Foreign Account Tax Compliance Act

FATCA stands for the Foreign Account Tax Compliance Act.

FATCA is part of the U.S. HIRE Act, signed into law on March 18th, 2010 by President Obama. Virtually every financial institution in the world is affected by FATCA requirements.

FATCA in Canada

On February 5, 2014, Canada and the United States signed an Inter-Governmental Agreement (IGA) to improve international tax compliance and to implement the Foreign Account Tax Compliance Act. Canadian financial institutions must be FATCA compliant as of July 1, 2014 as part of Canadian tax law.

For more information:

What is FATCA

FATCA rationale

The objective of this legislation is to identify U.S. persons who may evade U.S. taxes by placing assets in foreign (non-U.S.) accounts -- either directly or indirectly through certain foreign entities such as corporations or trusts.

Who or what is a U.S. person for U.S. tax purposes?

• A citizen of the U.S., including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship;
• A lawful resident of the U.S., including a U.S. green card holder;
• A person residing in the U.S.
• Certain persons who spend a significant number of days in the U.S. each year. (For example, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Similar relief is provided under many other treaties with the U.S.)
• U.S. corporations, U.S. estates and U.S. trusts.

FATCA fundamentals and international tax compliance

For foreign (non-U.S.) financial institutions (FFIs) in countries that have not entered into an intergovernmental agreement with the U.S., FATCA requires FFIs to either:

• enter into agreements with the IRS and report information about financial accounts held by U.S. taxpayers -- or held by foreign entities in which U.S. taxpayers hold an ownership interest -- directly to the IRS, or
• face punitive U.S. withholding tax on U.S.-source payments.

To address privacy and regulatory concerns related to FATCA, many countries negotiated intergovernmental agreements with the U.S. These IGA "partner countries" entered into one of two standard model agreements, and implemented laws to require financial institutions to collect and report information required by FATCA.

FFIs comply with FATCA in one of three ways:

• Canada adopted the Model 1 IGA where FFIs comply under local legislation and report to their local tax authority (i.e. Canada Revenue Agency); in turn, the local tax authority exchanges information with the Internal Revenue Service (IRS);
• In countries with a Model 2 IGA, FFIs comply with local legislation to enter into agreements with, and report directly to, the IRS;
• In countries without an IGA, FFIs enter into agreements with, and report directly to the IRS. (A 30% withholding tax will be deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.).

U.S. financial institutions are automatically required to comply with FATCA.

Note: the term U.S. Reportable Account is an account owned by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. controlling persons -- regardless of the currency of the account itself. FATCA applies to all types of financial accounts, including insurance, investments and business accounts.

RBC complies with FATCA regulations in all jurisdictions in which it operates.

RBC’s Approach

Context

RBC understands the objectives of FATCA and the U.S. government's concerns about tax evasion.

Action

RBC works with industry associations, governments and regulators on an ongoing basis to ensure compliance with FATCA requirements and make recommendations when necessary.

Client Focus

RBC earns the right to be our clients' first choice. We take our clients' privacy seriously and comply with privacy rules in all jurisdictions. Our goal is to minimize the impact of these rules on client service.

Phase 2 – 2014–2016

The second phase includes the identification and reporting of certain pre-existing U.S. Reportable Accounts opened prior to July 1 st , 2014 . This phase is expected to be completed between 2014 and 2016.

FAQs

FATCA is the Foreign Account Tax Compliance Act. Its objective is to identify U.S. persons who may evade U.S. taxes by investing through foreign (non-U.S.) accounts -- either directly or indirectly through foreign entities such as corporations and trusts. FATCA is part of the HIRE Act, signed into law on March 18 th , 2010 by President Obama. Final FATCA regulations were released in January 2013 .

Financial institutions are required to identify and report, on an annual basis, financial accounts held by U.S. taxpayers, or held by certain foreign entities in which U.S. taxpayers hold a substantial interest (known as U.S. Reportable Accounts).

Foreign Financial Institutions (FFIs) comply with FATCA in one of three ways:

• In countries with a Model 1 IGA, including Canada, FFIs comply under local legislation and report to their local tax authorities; in turn, the local tax authority will exchange information with the IRS;
• In countries with a Model 2 IGA, FFIs comply with local legislation to enter into agreements with, and report directly to, the IRS;
• In countries without an IGA, FFIs enter into agreements with, and report directly to the IRS. A 30% withholding tax is deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.

Virtually every financial institution in the world is affected, unless qualifying for an exemption.

• In countries with intergovernmental agreements (IGAs), FFIs are required under local legislation to comply.
• In non-IGA countries, a 30% U.S. withholding tax will be deducted from U.S.-source payments (and potentially non-U.S. source payments in future) received by foreign financial institutions if they do not enter into FFI Agreements with the IRS. This includes payments received by FFIs either on their own account or on account of their clients.

The first phase includes new account opening procedures to identify U.S. Reportable Accounts. These procedures were required to be in place July 1 st , 2014 for all U.S. and non-U.S. financial institutions.

The second phase includes the identification and reporting of certain pre-existing U.S. Reportable Accounts opened prior to July 1 st , 2014 . This phase will be completed between 2014 and 2016.

Royal Bank of Canada (RBC), its affiliated legal entities and branches are compliant with FATCA requirements globally.

We understand the objectives of the legislation and the U.S. government's concerns about tax evasion. We are committed to being in compliance with the FATCA requirements while minimizing the impact on client service, privacy and costs.

Under U.S. tax law, you are considered a U.S. person if you are:

• A citizen of the U.S. (including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship);
• A lawful resident of the U.S. (including a U.S. green card holder);
• A person who resides in the U.S.

You also may be considered a U.S. person if you spend a significant number of days each year in the U.S. On this basis, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Other treaties with the U.S. provide similar relief. If you are unsure of your U.S. tax status, contact your tax advisor.

U.S. corporations, U.S. estates and U.S. trusts are also considered U.S. persons.

For more information about U.S. persons and their U.S. tax obligations, visit the IRS Website at:

• www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA) (opens to external site)
• https://www.irs.gov/individuals/international-taxpayers/foreign-persons (opens to external site)

In most cases, FATCA should have little impact. If you have an existing account and there is an indication that you may be a U.S. person, or if you are opening a new account, RBC may ask you to provide additional information or documentation to demonstrate that you are not a U.S. person.

If you are a U.S. person, you may be asked to complete IRS Form W-9 (Request for Taxpayer Identification Number and Certification) or a similar self-certification form which will be kept on file at RBC. Information about you and your account will be reported to the local tax authority, (e.g. Canada Revenue Agency). In turn, the local tax authority will forward the information to the U.S. Internal Revenue Service (IRS) on an annual basis. If you have complied with all of your U.S. reporting obligations, reporting by RBC should not result in any increased U.S. tax liability, but you should discuss your personal tax situation with your tax advisor.

I am a U.S. citizen but have not lived in the U.S. for years and do not pay U.S. taxes. Why does this apply to me?

A U.S. citizen who lives outside the U.S. falls within the definition of a U.S. person for U.S. tax purposes, and must file U.S. tax returns. U.S. taxpayers may also have other U.S. reporting obligations. Foreign (non-U.S.) financial institutions are required to identify the accounts of U.S. persons and report them to their local tax authority or the IRS annually. It is important that you consult with a tax advisor to understand your U.S. reporting obligations.

If one or more owners on a joint account is a U.S. Person, then the account will be treated as a U.S Reportable Account. The account will be reported as if it is wholly owned by each U.S. Person. Information about clients who are not identified as U.S. persons will not be reported to the CRA.

Yes, FATCA applies to all types of financial accounts, including life insurance policies with a cash value and annuity contracts.

For more information about FATCA, please visit the IRS website:

Client information to be reported will generally include:

• Name, address, and U.S. Taxpayer Identification Number (TIN) of the U.S. person or, in the case of a U.S.-owned foreign entity, the name, address and TIN (if any) of the entity, and the name, address and TIN of each controlling person that is a U.S. person
• Account number
• Account balance or value at the end of the year (or immediately prior to account closure), income paid or credited to the account and gross proceeds from the sale or redemption of financial assets paid or credited to the account

RBC employees are not able to provide legal or regulatory advice as it pertains to FATCA. We recommend that you seek the guidance of a tax or legal advisor for more specific answers on how FATCA may affect you or your family.

Most financial institutions around the world are affected by FATCA. We cannot comment on steps other institutions are taking.

I am a client of more than one RBC business. Will RBC businesses share my FATCA-related information and documentation?

Each RBC business undertakes due diligence with its clients in respect of FATCA. RBC businesses will each maintain client FATCA documentation and, accordingly, you may be contacted separately regarding FATCA by each RBC business with which you have an account.

What authority does RBC have to provide my account information to my local tax authority or directly to the IRS?

RBC will only disclose account information where you’ve provided your consent or where required by law, such as disclosure for tax purposes to the local tax authority (e.g. Canada Revenue Agency).