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by Michael Scholl

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DTCC Helps Fund Companies Comply With Cost Basis Mandate

A discussion about how to help clients comply with a 2010 U.S. tax law enacted to help combat tax evasion by U.S. taxpayers was the highlight of DTCC’s 12th Annual Global Tax Forum, held in New York on April 29.

About 140 tax professionals attended the half-day forum, including representatives from Bank of America Merrill Lynch, BNY Mellon, Barclays Capital, Citigroup, Ernst & Young, Goldman Sachs, JPMorgan Chase, KPMG LLP and Morgan Stanley.

New requirements for overseas assets

The U.S. tax law in question is the Foreign Account Tax Compliance Act (FATCA), which currently requires U.S. taxpayers holding assets outside the U.S. to report those assets to the Internal Revenue Service (IRS) on a new form (an FBAR) to be attached to their federal income tax returns.

Also, beginning with the 2013 tax year, FATCA will require Foreign Financial Institutions (FFIs) to sign an agreement with the IRS to report certain information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. FFIs that fail to comply with FATCA will be subject to a 30% withholding tax on withholdable payments.

Nicole Tanguy, director and tax counsel, Citigroup

The technical changes financial institutions need to implement to comply with FATCA were the focus of a presentation given at the forum by Nicole Tanguy, director and tax counsel, Citigroup. Tanguy said that, because of the tight timeframe before the 2013 mandate takes effect, financial institutions may be forced to start developing compliance procedures before the U.S. Treasury Department issues definitive regulations regarding FATCA’s requirements.

To help financial institutions avoid having to develop their compliance procedures without full knowledge of what the U.S. government will require, Tanguy said she hoped the government would act quickly to issue proposed FATCA regulations this summer to allow for a sufficient comment and public hearing period. She also called for the government to issue final regulations well before Dec. 31, 2012.

After Tanguy’s talk, issues concerning FATCA were further discussed during a panel that included Justin O’Brien, senior executive manager, Ernst & Young; Brian Polchinski, executive director, JPMorgan Chase; Carmela Lawrence, senior vice president, Bank of America Merrill Lynch, and Nardeo Ganesh, DTCC director, Tax Services.

Cost basis update

The forum included an update on DTCC’s efforts to enhance its Cost Basis Reporting Service (CBRS) to help firms comply with the federal government’s new mandate for financial institutions to report cost basis information to investors and the IRS.

The mandate, which requires firms to transfer cost basis information whenever they pass along assets to another firm, is phasing in for different asset classes according to the following schedule:

  • Jan. 1, 2011: Stock in a corporation acquired on or after this date.
  • Jan. 1, 2012: Shares in mutual funds and dividend reinvestment plans acquired on or after this date.
  • Jan. 1, 2013: Debt, options and other securities acquired on or after this date.

Lydia Midwood, DTCC director, Product Management, said during her forum presentation that DTCC’s enhancements to CBRS have gone “according to plan” and have helped firms meet the demands of the first phase of the new mandate.

A key change DTCC has made is to increase the capacity of the CBRS to allow it to handle transfers not made through DTCC’s Automated Customer Account Transfer Service (ACATS). In the past, the use of CBRS was limited to transfers made through ACATS, but the new cost basis reporting requirements prompted the financial industry to ask DTCC to expand CBRS to cover both ACATS and non-ACATS transfers.

Midwood said additional changes would be made to help firms deal with the second and third phases of the mandate. Those changes will include increasing CBRS functionality by allowing data uploads from Excel via WebDirect. (See article, "DTCC Helps Fund Companies Comply With Cost Basis Mandate.")

She said DTCC would make additional improvements as a result of customer feedback and input from the Cost Basis Steering Committee, a broad coalition of market participants.

Additional speakers

Other presenters at this year’s forum were:

  • Christopher Steeves, partner, Fasken Martineau DuMoulin LLP, discussed new Canadian rules regarding Specified Investment Flow-Through (SIFT) trusts and partnerships. Under the new rules, all SIFTs are now taxable like corporations and their distributions are deemed to be dividends for tax purposes.
  • Elaine Marino, managing director, KPMG, updated attendees about the efforts of the Organization for Economic Cooperation and Development (OECD) to streamline cross-border withholding and improve tax relief for foreign investors.
  • Kit Dickson, associate partner, KPMG, provided guidance on how global portfolio investors can file withholding tax reclaims with European Union members.
  • Brett Lewis, vice president, Globe Tax Services Inc., gave a depositary bank market update.
  • Steve Neiss, vice president, Broadridge Financial Solutions, Inc., provided a 2010 tax reporting review and discussed the reclassifications affecting cost basis.
  • Ian De Sacia, DTCC director, Tax Services, reported on new forms the Canadian Revenue Agency has published that are supposed to be filled out by investors seeking benefits from the U.S. tax treaty with Canada.

Feedback on the forum

Feedback from attendees was positive. In a follow-up survey, 100% of respondents found the forum to be informative and planned to recommend it to colleagues. In addition, 90% of respondents said they expect to attend next year’s forum. @