FATCA. Obligations of the Spanish FFI

The Foreign Account Tax Compliance Act, called FATCA, is a United States federal law. The act, in effect since 2010, regulates the automatic exchange of information to avoid tax evasion from US citizens when operating foreign financial accounts. For that purpose, it is necessary to identify those individuals who must pay taxes and own assets abroad. 

Therefore, the financial institutions must share information of both American citizens and companies who own accounts and deposits abroad. 

The current regulatory framework applicable to Spanish financial institutions is the agreement between the US and Spain, published in BOE (Official Government newsletter) on July 1, 2014 to improve the compliance of the international tax legislation as well as the Order HAP/1136/2014, of 30 June on reporting obligations and due diligence matters. 

To achieve the main goal of FATCA, all foreign financial institutions (FFI) must provide information about their customers’ assets and accounts, mainly when the holder is a US citizen or when the last beneficiary of the Company’s profits are from the US. The FFI must share this information with the Internal Revenue Service (IRS).

According to article 4 of the above-mentioned order, any custodial institution, depositary institution, financial investment entity or insurance company qualified as Spanish FFI is obliged to inform the corresponding authorities.

As per the obligations derived from the agreement, when informing the authorities, the Spanish FFI must:

a) Identify the US accounts subject to disclosure in accordance with the due diligence rules: (i) Deposit Accounts, (ii) Custodial Accounts, (iii) Insurance cash value contracts, (iv) Annuity contracts and (v) Investments in equity or debt in certain entities.

b) Annually report to the State Tax Administration Authorities, all the information regarding the name, address and the US Tax Identificatio

n Number of the account holder as well as the account number, the identification of the financial institution and the balance. 

c) Notify the State Tax Administration Authorities the name of any non-participating financial institution, which received payments in 2015 and 2016 and the total amount.

d) Register before the IRS and obtain a GIIN (Global Intermediary Identification Number).

Those FFI's not performing the exchange of information effectively will be punished with a 30% withholding, obviously non-refundable, for those income with a US origin.

FATCA has a clear intention to economic integration. It promotes the effective exchange of information, directly contributes to a global tax transparency model and fights tax fraud and offenses.