Faroese Financial Institutions Must Review Accounts for U.S. Reporting Requirements
Background
Tórshavn, Faroe Islands - The Faroese Competent Authority has received reports that several financial institutions in the country are failing to properly identify and report accounts held by U.S. persons and other entities subject to U.S. tax reporting requirements.
Review Process
Under Article 4 of an agreement between the United States and the Faroe Islands, certain financial institutions must review their accounts to determine whether they are held by U.S. persons or entities subject to reporting requirements. The review process involves several steps:
Determining Account Holder Type
- Determine whether the account holder is a specified U.S. person
- Determine whether the account holder is a financial institution
- Determine whether the account holder is a non-financial foreign entity (NFFE)
Treatment of Accounts
According to the agreement, if an account holder is identified as a specified U.S. person:
- The financial institution must treat the account as a U.S. reportable account
- Obtain a self-certification from the account holder unless it can reasonably determine that the account holder is not a specified U.S. person
If the account holder is identified as a financial institution:
- Determine whether the institution is a participating or non-participating financial institution
- Participating financial institutions are exempt from reporting requirements
- Non-participating financial institutions must report payments to the account holder
In cases where an NFFE holds an account:
- Identify whether the NFFE has controlling persons and whether any of those persons are U.S. citizens or residents
- Rely on information collected and maintained pursuant to anti-money laundering and know-your-customer procedures to make these determinations
Compliance Urged
The Faroese Competent Authority is urging all financial institutions in the country to review their accounts carefully to ensure compliance with U.S. reporting requirements. Failure to comply with these requirements can result in significant penalties and fines.
Conclusion
Financial institutions in the Faroe Islands are advised to take immediate action to review their accounts and ensure compliance with U.S. reporting requirements. The consequences of non-compliance can be severe, so it is essential that institutions take this matter seriously and take the necessary steps to avoid any potential issues.