable Account” means a Financial Account maintained by a Reporting Hungarian Financial Institution and held by one or more Specified U.S. Persons or by a Non-U.S. Entity with one or more Controlling Persons that is a Specified U.S. Person.

In the former case the financial institution informs the Hungarian National Tax and Customs Administration (NAV) about the

  • data of the account classified as “Account Reportable to the United States” and
  • the relevant data of the account owner, which forwards these data to the US Internal Revenue Service.