FATCA fact sheet 2

MD3 – PAPER U.S. TAX FORM VALIDATION SOLUTION
®
FATCA SITUATION AND CHALLENGES
MD3 SOLUTION FOR FATCA
The Foreign Account Tax Compliance Act (FATCA) represents
the U.S. government’s most aggressive and far-reaching effort
to combat tax evasion by U.S. persons. FATCA essentially deputizes foreign financial institutions to enforce U.S. tax law. Under
FATCA both domestic and non-U.S. financial institutions are
required to perform account due diligence on certain exiting investors, implement new account opening procedures for accounts
opened post-effective date, and track “change of circumstance”
on all accounts. These challenges are labeled “FATCA Account
Diligence Requirements” and are the most immediate FATCArelated concerns for the global financial community.
MD3 is an industry accepted U.S. tax form validation software
solution. MD3 streamlines and simplifies the validation process
for signed paper U.S. tax forms, or through use of documentation collected as part of the KYC process, up-to-date logic used
to query each form. Once a form has been through the process a
user can be confident the form meets applicable IRS standards,
ensuring proper compliance, minimizing the potential for error,
and saving time and money.
The most effective way to comply with the account diligence
requirements is to collect valid U.S. tax forms from investors –
in fact, collection of such forms is frequently mandated by the
FATCA regulations. At the same time both the complexity and
the length of the forms will change significantly due to FATCAimposed requirements.
FATCA IMPACT
MD3® (Mandatory Document Due Diligence) is an industry
accepted tool that mitigates the regulatory risk accompanying
the account diligence procedures imposed by FATCA. MD3 was
developed by a team of tax attorneys and tax operations experts
at Compliance Technologies International, LLP (CTI) and the law
firm Burt, Staples & Maner, LLP (BSM) to streamline and remove
the risk from the collection, review, validation, and renewal of
U.S. tax forms and certifications of status.
Over the past decade MD3 has achieved significant market penetration in the financial services industry with 8 of the 10 largest
U.S. withholding agents adopting the technology. FATCA adds
significant complexity to U.S. tax account due diligence, and at
the same time expands the segments that must manage the
requirements. MD3 continues to gain traction as an industry solution to mitigate a critical set of FATCA challenges that effect U.S.
tax diligence for the broad spectrum of domestic and non-US
funds, asset managers, fund distributors and transfer agents.
1
SIMPLE – ACCURATE – FAST
• MD3 distills the complex validation process for U.S. Forms
W-8, W-9, and KYC documents into a series of simple
“yes” or “no” questions based on the information on
the applicable tax form, documentary evidence or KYC
documentation, and as relevant the Withholding Agent’s
books and records.
• MD3 maintains an audit trail of the validation history (including questions asked and answered). MD3
archives validation results and form expiration dates the
Withholding Agent can retrieve for re-solicitations, tax and
management reports, as well as for any audit.
• MD3 incorporates the most up-to-date changes in IRS regulations and provides a thorough tax document review of
Forms W-8, W-9, and KYC documentation compliant with
IRS regulations. The process of validating Forms W-8, W-9,
and KYC documentation is simplified reducing both validation time and cost.
Reference to KYC documentation is, in the context of validation of accounts for U.S. tax purposes, and not as part of the AML / KYC Compliance function.
E-W8 mitigates risk, reduces cost and is configurable
to match your business processes
1
As part of account
opening process,
AML/KYC documents
and paper U.S. tax
forms requested
2
Financial Institution
receives documents
to validate account
for FATCA/NRA
purposes
3
Account validated by
Financial Institution
using E-W8’s IRS
reviewed logic
Account
Owner
Account
Owner
Account Opening
AML/KYC documents or
paper U.S. tax forms
Certification
Financial
Institution
Exception
Handling
Financial
Institution
Financial
Institution
FATCA/NRA
Certified
Further
Information
Required
Note: Used within financial institution secure environment, no client document or information accessed by application
BBH GLOBAL TAX SERVICES CONTACTS
Group Head: Joshua Fine, Senior Vice President | [email protected] | +1 617 772 6686
U.S.: Orinne McCloskey, Vice President | [email protected] | +1 617 772 1313
U.K.: Andrew French, Vice President | [email protected] | +44 (0) 20 7614 8780
Switzerland: Glen Lovelock, Vice President | [email protected] | +41 44 227 1876
Hong Kong: Fred Chin, Vice President | [email protected] | +852 3756 1765
CTI CONTACTS
U.S.: Cyrus Daftary, Executive Director CTI LLP | [email protected] | +1 617 963 3412
U.K.: Yvonne Kunihira-Davidson, CTI LLP | [email protected] | +44 (0)20 3371 0662
This publication is provided by Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) to recipients, who are classified as Professional Clients or Eligible
Counterparties if in the European Economic Area (“EEA”), solely for informational purposes. Neither BBH, nor its affiliates, provide tax advice and clients should consult their tax advisors regarding the individual circumstances. This material does not constitute legal, tax or investment advice and any reference to tax matters is not
intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code or for promotion, marketing or recommendation to
third parties. This information has been obtained from sources believed to be reliable that are available upon request. This material does not comprise an offer of services. Any opinions expressed are subject to change without notice. Unauthorized use or distribution without the prior written permission of BBH is prohibited. This
publication is approved for distribution in member states of the EEA by Brown Brothers Harriman Investor Services Limited, authorized and regulated by the Financial
Services Authority. BBH is a service mark of Brown Brothers Harriman & Co., registered in the United States and other countries. © Brown Brothers Harriman & Co.
and Compliance Technologies International, LLP (CTI) 2012. All rights reserved. 08/2012.
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