Don’t you just love acronyms like TSS – “tax related stress syndrome”; PEP – “politically exposed person”; ATM; PIN;RSS; FAQ and in the world of international business and financial services the rather under appreciated OFC.
Seizing on the opportunity to spawn a new cipher, IRS Special Service Agent Michael McDonald has been credited with the creation of another abbreviation formed from the use of the first letters of each word in a series of words.
According to MacDonald and very soon thousands more, a “FEP” is a FATCA- Exposed Person.
Strictly speaking “FEP” is not acronym in the true sense of the word as the ‘F’ in “FEP” itself stands for another acronym – Foreign Account Tax Compliance Act – a US law which came into effect on January 1, this year.
According to IRS SSA MacDonald, “FEPs” are the primary targets of FATCA and it usefully describes those US foreign account holders with undeclared accounts outside of the US and about which there are a slew of new disclosure requirements under the enhanced legal regime.
FATCA ‘exposure’ is however not limited to the estimated millions of US account holders with undeclared assets abroad but also covers the tens of thousands of Foreign Financial Institutions (FFIs) where these assets are held; and the thousands of employees whose job now includes the management of the reporting, collection, storage and transmission of the data required by FATCA to the IRS.
In this sense the ‘P’ in “FEP” ought to reference not only the individual account holders and the employees of the FFIs contemplated by FATCA but also ‘legal’ persons including but not limited to banks and other traditional deposit taking entities which are also covered by the new legislation.
FATCA overreaches the recently agreed ambit of international cooperation in information sharing among countries who are members of the OECD Global Forum on Transparency and Tax Information Exchange because not only is the exchange of information not triggered by a ‘request’ but it covers information about accounts and account holders not covered by the terms of the two principal legal instruments – tax treaty and Tax Information Exchange Agreements (TIEA) – though which this multilateralism is expressed.
In fairness to FATCA however, the law was never conceptualized as an anti-competitive tool in the provision of international business and financial services. In fact, it can be argued that FATCA significantly reduces the premium of the US account holder for FFIs.
Instead FATCA is simply the extraterritorial extension of US tax enforcement law without reference to the usual mechanisms which have come to define the relations among sovereign states. Of course countries are encouraged to conclude bilateral agreements with the US, using US-created templates to make FATCA compliance by FFIs operating in the territory of the non-US treaty partner less burdensome.
As is the case when a law is proclaimed – especially one with such lofty ambitions as the FATCA – soon other acronyms will follow the “FEP”
Working from the comfort of the new floor added to accommodate the anticipated demands of FATCA, the IRS has created a new reporting form for FATCA reporting by FFIs.
Besides setting out the details of what must be reported on the US account holder with the account in in the FFI, the new FATCA form also requires the institutions to designate a new compliance position in the form of a “FATCA-repsonsible reporting officer” which will probably be shorted to “FRRO”.
It is however true that “FRRO” is already taken as stands variously for the “Facultad Regional Rosario” in Argentina , the “Foreign Regional Registration Office” in India and the “Front Range Recording Orchestra” in Colorado.
I betting though that the FRRO, as it relates to FATCA, may prove the most popular.