The Top Five FATCA Challenges with Pre-Paid Cards, E-Money, and E-Wallets
Pre-paid cards, electronic money (e-money), and electronic wallets (e-wallets) pose numerous challenges for foreign financial institutions (FFIs) under the Foreign Account Tax Compliance Act (FATCA).
FFIs may not necessarily realise that they will all fall within the scope of the definition of financial account (depositary account) if cash is retained in credit. This means that FFIs must carry out FATCA due diligence, reporting, and withholding obligations unless they are exempted.
FFIs may not recognise that they may be exempt from the definition of Depository provider under the Electronic Money Issuers Regulations 2011, but they still fall under the definition of Depository Institution under FATCA.
The FFI must see if it can benefit from an exemption under the relevant Intergovermental Agreement (IGA). The FFI will first need to check Annex II of its country’s IGA to see if it can avail itself of three exemptions:
(1) exempt beneficial owners;
(2) deemed compliant financial institutions; and
(3) exempt products.
If no exemption is available the FFI must check to see if it can fulfil the two conditions required for the ‘Qualified Credit Provider’ (QCP) registered deemed-compliant exemption under FATCA regulations. These are:
(1) that the FFI must be an FFI solely because it is an issuer or servicer of credit cards that accepts deposits on its own behalf (or on behalf of a credit card issuer in the case of a servicer only), only when a customer makes a payment in excess of a balance due with respect to the credit card account and the overpayment is no immediately returned to the customer; and
(2) that the FFI must, on or before the date it registers as a deemed-compliant FFI, implement policies and procedures to either:
(a) prevent a customer deposit in excess of US$50,000; or
(b) ensure that any customer deposit in excess of US$50,000 is refunded to the customer within 60 days. It should be noted that a ‘customer deposit’ does not refer to credit balances to the extent of disputed charges, but will include credit balances resulting from merchandise returns.
If no exemption is available the FFI will have to decide whether to:
(2) elect to identify or report certain pre-existing and new individual accounts (election 2).
Election 1 means the FFI is not required to identify or report pre-existing and new individual depository accounts with a balance or value of US$50,000 or less by the relevant date.
Election 2 means the FFI must apply the Aggregation Rules and report on credit card accounts where:
(1) the balance exceeds US$50,000 (there are no other accounts); and
(2) the total aggregated amount of all Depository Accounts (including the credit card account) exceeds US$50,000.
Opting for either of these elections may involve additional operational obligations for FFIs under FATCA.
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 Pre-existing accounts dates will differ depending on jurisdiction, but will normally be accounts opened before either 31st December 2013, or 30th June 2014.
 Accounts opened on or after 1 January 2014.
 The relevant date will be the date specified for pre-existing individual accounts in the relevant IGA and the end of the year when the account is opened for new individual accounts.
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