Speaking at the Society of Trust and Estate Practitioners’ Symposium on Tax Transparency and Tax Neutrality, Huelin, who is head of trusts for the British Isles, urged firms to make sure that they are going to be able to demonstrate compliance with the FATCA legislation in time for its implementation, warning that this will be no easy task. “The overall timetable before it comes into force is very challenging indeed”, he told delegates in London earlier this week.

The Foreign Account Tax Compliance Act of 2009 is intended to improve tax compliance with regards offshore accounts held by US persons and was signed into law in March this year as a revenue raiser to pay for the Hiring Incentives to Restore Employment Act.

Under FATCA, Foreign Financial Institutions (FFIs) will be compelled to enter into agreements with the IRS to report, in detail, on the US accounts it handles or be subject to a 30 per cent withholding tax on any US source income and sales proceeds. FFIs will be required to identify US accounts, verify their ownership, report them to the IRS and either withhold 30 per cent on recalcitrant accounts or obtain a waiver (such as in cases where foreign law prevents reporting).

The scope of FATCA is potentially massive and while it may well uncover substantial amounts of tax evasion to the US authorities, the additional compliance burden it will confer on financial institutions worldwide has yet to be fully understood. “With FATCA the US really has changed the rules of the game,” said Huelin, echoing concerns from many corners of the industry about the impact of the new rules.

Part of the industry’s anxiety, according to Huelin, stems from the fact that it is “far from clear” what is constituted by a US account and this lack of clarity is going to make it very difficult to put the necessary procedures in place in time to be compliant for 1 January 2010. Broadly speaking, a US account will be one held for a person who is – for tax purposes – a US citizen.

Huelin highlighted a number of considerations which should be front of mind for financial institutions, among which were: where account agreements preceding FATCA will stand, whether account opening procedures will need to be amended and if sufficient technology provision has been made for the additional information gathering and reporting required. It is understood that Participating Foreign Financial Institutions (PFFIs) will be subject to auditing by the IRS – causing justified concerns about onerous data handling requirements going forward.

A number of banks, such as Switzerland’s Wegelin, have already ceased to provide offshore banking services to US persons, and trust companies are going to have to make similar tough decisions ahead of the implementation of FATCA. Their main dilemma, Huelin said, will be whether to enter an FFI agreement with the US authorities at all as there may well be a conflict of interest between a PFFI and its fiduciary duty in, for example, the disclosure of trust beneficiaries’ details.

What is clear is that financial services firms worldwide need to get their houses in order – and fast. “Twenty-four months is a remarkably short time to get it done, so people need to be approaching it as a matter of urgency,” Heulin concluded.