New Service Automates Monitoring and Analyzing the Grandfathered Status of Debt Securities for FATCA
Wolters Kluwer Financial Services today introduced FATCA GFD - Grandfathered Debt, a new solution for withholding agents to monitor whether debt instruments have lost their FATCA withholding exemption status due to a material modification . The company also announced several major financial institutions will be using the FATCA GFD solution .
The FATCA GFD service taps into the deep corporate actions expertise of Wolters Kluwer Financial Services' Capital Changes team and the efficiency of GainsKeeper® technology to identify the impact of modifications and corporate actions affecting the grandfathered status of the user's debt securities. FATCA GFD users will benefit from improved operational efficiencies and a reduction in manual processes while minimizing their withholding tax risk.
Issuers are not required to provide notice of material modifications under FATCA, which goes into effect July 1, 2014, yet all withholding agents are required to adjust withholdings when they have actual notice that a material modification has occurred (or reason to know, in the case of an agent of the issuer). Failure to adjust the exemption status and withhold accordingly increases exposure to tax risk and can result in significant tax penalties.
"Many financial institutions are faced with limited or overstretched tax law expertise to interpret notices, even if they do indicate whether a material modification of a debt instrument has occurred," said Chuck Ross, vice president and general manager of Investment Compliance Solutions at Wolters Kluwer Financial Services. "Financial institutions without a system already in place will have to allow ample time for implementation and testing prior to the July 1 effective date, or expose themselves to additional tax risk."
"A concern many in the industry have is the perspective that upon initial read, the regulation itself gives a false sense of security that the responsibility to provide notice of a material modification lies with the issuer," said Stevie D. Conlon, senior director and tax counsel, Wolters Kluwer Financial Services, "but a more in-depth read reveals that in fact every withholding agent has to be able to answer the question to stay in compliance. FATCA GFD will reduce the tax risk associated with these potential gaps."