fatca / aei & trusts… special...
TRANSCRIPT
Presentation
September 2015
Industry Discussion and Consensus-building Toward Best Practices
FATCA / AEI & Trusts… Special Measures
John Shoemaker
Executive Director, Global Head of Product Management
UBS Trusts & Foundations
Section 1
Introduction
2
Conference Attendee Archetypes
I have found that conference attendees tend to break down into three main archetypes;
• Those who say "FACTA & AEIOU",
• Those who are struggling to understand and catch-up, and
• Those who are feeling good about their FATCA & AEI Compliance Plans.
3
FACTA
4
Struggling… There is no "opt-out" button…
5
FATCA & AEI Focus – The ABC's
• Always
• Be
• Contemplative
5
A
B
C
Section 2
Current Situation
7
• Slovenia* • South Africa* • Spain* • Sweden* • United
Kingdom* • Albania* • Andorra • Ghana • Israel
AEI jurisdictions (as of 4 June 2015)
Late adopters Early adopters Global Forum members without commitment
At the October Global Forum Meeting, 58 jurisdictions committed to a first exchange of information in 2017 and 36 jurisdictions in 2018 (of which 61 signed), subject to the completion of necessary legislative procedures1
Americas Asia-Pacific
• Anguilla* • Argentina* • Barbados • Bermuda* • BVI* • Cayman Islands* • Colombia* • Curacao* • Dominica • Mexico* • Montserrat* • Trinidad and
Tobago • Turks and Caicos* • Antigua and
Barbuda • Aruba* • Bahamas • Belize • Brazil • Canada • Chile • Costa Rica • Grenada • Saint Kitts and Nevis • Saint Lucia • Saint Vincent and
the Grenadines • Sint Maarten • Uruguay
• India • Niue • South Korea • Australia • Brunei Darussalam • China • Hong Kong • Indonesia • Japan • Macau • Malaysia • Marshall Islands • New Zealand • Samoa • Singapore
EMEA
• Austria*2 • Belgium* • Bulgaria • Croatia* • Cyprus* • Czech Republic* • Denmark* • Estonia* • Faroe Islands*
• Finland* • France* • Germany* • Gibraltar* • Greece* • Greenland • Guernsey* • Hungary* • Iceland*
• Ireland* • Isle of Man* • Italy* • Jersey* • Latvia* • Liechtenstein* • Lithuania* • Luxembourg* • Malta*
• Mauritius* • Netherlands* • Norway* • Poland* • Portugal* • Romania* • San Marino* • Seychelles • Slovakia*
• Monaco • Qatar • Russian Federation • Saudi Arabia • Switzerland* • Turkey • United Arab
Emirates
* Signatories of multilateral competent authority agreement signed in Berlin
1 No exchange of information in case there is no agreement between the jurisdictions
2 Note that even though Austria begins information exchange in 2017, the on-boarding and remediation timelines are different from those of other early adopters
8
Regulatory timeline In September 2014, the Global Forum delivered a roadmap to the G20 regarding developing country participation. It is expected to be a tight timeline for implementation
6 May 2014
OECD1 members – Declaration committing to AEI2
(incl. 13 non-members)
9 April 2013
G5 announces pilot project for worldwide FATCA
September 2017
Reporting - First exchange of information under AEI
19 March 2014
Early Adopters - Joint statement announcing early implementation
31 December 2016 Remediation - Complete due diligence for certain “high value“ individual pre-existing accounts (>USD 1m) 19 April 2013
G20 mandates OECD to develop a worldwide standard for automatic exchange of information
13 February 2014
Release of Model CAA3 and CRS4
1 July 2014
FATCA ‘Go Live’
1 January 2016
AEI ‘Go Live’ - Enhanced onboarding required from this date
Timeline for early adopters
29 October 2014
Multilateral Agreement (MCAA) signed by 51 jurisdictions at the Global Forum Meeting in Berlin
21 July 2014
Release of Commentary and reporting schema
2018 2017 2016 2015 2014 2013
Today
Late 2015 / Early 2016
Reporting requirements to be already incorporated
1 OECD: Organization for Economic Co-operation and Development 2 AEI: Automatic exchange of information 3 CAA: Competent Authority Agreement 4 CRS: Common Reporting Standard
14 January 2015
Switzerland domestic draft CRS legislation published
31 December 2015
Snapshot - AEI “pre-existing accounts” are those in existence at this date
31 December 2017
Remediation - Complete due diligence for pre-existing accounts
September 2014
The new standard and a roadmap was formally presented to the G20
19 March 2015
Switzerland and the EU CRS agreement initialed
7 August 2015
Release of Handbook with guidance and templates for jurisdictions implementing AEI
Section 3
Requirements
10
Key elements of FATCA & AEI Information Reporting remains complex, but focuses on a few key elements…
• W-8BEN-E or equivalent Form / Self-certification
• W-8BEN or equivalent Form / Self-certification
• W-9 or equivalent Form / Self-certification
• Passport or National ID
• Tax Residence
• Misc. information
• Date of Birth
• Place of Birth
Document
• Name
• Address
• TIN
• Account Number
• Account Balance
• Entity Identifying Info???
• NIL Report??? Report
• The proper Entity Classification
• The appropriate Compliance Path
• Accountholders (Equity and Debt Interest Holders)
• Substantial U.S. Owners / Controlling Persons
Identify
Key differences from FATCA
• Nationality is irrelevant
• No global registration required and no linking of entities in a single compliant group
• No need to validate FI identifying numbers (such as GIINs)
• No predetermined forms (e.g. W-8)
• No recalcitrant clients (as documentation and exchange of information is legally enforced by each participating jurisdiction)
• No withholding consequences and no NPFFIs
• Fewer de-minimis exemptions available
• Treatment of FI-Managed Fiduciary Entities (e.g. trusts) in non-participating jurisdictions
• Not all FATCA compliance paths have an equivalent under AEI (e.g. sponsoring concepts, local FFIs, owner-documented FFI)
11
Upstream vs. Downstream FATCA & AEI responsibilities The introduction of FATCA's new set of upstream and downstream responsibilities affected not only Foreign Financial Institutions, but Non-Financial Foreign Entities as well; however, obligations for the two differ
Background
• When speaking about accounts it is important to understand the difference between traditional "upstream" accounts and the newly-created "downstream" accounts created by FATCA
• Upstream accounts are what we typically referred to as accounts before FATCA, i.e. bank, investment or securities accounts1
• Downstream accounts depend on the type of an entity, e.g. these would be equity or debt interest holders in a company; partners in a partnership or people lending money to it; settlors, beneficiaries, protectors, certain power holders in a trust or people lending money to it1
Responsibilities
Foreign Financial Institution (FFI) Non-Financial Foreign Entity (NFFE)
Foreign Financial Institution
Bank
Up
stre
am
resp
on
sib
iliti
es
Do
wn
stre
am
resp
on
sib
iliti
es
Account Holders
• The FFI has to provide a W-8BEN-E form documenting its FATCA status to the financial institutions at which it has accounts
• With respect to downstream FATCA responsibilities, the FFI has to:
1) Identify its account holders
2) Document them with respective W-8 / W-9 or self-certification forms
3) Report US persons identified
Bank
Non-Financial Foreign Entity
Account Holders
• The NFFE also has to provide a W-8BEN-E form documenting its FATCA status to the financial institutions at which it has accounts
• In addition, Passive NFFEs also have to disclose substantial US owners / controlling persons
• Non-Financial Foreign Entities have no downstream FATCA responsibilities
1 Description not exhaustive
12
The AEI "Triangulation" problem for fiduciary structures: Overview
Certain non-partner jurisdictions may be defined out of scope for reputational reasons !
Background
• Where there is a bilateral agreement, most FIs will respect the information exchange autonomy or opaqueness of other FIs
• Trustee-documented-trusts (TDT) are treated as Professionally Managed Investment Entities1 and classified as non-reporting FIs under AEI. Their obligations are handled by the trustees2
Topic Description
OECD's AEI Bilateral
Agreements
Traditional booking center
(Jurisdiction A)
Account holders
(Jurisdiction C)4
Traditional fiduciary structure
(Jurisdiction B)
Flaw
• This, however, presupposes that the trust jurisdiction has a bilateral agreement with the jurisdictions of all its downstream account holders
• For TDTs, it is possible that:
− There are respective bilateral agreements between the jurisdiction of the booking center and those of the different beneficiaries of the fiduciary structure, and
− There are respective bilateral agreements between the jurisdiction of the booking center and that of the fiduciary structure itself3; however,
− The absence of bilateral agreements between the jurisdiction of the trust and those of the account holders, prevents information exchange on the financial accounts of the account holders
• The following slides examine this and other possible scenarios
Due to non-existence of bilateral agreements, certain jurisdictions can become non-transparent for reporting purposes and may become a potential reputational risk
1 In case there is no bilateral agreement between the jurisdiction of the booking center and that of the trust, the trust would be treated as a Passive NFE 2 Trustees of TDTs are Reporting FIs under AEI 3 This prevents the fiduciary structures that are Professionally Managed Investment Entities from being treated as Passive NFEs by the booking center 4 There can be multiple different jurisdictions of the account holders
13
UBS Trusts & Foundations – Product Management Team Leader Bio
John Shoemaker
Prior Experience:
• With over 25 years’ experience that includes U.S. tax & regulatory law and multi-jurisdictional compliance issues globally, John has been at the forefront of the evolution of the Foreign Account Tax Compliance Act, especially as it applies to trusts, foundations and other fiduciary structures. This extensive understanding of FATCA, combined with a background in regulatory issues of compliance management, gives him unique insights into managing and controlling risk and structuring fiduciary products in a highly efficient and compliant manner.
Education:
• Bachelor of Arts (Political Science), USA
• Juris Doctor (Regulatory Compliance & Estate Planning emphasis), USA
• Master of Laws (LL.M.) in Taxation, USA
Personal:
• He is a fan of local theatre, running & golf, and as a talented amateur actor has undertaken lead roles for the Zurich English-speaking Community Theatre.
• Caveat: All v iews expressed in this presentation are presenter's alone, and do not necessarily reflect the v iews of UBS AG
14
Contact Information
14
www.ubs.com
John Shoemaker
Executive Director, Global Head of Product Management
IPS Wealth Planning, Trusts & Foundations
UBS AG Wealth Management
Talacker 24
Postfach 8098 Zurich
+41 44 234 77 64 (office)
+41 79 960 94 79 (mobile)
15
Disclaimer
www.ubs.com
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Section 4
Appendices
16
17
Reporting Financial
Institution The term “Reporting Financial Institution” means any Financial Institution in an Implementing Jurisdiction that is not a Non-Reporting Financial Institution.
Key terms
17
1a
Implementing Jurisdiction
The term “Implementing Jurisdiction” means any jurisdiction that has implemented and activated their domestic CRS laws (not jurisdictions where those laws are planned or partially underway); whether or not there is an AEI agreement with the RFI’s jurisdiction.
A jurisdiction may be an Implementing Jurisdiction regardless of AEI agreements with other Implementing Jurisdictions.
Financial Institution
The term “Financial Institution” means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.
Custodial Institution
The term “Custodial Institution” means any Entity that holds, as a substantial portion of its business, Financial Assets for the account of others. An Entity holds Financial Assets for the account of others as a substantial portion of its business if the Entity’s gross income attributable to the holding of Financial Assets and related financial services equals or exceeds 20% of the Entity’s gross income during the shorter of: (i) the three-year period that ends on 31 December (or the final day of a non-calendar year accounting period) prior to the year in which the determination is being made; or (ii) the period during which the Entity has been in existence.
Depository Institution
The term “Depository Institution” means any Entity that accepts deposits in the ordinary course of a banking or similar business.
Investment Entity
The term “Investment Entity” means any Entity that is (a) a managing Investment Entity, or (b) a professionally managed Investment Entity.
a) The term “managing Investment Entity” means any Entity that primarily conducts as a business one or more of the following activities or operations for or on behalf of a customer: i) trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading; ii) individual and collective portfolio management; or iii) otherwise investing, administering, or managing Financial Assets or money on behalf of other persons.
b) The term “professionally managed Investment Entity” (PMIE) means any Entity the gross income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets, if the Entity is managed by another Entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity described in subparagraph A(6)(a). An Entity would generally be considered a PMIE if it functions or holds itself out as a collective investment vehicle, mutual fund, exchange traded fund, private equity fund, hedge fund, venture capital fund, leveraged buy-out fund or any similar investment vehicle established with an investment strategy of investing, reinvesting, or trading in Financial Assets.
An Entity is treated as primarily conducting as a business one or more of the activities described in subparagraph A(6)(a), or an Entity’s gross income is primarily attributable to investing, reinvesting, or trading in Financial Assets for purposes of subparagraph A(6)(b), if the Entity’s gross income attributable to the relevant activities equals or exceeds 50% of the Entity’s gross income during the shorter of: (i) the three-year period ending on 31 December of the year preceding the year in which the determination is made; or (ii) the period during which the Entity has been in existence. The term “Investment Entity” does not include an Entity that is an active NFE because it meets any of the criteria in subparagraphs D(9)(d) through (g). This paragraph shall be interpreted in a manner consistent with similar language set forth in the definition of “financial institution” in the Financial Action Task Force Recommendations.
18
Financial
Asset
The term “Financial Asset” includes a security (for example, a share of stock in a corporation; partnership or beneficial ownership interest in a widely held or publicly traded partnership or trust; note, bond, debenture, or other evidence of indebtedness), partnership interest, commodity, swap (for example, interest rate swaps, currency swaps, basis swaps, interest rate caps, interest rate floors, commodity swaps, equity swaps, equity index swaps, and similar agreements), Insurance Contract or Annuity Contract, or any interest (including a futures or forward contract or option) in a security, partnership interest, commodity, swap, Insurance Contract, or Annuity Contract. The term “Financial Asset” does not include a non-debt, direct interest in real property.
Key terms
18
1b
Specified Insurance Company
The term “Specified Insurance Company” means any Entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.
Non-Reporting Financial
Institution
The term “Non-Reporting Financial Institution” means any Financial Institution that is: a) a Governmental Entity, International Organization or Central Bank, other than with respect to a payment that is derived from an obligation held in connection with a commercial financial activity of a type engaged in by a Specified Insurance Company, Custodial Institution, or Depository Institution; b) a Broad Participation Retirement Fund; a Narrow Participation Retirement Fund; a Pension Fund of a Governmental Entity, International Organization or Central Bank; or a Qualified Credit Card Issuer; c) any other Entity that presents a low risk of being used to evade tax, has substantially similar characteristics to any of the Entities described in subparagraphs B(1)(a) and (b), and is defined in domestic law as a Non-Reporting Financial Institution, provided that the status of such Entity as a Non-Reporting Financial Institution does not frustrate the purposes of the Common Reporting Standard; d) an Exempt Collective Investment Vehicle; or e) a trust to the extent that the trustee of the trust is a Reporting Financial Institution and reports all information required to be reported pursuant to Section I with respect to all Reportable Accounts of the trust.
Financial Account
The term “Financial Account” means an account maintained by a Financial Institution, and includes a Depository Account, a Custodial Account and: a) in the case of an Investment Entity, any equity or debt interest in the Financial Institution. Notwithstanding the foregoing, the term “Financial Account” does not include any equity or debt interest in an Entity that is an Investment Entity solely because it (i) renders investment advice to, and acts on behalf of, or (ii) manages portfolios for, and acts on behalf of, a customer for the purpose of investing, managing, or administering Financial Assets deposited in the name of the customer with a Financial Institution other than such Entity; b) in the case of a Financial Institution not described in subparagraph C(1)(a), any equity or debt interest in the Financial Institution, if the class of interests was established with a purpose of avoiding reporting in accordance with Section I; and c) any Cash Value Insurance Contract and any Annuity Contract issued or maintained by a Financial Institution, other than a noninvestment-linked, non-transferable immediate life annuity that is issued to an individual and monetizes a pension or disability benefit provided under an account that is an Excluded Account. The term “Financial Account” does not include any account that is an Excluded Account.
Depository Account
The term “Depository Account” includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a Financial Institution in the ordinary course of a banking or similar business. A Depository Account also includes an amount held by an insurance company pursuant to a guaranteed investment contract or similar agreement to pay or credit interest thereon.
19
Custodial Account
The term “Custodial Account” means an account (other than an Insurance Contract or Annuity Contract) that holds one or more Financial Assets for the benefit of another person.
Key terms
19
1c
Equity Interest
The term “Equity Interest” means, in the case of a partnership that is a Financial Institution, either a capital or profits interest in the partnership. In the case of a trust that is a Financial Institution, an Equity Interest is considered to be held by any person treated as a settlor or beneficiary of all or a portion of the trust, or any other natural person exercising ultimate effective control over the trust. A Reportable Person will be treated as being a beneficiary of a trust if such Reportable Person has the right to receive directly or indirectly (for example, through a nominee) a mandatory distribution or may receive, directly or indirectly, a discretionary distribution from the trust.
Insurance Contract
The term “Insurance Contract” means a contract (other than an Annuity Contract) under which the issuer agrees to pay an amount upon the occurrence of a specified contingency involving mortality, morbidity, accident, liability, or property risk.
Annuity Contract
The term “Annuity Contract” means a contract under which the issuer agrees to make payments for a period of time determined in whole or in part by reference to the life expectancy of one or more individuals. The term also includes a contract that is considered to be an Annuity Contract in accordance with the law, regulation, or practice of the jurisdiction in which the contract was issued, and under which the issuer agrees to make payments for a term of years.
Cash Value Insurance Contract
The term “Cash Value Insurance Contract” means an Insurance Contract (other than an indemnity reinsurance contract between two insurance companies) that has a Cash Value.
Reportable Account
The term “Reportable Account” means an account held by one or more Reportable Persons or by a passive NFE with one or more Controlling Persons that is a Reportable Person, provided it has been identified as such pursuant to the due diligence procedures described in Sections II through VII.
Reportable Person
The term “Reportable Person” means a Reportable Jurisdiction Person other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a Related Entity of a corporation described in clause (i); (iii) a Governmental Entity; (iv) an International Organization; (v) a Central Bank; or (vi) a Financial Institution.
Reportable Jurisdiction
Person
The term “Reportable Jurisdiction Person” means an individual or Entity that is resident in a Reportable Jurisdiction under the tax laws of such jurisdiction, or an estate of a decedent that was a resident of a Reportable Jurisdiction. For this purpose, an Entity such as a partnership, limited liability partnership or similar legal arrangement that has no residence for tax purposes shall be treated as resident in the jurisdiction in which its place of effective management is situated.
Reportable Jurisdiction
The term “Reportable Jurisdiction” means a jurisdiction (i) with which an agreement is in place pursuant to which there is an obligation in place to provide the information specified in Section I, and (ii) which is identified in a published list.
Participating Jurisdiction
The term “Participating Jurisdiction” means a jurisdiction (i) with which an agreement is in place (or deemed to be in place) pursuant to which it will provide the information specified in Section I, and (ii) which is identified in a published list.
20
Non-Financial Entity
The term “NFE” means any Entity that is not a Financial Institution.
Key terms
20
1d
Active NFE
The term “active NFE” means any NFE that meets any of the following criteria:
a) less than 50% of the NFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the NFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income;
b) the stock of the NFE is regularly traded on an established securities market or the NFE is a Related Entity of an Entity the stock of which is regularly traded on an established securities market;
c) the NFE is a Governmental Entity, an International Organization, a Central Bank, or an Entity wholly owned by one or more of the foregoing;
d) substantially all of the activities of the NFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a Financial Institution, except that an Entity does not qualify for this status if the Entity functions (or holds itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes;
e) the NFE is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a Financial Institution, provided that the NFE does not qualify for this exception after the date that is 24 months after the date of the initial organization of the NFE;
f) the NFE was not a Financial Institution in the past five years, and is in the process of liquidating its assets or is reorganising with the intent to continue or recommence operations in a business other than that of a Financial Institution;
g) the NFE primarily engages in financing and hedging transactions with, or for, Related Entities that are not Financial Institutions, and does not provide financing or hedging services to any Entity that is not a Related Entity, provided that the group of any such Related Entities is primarily engaged in a business other than that of a Financial Institution; or
h) the NFE meets all of the following requirements:
i) it is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organization, business league, chamber of commerce, labour organization, agricultural or horticultural organization, civic league or an organization operated exclusively for the promotion of social welfare; ii) it is exempt from income tax in its jurisdiction of residence; iii) it has no shareholders or members who have a proprietary or beneficial interest in its income or assets; iv) the applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents do not permit any income or assets of the NFE to be distributed to, or applied for the benefit of, a private person or Non-charitable Entity other than pursuant to the conduct of the NFE’s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the NFE has purchased; and v) the applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents require that, upon the NFE’s liquidation or dissolution, all of its assets be distributed to a Governmental Entity or other non-profit organization, or escheat to the government of the NFE’s jurisdiction of residence or any political subdivision thereof.
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Passive NFE The term “passive NFE” means any: (i) NFE that is not an active NFE (a “standard” passive NFE); or (ii) an Investment Entity described in subparagraph A(6)(b) (a PMIE) in a Non-Participating Jurisdiction.
Key terms
21
1e
Controlling Person
The term “Controlling Persons” means the natural persons who exercise control over an Entity. In the case of a trust, such term means the settlor(s), the trustee(s), the protector(s) (if any), the beneficiary(ies) or class(es) of beneficiaries, and any other natural person(s) exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. The term “Controlling Persons” must be interpreted in a manner consistent with the Financial Action Task Force Recommendations.
Account Holder
The term “Account Holder” means the person listed or identified as the holder of a Financial Account by the Financial Institution that maintains the account. A person, other than a Financial Institution, holding a Financial Account for the benefit or account of another person as agent, custodian, nominee, signatory, investment advisor, or intermediary, is not treated as holding the account for purposes of the Common Reporting Standard, and such other person is treated as holding the account. In the case of a Cash Value Insurance Contract or an Annuity Contract, the Account Holder is any person entitled to access the Cash Value or change the beneficiary of the contract. If no person can access the Cash Value or change the beneficiary, the Account Holder is any person named as the owner in the contract and any person with a vested entitlement to payment under the terms of the contract. Upon the maturity of a Cash Value Insurance Contract or an Annuity Contract, each person entitled to receive a payment under the contract is treated as an Account Holder.
Please note that most definitions in the key terms are taken from the CRS and, as such, all references made in the key terms to other sections are in reference to sections of the CRS rather than sections of this presentation.
AEI agreement
The term “AEI agreement” means a bilateral or multilateral agreement governing the automatic exchange of Financial Account information between two or more jurisdictions according to CRS.
22
Controlling Persons under CRS: Introduction
(1) Additionally, an account held by a “standard” Passive NFE would be a Reportable Account if the “standard” Passive NFE itself is resident in a Reportable Jurisdiction regardless of the presence of any Reportable Person Controlling Persons for such a “standard” Passive NFE.
• Reporting FIs must identify the Controlling Persons of Entity Account Holders that are: – “standard” Passive NFEs; or – professionally managed Investment Entities (PMIEs) in Non-Participating Jurisdictions from the RFI’s perspective
– Note: The term “Participating Jurisdiction” is defined by CRS as a jurisdiction with which the RFI’s jurisdiction has an AEI agreement in place or that is treated as having such status following a “white list” approach
• Following the identification of Controlling Persons, Reporting FIs must determine each Controlling Person's tax residence(s)
• If the one or more of its Controlling Persons are treated as Reportable Persons, the account must be reported as a Reportable Account1
Relevance of topic
23
Controlling Persons under CRS: Definition
• The term “Controlling Persons” means the natural persons who exercise control over an Entity. • In the case of legal persons, such term generally means the natural person(s) who exercises control over the
Entity through ownership. If no natural person has a controlling ownership interest in the Entity, the Controlling Person is any natural person who exercises control through "other means". If there is no Controlling Person through ownership or other means, the senior managing officials of the Entity in question may be considered Controlling Persons of the Entity
• In the case of a trust, such term means the settlor(s), the trustee(s), the protector(s) (if any), the beneficiary(ies) or class(es) of beneficiaries, and any other natural person(s) exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust (e.g. a foundation or fideicomiso), such term means persons in equivalent or similar positions
• The term “Controlling Persons” must be interpreted in a manner consistent with the Financial Action Task Force (FATF) Recommendations [as adopted in February 2012] (the “FATF Recommendation 2012”)
CRS
• Controlling Person definition generally corresponds to the term “beneficial owner” as described in the FATF Recommendations 2012 and must be interpreted in a manner consistent with these Recommendations
CRS Commentary
24
Controlling Persons under CRS: Definition – Legal persons
• Depends on legal structure • Natural persons with controlling
ownership interest (may be based on a threshold, e.g. 25%, depends on local law)1
• Note: Covers direct and indirect ownership
• Ownership could be so diversified, however, that there are no natural persons exercising control through ownership
Natural Person treated as Controlling Persons through
ownership
Natural persons treated as Controlling Persons through other
means
Senior managing officials treated as Controlling Persons
• Only applicable if there are no Controlling Persons through ownership
• Natural persons that exercise control over the legal person or arrangement through other means
• Examples may include: Debt-financed investment vehicles or through personal / familiar / contractual influence
• Only applicable if there are no Controlling Persons through ownership or other means
(1) Special rules if controlling ownership interest is held by a listed company or a majority-owned subsidiary of such a company.
Cascading measures under CRS Commentary and FATF Recommendations 2012
25
Controlling Persons under CRS: Definition – Trusts and similar arrangements (1/2)
Settlor(s) Protector(s)
Other natural person(s) exercising ultimate effective control1
Application of term to multiple trust roles in parallel
Trustee(s) Benefi-
ciary(ies) Class(es) of
beneficiaries
(1) Including through a chain of control or ownership.
• The settlor(s), trustee(s), protector(s) (if any), and the beneficiary(ies) or class(es) of beneficiaries must always be treated as Controlling Persons
• Where settlor(s) or beneficiary(ies) is an Entity, the Reporting FI will look thought the Entity in order to identify the indirect Controlling Persons of the settlor(s) or beneficiary(ies) – Note: It is unclear whether there is a similar requirement to look through the other trust roles, where performed
by an Entity, in order to identify the indirect Controlling Persons. (e.g. whether a Reporting FI maintaining a Financial Account for a Passive NFE trust administered by a corporate trustee needs to identify the natural person(s) controlling the corporate trustee)
Special treatment for
trusts
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Controlling Persons under CRS: Definition – Trusts and similar arrangements (2/2)
• For beneficiary(ies) that are designated by characteristics or class, Reporting FI to obtain sufficient information on beneficiary(ies) to identify them at the time of the pay-out or when they intend to exercise vested rights
• For discretionary beneficiaries, potential alignment with scope of discretionary beneficiaries being treated as holding an Equity interest in an FI trust (depending on local law): Discretionary beneficiaries would only be treated as Controlling Persons if such person receives a distribution in the reporting period (i.e. distribution is paid or made payable)
• In case of similar legal arrangements (e.g. foundations or fideicomisos), Reporting FI to identify persons in equivalent or similar positions
Special treatment for trusts (cont.)
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Additional reporting considerations (1/2) • Unlike FATCA, there is no global, central registration requirement under CRS. Implementing Jurisdictions may nevertheless introduce a local registration requirement
for RFIs.
• Depending on the submission methods for CRS reporting, RFIs are likely to be required to enroll on a separate local reporting portal (similar to the IDES website under FATCA).
Registration
• CRS does not contain a definition of each payment type that must be reported (i.e. dividends, interests, gross proceeds, other income).
• Implementing Jurisdictions are expected to release further guidance on this topic when implementing CRS.
• CRS allows (but does not require) that the amount and characterization of payment is made in accordance with the tax laws of the booking center’s jurisdiction.
Payment definition
• The RFI must report the balance or value of the account as of the end of the calendar year or other appropriate reporting period.
• In general, the balance or value of a Financial Account is the balance or value calculated by the RFI for purposes of reporting to the Account Holder.
• The RFI must report the balance or value of the account as of the end of the calendar year or other appropriate reporting period or, if the account was closed during such year or period, a zero balance for the account.
• Accounts with a negative balance or value are reported with a balance or value of zero.
Account balance or
value
• In case of an account that must be reported with respect to more than one person or to more than one Reportable Jurisdiction (see reporting scenarios in section 2 of this overview deck) each person and/or jurisdiction is attributed the entire balance or value of the account, as well as the entire amounts paid or credited to the account (or with respect to the account).
Attribution of account balance and payments
• Generally, CRS does not require nil reporting.
• However, jurisdictions may opt to require nil reporting when implementing CRS into local law even though the current trend under FATCA is towards repeal of any nil reporting requirement.
Nil reporting
• The deadline for the automatic exchange of information between tax authorities is September 30.
• CRS does not foresee fixed reporting deadlines for the reporting from RFIs to their local authorities.
• Implementing Jurisdictions can set these deadlines at their own discretion (based on the experience from FATCA jurisdictions may set deadlines somewhere between April and July .
• First reporting will be due in 2017 for RFIs in Early Adopter jurisdictions and 2018 for RFIs in Second Wave jurisdictions.
Reporting deadlines
• In general, the first CRS reporting must already include all information (account holder and account information (including account balance or value), income information and gross proceeds information), whereas there was a gradual introduction under FATCA (i.e. account holder and account information (incl. account balance or value) for 2014, adding income information for 2015 and gross proceeds information for 2016).
• Jurisdictions are allowed to gradual introduce reporting of gross proceeds, however, this is not foreseen under the MCAA, the revised DAC or the AEI agreement between Switzerland and the EU.
Payment reporting
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Additional reporting considerations (2/2) • If a Reportable Account is closed during a reporting period, this account must still be reported (based on the status of the account as of the date of closure).
• Unlike FATCA, however, there is no requirement to report the account balance or value as per the date of closure; it is sufficient to report the fact that the account was closed along with an account balance or value of zero.
• However, with regards to payment reporting, all reportable payments up to the date of closure must be reported.
Closed accounts
• Where an account is classified as a Reportable Account as of the end of the reporting period, information with respect to that account must be reported as if it were a Reportable Account throughout the entire reporting period in which it was identified as such.
• Where an account ceases to be a Reportable Account during the reporting period for reasons other than account closure (e.g. the Account Holder ceases to be a Reportable Person or the account becomes an Excluded Account), there is no reporting requirement for such period.
Accounts that become or cease to be Reportable Accounts
• Similar to FATCA, CRS does not affirmatively require RFIs to notify account holders of Reportable Accounts of any reporting executed on their accounts.
• However, pursuant to Article 12 of the draft Swiss AEOI Act, Swiss RFIs must:
– Post and maintain a client-accessible list of all Reportable Jurisdictions; and
– Notify account holders prior to submitting the first of any reports on them by January 31 of the first reporting year.
Client Notification
• There is no requirement to report a TIN or date of birth for pre-existing accounts unless either:
– The TIN or date of birth is in the records of the RFI (whether or not there is an obligation to have it in the records); or
– The TIN or date of birth is not in the records of the RFI, but nonetheless required to be collected by such RFI under domestic law (e.g. AML/KYC Procedures).
• However, where an RFI does not have the TIN or date of birth for a Preexisting Account, it is required to use reasonable efforts to obtain the TIN and date of birth with respect to Preexisting Accounts by the end of the second calendar year following the year in which such accounts were identified as reportable Accounts.
Transitional exception for TIN and date
of birth reporting
• The place of birth is only required to be reported if, with respect to the relevant Account Holder, both:
– The Reporting Financial Institution is otherwise required to obtain the place of birth and report it under domestic law; and
– The place of birth is available in the electronically searchable information maintained by the RFI.
Exception for place of birth
reporting
• A TIN is not required to be reported if either:
– A TIN is not issued by the relevant Reportable Jurisdiction; or
– The domestic law of the relevant Reportable Jurisdiction does not require the collection of the TIN issued by such Reportable Jurisdiction.
Exception for TIN reporting
• An RFI is not only required to report Reportable Accounts but also undocumented accounts (generally the same information as for Reportable Accounts, if known, and the fact that the account is an undocumented account).
• The term “undocumented account” means an account that was identified as such following the application of the indicia search (because the only indicia identified was a “hold mail” instruction or “in-care-of” address in a Reportable Jurisdiction, and the RFI does not have any other address on file for the person, and the RFI has not been able to obtain a self-certification or documentary evidence).
• It is currently understood that the information on undocumented accounts will not be exchanged between jurisdictions, but rather used for domestic CRS compliance reviews (see draft Swiss AEOI Act, Article 13).
Undocumen-ted accounts
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Data Elements – Overview
• Family Name • First/Given Name • Town/City/Province/State • Residence Address Country • Date of Birth • Country of Tax Residence (x3) (2) • TIN (x3) (2) • Signature • Declaration
Mandatory
• Title
• Middle Name
• House Name, Number
• Town or City of Birth (1)
• Country of Birth (1)St
• Confirmation of sole tax residency
• No TIN checkboxes (x3) (2)
• Print name, date, capacity
• Permissiont
Recommended
Optional • Mailing address • Reason why no TIN (x3) (2)
• Legal Name of Entity/Branch • Town/City/Province/State • Residence Address Country • Country of Tax Residence (x3) (2) • TIN (x3) (2)
• Signature • Declaration
• Country of incorporation or organisation • House Name, Number, Street • Postal Code • Entity Type • GIIN if FI • Confirmation of sole tax residency • No TIN checkboxes (x3) (2) • Print name, date, capacity • Permission
• Mailing address • Reason why no TIN (x3) (2)
• Family Name • First/Given Name • Town/City/Province/State • Country • Date of Birth • Type of Controlling Person • Country of Tax Residence (x3) (2) • TIN (x3) (2) • Signature • Declaration
• Title • Middle Name • House Name, Number, Street • Postal Code • Entity to which a Controlling Person • Confirmation of sole tax residency • No TIN checkboxes (x3) (2) • Print name, date, capacity • Permission • Town or City of Birth (1) • Country of Birth (1)
• Mailing address • Reason why no TIN (x3) (2)
Individuals Entities Controlling Persons
The data elements released by the OECD are shown in the table below and further detailed in the following pages. Please note that these data elements are subject to the implementation requirements and guidance released by each jurisdiction. As such, not all of the data elements may be required or additional data elements may be included.
(1) The date place of birth data elements (Town or City of Birth and Country of Birth) may be mandatory under local law. (2) Space for three countries of tax residence, TINs (or confirmation and reason for no TIN) is recommended but not mandatory.
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Name of Account Holder
(Individual)
The term Account Holder means the person listed or identified as the holder of a Financial Account. The name of the Account Holder should be provided. If the person opening the account is not a Financial Institution and is acting as an intermediary, agent, custodian, nominee, signatory, investment advisor or legal guardian on behalf of one or more other account holders this form must be completed by or on behalf of that other person who is referred to as the Account Holder. This may include Initials if allowed by local law Notes: For joint accounts each account holder should complete a separate form. In the case of a Cash Value Insurance Contract or an Annuity Contract, the Account Holder is any person entitled to access the Cash Value or change the beneficiary of the contract. If no person can access the Cash Value or change the beneficiary, the Account Holder is any person named as the owner in the contract and any person with a vested entitlement to payment under the terms of the contract. Upon the maturity of a Cash Value Insurance Contract or an Annuity Contract, each person entitled to receive a payment under the contract is treated as an Account Holder.
Data Elements (1/5)
Name of Account
Holder (entity)
The term "Entity" means a legal person or a legal arrangement and includes a corporation, a partnership, a trust or foundation and branches which are treated as "Entities" for the CRS. A branch includes a unit, business or office. However, please note that a self-certification completed for a branch would be expected to be completed with the name, country of incorporation and residence address of the head office. The branch’s details would be provided in the mailing address data element.
Country of Incorporation
or organization
If the entity is a corporation, the country (and the province, state or other sub-national division where relevant under national law) of incorporation should be entered. If it is another type of entity, the country (and province, state or other sub-national entity where relevant) under whose laws it is created, organised or governed should be entered. However, certain entity types may be treated differently under local law – e.g. For a trust it will normally be where the trustees are resident. Note: This may be subject to local jurisdiction variation. Local tax authority guidance should therefore be followed. The entry for country should be the full name of the country and not an ISO country code.
Current Residence Address
This should be the current permanent residence address. P.O. Boxes may only be acceptable in very limited circumstances; for example, where it forms part of an address together with the street etc if it clearly identifies the actual residence of the Account Holder or in countries in which Postal Box Addresses are common practice. If you intend to populate such an address you should be prepared to provide supporting documentation. Note: The address format may be subject to local jurisdiction variation. Local tax authority guidance should therefore be followed. The entry for country should be the full name of the country and not an ISO country code.
• Family Name • Title • First / Given Name • Middle Name(s)
• Legal Name of Entity / Branch
• Country of Incorporation or Organisation
• House / Apt / Suite Name, Number, Street
• Town / City / Province / State
• Country • Postal Code
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Mailing Address
This must be completed if a current residence address is not available. The entry for country should be the full name of the country and not an ISO country code.
Data Elements (2/5)
Date of Birth
Note: In certain jurisdictions this data element will be a Recommended data element rather than Mandatory based on local implementation. For Pre-existing Accounts: the date of birth is not required to be reported if (i) such date of birth is not in the records of the Reporting Financial Institution, and (ii) there is not otherwise a requirement for such date of birth to be collected by such Reporting Financial Institution under domestic law.
Place of Birth
Note: This need not be completed if not required under local domestic law. The entry for country should be the full name of the country and not an ISO country code. For both Preexisting and New Accounts: the place of birth is not required to be reported unless the Reporting Financial Institution is otherwise required to obtain and report it under domestic law and it is available in the electronically searchable data maintained by the Reporting Financial Institution.
Controlling Person
Where relevant ( i.e. if an Account Holder is a Passive NFE or an Investment Entity in a non-CRS participating jurisdiction managed by another FI) Financial Institutions are required to attempt to identify the type of Controlling Person (1). If obtained or held it is a Mandatory requirement to report the Controlling Person type. Type of Controlling Person should be selected from: (a) Controlling Person of a legal person – control by ownership (b) Controlling Person of a legal person – control by other means (c) Controlling Person of a legal person – senior managing official (d) Controlling Person of a trust – settlor (e) Controlling Person of a trust – trustee (f) Controlling Person of a trust – protector (g) Controlling Person of a trust – beneficiary (h) Controlling Person of a trust – other (i) Controlling Person of a legal arrangement (non-trust) – settlor-equivalent (j) Controlling Person of a legal arrangement (non-trust) – trustee-equivalent (k) Controlling Person of a legal arrangement (non-trust) – protector-equivalent (l) Controlling Person of a legal arrangement (non-trust) – beneficiary-equivalent (m) Controlling Person of a legal arrangement (non-trust) – other-equivalent
• House / Apt / Suite Name, Number, Street
• Town / City / Province / State
• Country • Postal Code
• Date of Birth
• Town or City of Birth • Country of Birth
• Full name of the entity to which the individual is a Controlling Person
• Type of Controlling Person
(1) The requirement to determine the Type of Controlling Person will depend on the local reporting schema requirements in each jurisdiction. As such, it may not be a mandatory data element in every jurisdiction.
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Type of Entity
Type of Entity should be selected from the following list: Financial Institutions – Generally not reportable other than PMIEs. Sufficient information about the type of Financial Entity must be obtained to allow the relevant reporting scenario to be applied. (a) Financial Institution – Investment entity Not a Reportable Person. Where an Investment Entity is a professionally managed investment entity incorporated and established in a country which is not a participating CRS jurisdiction then for reporting purposes these entities are deemed to be Passive NFEs. As such the appropriate due diligence processes need to be undertaken to identify Controlling Persons and whether any Controlling Persons are Reportable Persons. (b) Financial Institution – Non-Reporting Not a Reportable Person. This classification is for a Financial Institution that is a Government Entity, International Organisation or Central Bank (conducting non-commercial financial activity), Broad Participation Retirement Funds, narrow Participation Retirement Funds, Pension Funds of Governmental Entities, International Organisations and Central Banks, Qualified Credit Card Issuers, Exempt Collective Investment Vehicles and Trustee Documented Trusts. In addition jurisdictions may add local other low-risk Financial Institutions. Local tax authority guidance should therefore be followed. Note: The “Financial Institution – Non-Reporting” type of entity is not split out in the CRS regulations as they are treated in the same way as “Financial Institution – Other”, but is split out in the data elements. This is likely for operational purposes. (c) Financial Institution – Other Not a Reportable Person. A Depository Institution, Custodial Institution or Specified Insurance Company. Non-Financial Entities – Generally reportable other than the non-reportable entity types (d) – (f) below. (d) Active NFE – corporation that is regularly traded or a related entity of a regularly traded corporation Not a Reportable Person. The name of regularly traded corporation and the name of the established securities market on which it is traded will assist the reasonableness test. (e) Active NFE – a Government Entity Not a Reportable Person. (f) Active NFE – an International Organisation Not a Reportable Person. (g) Active NFE – Other than (d) – (f) above (h) Passive NFE – not including an investment entity in a non-CRS participating jurisdiction managed by another FI Appropriate due diligence processes need to be undertaken to identify Controlling Persons and whether any Controlling Persons are Reportable Persons.
Data Elements (3/5)
• Type of Entity • GIIN (if the entity is a FI) • Name of regularly traded
corporation and name of established securities market on which it is traded (if a regularly traded NFE)
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Residence for Tax Purposes
The customer should provide details for all jurisdictions in which the Account Holder is resident for tax purposes. For an Individual who has no residence for tax purposes then the customer should state "none". In this scenario the Financial Institution may wish to seek a further written explanation If an entity has no residence for tax purposes (e.g. because it is treated as fiscally transparent) it will be treated as resident in the country in which its place of effective management is situated. The entry for country should be the full name of the country and not an ISO country code. Financial Institutions should ensure their domestic data privacy laws allow for the collection and holding of information in relation to countries who are not participating CRS countries. The confirmation of sole residency allows a customer if they are not resident for tax purposes in any other country to positively affirm this fact. Otherwise the data sets recommend allowing for 3 tax residencies. If the Account Holder is tax resident in more than 3 jurisdictions then they could complete additional forms or a Financial Institution may allow for more than 3 tax residencies. The entry for country should be the full name of the country and not an ISO country code. A Taxpayer Identification Number (TIN) or functional equivalent should be provided for each country of residence for tax purposes identified above. A TIN is a unique combination of letters and/or numbers assigned to the individual by a government, or its tax authorities, which is used to identify the account holder for the purposes of administering taxes. In some countries this may be a number that is specifically referred to as a TIN, while other countries may use other numbers (such as a social insurance number) to identify their residents for tax purposes. A TIN is not mandatory if either: a) a TIN is not issued by the relevant Reportable Jurisdiction; or b) the domestic law of the relevant Reportable Jurisdiction does not require the collection of the TIN issued by such Reportable Jurisdiction. However, where the customer is unable to provide a TIN they must positively confirm they do not have a TIN. The data sets recommend providing checkboxes for: a) "The country of residence for tax purposes does not issue TINs to its residents" - This may be confirmed by checking on an OECD compiled list. If the account holder does not have a TIN then they can complete this section to positively affirm this fact; and b) "I am other unable to obtain a TIN" – This includes where a country does not allow the collection of TIN under local law (e.g. because under such law the provision of the TIN by a taxpayer is on a voluntary basis.) In addition, the data sets suggest an optional free text field to allow the customer to provide some free text to provide an explanation as to why they cannot obtain a TIN.
Data Elements (4/5)
• Country of Residence for Tax Purposes
• Confirmation of Sole Residency for Tax Purposes or additional countries of residence for tax purposes
• Taxpayer Identification Number or Reason why unable to obtain a TIN for each tax residence
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Declarations and
Signature
The self certification must be signed or otherwise positively affirmed. If the form is being completed on behalf of the account holder the signatory should also complete the capacity in which signed box. Printing the name of the signatory will aid the reasonableness test in identification of the account holder / intermediary. If the self-certification is not dated it should be date stamped on receipt. If the signatory of form is not the account holder they must provide confirmation of their authority to sign on behalf of the account holder. The Permission relates to the signatory certifying that they acknowledge that the account may be reported. The suggested wording is: "I acknowledge that the information contained in this form and information regarding my account(s) may be reported to the tax authorities of the country in which this account(s) is/are maintained and exchanged with tax authorities of another country or countries in which I may be tax resident where those countries have entered into Agreements to exchange financial account information.“ Note: The suitability of the above permission statement for each jurisdiction is subject to review under local Data Protection laws. The Declaration refers to the signatory certifying that the self-certification has been completed correctly. The suggested wording is: "I declare that all statements made in this declaration are, to the best of my knowledge and belief, correct and complete. I agree that I will submit a new form within [xx] days if any certification on this form becomes incorrect."
Data Elements (5/5)
• Signature • Print Name • Date • Capacity in which signed • Permission • Declaration