WHTPro

US Witholding Tax Administration Solution

In 2001 the US established the Qualified Intermediary (QI) program to encourage greater foreign investment in US securities based on a framework of certified companies (QIs) collecting information on US persons with foreign income and withholding and collecting tax due on that foreign income. Whilst it also required the monitoring of US sourced income to non-US persons, the primary focus was to ensure that double tax treaty rate benefits were only received by non-US persons residing in tax treaty countries, and secondly to ensure that US persons pay US tax on their foreign income. In short, the QI program put the spotlight on any firm handling the wealth of any US person, requiring the firm to collect information on individuals and disclose that information to the IRS, and also to withhold and collect taxes on behalf of the IRS.

The QI program is now being further extended by the US Inland Revenue Service (I.R.S.) with the introduction of the Foreign Account Tax Compliance Act (F.A.T.C.A.) which came into effect in March 2010. These changes include:

• FATCA extends the scope of firms affected – to include brokers, investment companies, even unitised investment vehicles
• The requirement for identifying individuals have grown even more stringent, covering direct and indirect ownership
• The IRS will be systematically conducting ‘no-name’ audits

These changes start to come into effect later in 2010, right through to 2013, and the IRS has made it clear that further, wide-range changes are still to come such as potentially the inclusion of securities lenders into the program.

Time to Act

For most wealth managers already handling US clients, they will already be familiar with the QI programme. However, the advent of FATCA substantially changes the manner of a firm’s interactions with the IRS and will undoubtedly necessitate a re-think of the operating model. The ability to record all the information that the IRS requires on both individuals and withholding tax, for this information to be fully auditable and traceable, and to electronically exchange this information with the IRS is the bare minimum required.

3i Infotech’s WHTPro has been designed to meet these requirements from a Wealth Manager’s perspective and covers all areas that are necessary for compliance with the US Withholding Tax regime.