Increasing Regulation - FATCA, CRS & AML. George Hodgson

Transcription

1 Increasing Regulation - FATCA, CRS & AML George Hodgson

2 Automatic Exchange of Information AEOI Automatic Exchange of (Tax) Information. FATCA Foreign Account Tax Compliance Act - US legislation. IGA Inter Governmental Agreement. UK/US Treaty related to FATCA that implements FATCA in UK. CDOT Crown Dependencies (and) Overseas Territories. FATCA style IGAs between UK & CDs and Ots. CRS Common Reporting Standard. New global standard for AEOI. 2

3 CRS New global standard for AEOI. 91 countries now committed to exchange by end of All EU Member States signed up via DAC (Directive on Administrative Co-operation). Switzerland, CDs, OTS signed up. China, Brazil, Russia signed up. US sticking with FATCA. No clear commitment from Panama, Cook Islands, Nauru, Vanuatu & Bahrain. 3

4 FATCA CRS Registrations Scan for Citizenship Scan for Tax Residence Owner documented status 4

5 AEOI - Key Dates FATCA CDOT CRS Registrations 01/01/2015 n/a n/a 1 st Reporting period ends 31/12/ /12/ /12/2016 Report to HMRC 31/05/ /05/ /05/2017 Information exchanged 30/09/ /09/ /09/2017 5

6 Trusts & AEOI The following are the same for all types of AEOI: All trusts are deemed to be entities. Trusts are either Investment Entities - a type of Financial Institution (FI) - or Non Financial Entities (NFE). What sort of entity a trust is depends on what assets are in the trust and who manages the trust. 6

7 Trusts & AEOI The Basics: Under FATCA trusts that are FIs should have registered with the IRS - for CRS there is no equivalent need to register. Under both FATCA and CRS FIs must either report or make arrangements for someone else to report for them. Trusts that are NFEs don t need to register or report, they will be reported on by any FIs they use. 7

8 Trusts & AEOI If the trust gets most of its income from financial assets, it will be a Financial Institution where: The trustee is a FI. The trustee engages FI to manage the trust. The trustee engages FI to manage the financial assets of the trust. 8

9 Trusts & AEOI What determines if trust is a Financial Institution? Test 1: Is the entity (i.e. the trust) carrying on business and is 50% or more of the entity s gross income attributal to trading in money market instruments, foreign exchange and a range of other financial instruments, portfolio management or the investment and administration of funds? NB - Trust companies will normally be FIs on this test. 9

10 Trusts & AEOI What determines if trust is a Financial Institution? Test 2: Is more than 50 per cent of the trust s income attributable to investing, reinvesting or trading in financial assets? If YES: Go to Test 3 If NO: Trust is NFE Test 3: Is the trust managed by a Financial Institution? If YES: The trust is a Financial Institution (an Investment Entity) If NO: Trust is NFE 10

11 Is the Trust Managed by an FI? If the trust holds largely financial assets and the trustee is a corporate trustee, the trustee is likely to be an FI and this will make the trust an FI for AEOI purposes. If the trustee is a professional (i.e. he is paid) but he is appointed as an individual, the trust is not necessarily an FI. If the trust hold largely financial assets and the trustees appoint a discretionary fund manager to manage the trust s assets, the fund manager is likely to be an FI and this will make the trust an FI for AEOI purposes. If the trustees buy retail investment products (unit trusts, insurance bonds etc ) they have not appointed a discretionary fund manager. 11

12 Is the Trust Managed by an FI? What if the trust company does not charge? If a related entity of the trust company earns income from the trust, some of that income will be deemed to attributable to the trust company. This will make both the trust company and the trust FIs. 12

13 Options for a trust which is FI? Option 1: Trustee Documented trust (FATCA & CRS) Trustee is a Reporting FI (because it is corporate trustee). Trust becomes a non-reporting FI. Trust does not need to register (for FATCA) or report (for either FATCA or CRS). Trustee will register (for FATCA) and report on trust (for both FATCA and CRS). 13

14 Options for a trust which is FI? Option 2: Trust Reports as a FI (FATCA &CRS) Must register with IRS and obtain a GIIN (for FATCA). Must report as an FI via HMRC (for both FATCA and CRS). Must declare status as a Reporting FI to all FIs it has accounts with (and provide GIIN/TIN). Can use third party service provider, but compliance responsibilities remain with trust. NB. FATCA Options of Sponsored Investment Entity & Owner Documented FI are not available under CRS! 14

15 Trust residence in UK 15 Under FATCA: If most of the trustees are resident in the UK for tax purposes then the Trust is UK resident. Where at least one of the trustees are UK tax resident, then the Trust is UK resident if the settlor is both resident and domiciled in the UK for tax. Under CRS: If at least one trustee is UK tax resident then the trust is UK resident unless the trust is resident in another jurisdiction which the UK has an AEOI agreement with and it reports there.

16 Charities & AEOI Under FATCA: UK registered charities that are FIs are Deemed Compliant Financial Institutions and do not need to register or report. Charities that are not FIs are Active NFEs and their accounts are not reportable. Under CRS: UK registered charities that are FIs are not Deemed Compliant. However, there is no registration requirement (for anyone under CRS) and they are unlikely to have reportable accounts. Charities that are not FIs are Active NFEs and their accounts are not reportable. 16

17 Excluded accounts Under both FATCA & CRS the following are excluded and are not reportable: Most retirement & pension accounts. Tax favoured products (ISAs, Nat Savings, Share incentive plans etc ). Estate accounts (where institution has death certificate). Escrow accounts - i.e. accounts created as a result of court order including COP deputyship accounts, etc... 17

18 Who gets reported? CRS Reportable Jurisdiction Person means an individual or Entity that is resident in a Reportable Jurisdiction under the tax laws of such jurisdiction 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 Organisation; (v) a Central Bank; or (vi) a Financial Institution 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 FATCA U.S. Person means a US citizen or resident individual Specified U.S. Person means a US Person, other than:. U.S. Reportable Account means a Financial Account.held by one or more Specified US Persons or by a Non-U.S. Entity with one or more Controlling Persons that is a Specified U.S. Person 18

19 Who gets reported? 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 The term Controlling Persons must be interpreted in a manner consistent with the Financial Action Task Force Recommendations. N.B. To identify the Controlling Persons of an entity FIs may generally rely on information collected and maintained pursuant to AML/KYC procedures. 19

20 Who gets reported? In the case of a trust that is a FI, 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 if they have the right to receive, directly or indirectly, a mandatory distribution or may receive a discretionary distribution from the trust. For these purposes, a beneficiary who may receive a discretionary distribution from the trust will only be treated as a beneficiary if they receive a distribution in the appropriate reporting period (i.e. either the distribution has been paid or made payable). 20

21 What gets reported? To be Reported: 21 FATCA Reporting year 31/12/2014 Each Specified US Person CRS Reporting year 31/12/2016 Each Reportable Person Name Address TIN DOB Account number GIIN of reporting FI Account balance or value Jurisdiction of residence Place of birth (new accounts)

22 What gets reported? Account balance or value: General principle is that value to be reported is the value the FI calculates for reporting to the account holder. For an equity interest in an investment entity (i.e. a trust which is an FI) the amount to be reported is the value calculated by the FI for the purpose that requires most frequent valuation. Standard accounting principles should apply - no need to do special valuations of real property for AEOI. Where there is more than one controlling person, report total value of trust for all controlling persons, same as for joint accounts. 22

23 What gets reported? Mandatory beneficiaries: FATCA Guidance The balance or value for a beneficiary that is entitled to a mandatory distribution from the Trust will be the net present value of amounts payable in the future measured on a recognised actuarial basis. Could use actuarial tables in Intestate Succession (Interest & Capitalisation) (Amendment) Order 2008 or S7520 IRS Code. Or Use the joint account route and simply report total value of the trust. 23

24 What gets reported? Reportable Payments: Total gross amounts paid or credited to any Beneficial Owner and beneficiaries who receive mandatory or discretionary distributions during the calendar year or appropriate reporting period, including aggregate payments in redemption (in whole or in part) of the account. Applies from: Reporting year to 31/12/2015 for FATCA Reporting Year to 31/12/2015 for CDOT Reporting year to 31/12/2017 for CRS 24

25 AEOI Key Reporting Dates Information for preceding year to 31 December Client identification + account balance Client identification + account balance + payments FATCA CDOT CRS 31/5/2015 n.a. 31/5/ /5/ /5/2016 (plus account balance for 2014) 31/5/

26 Individual Accounts Entity Accounts Pre-Existing New Pre-Existing New High Value Threshold High Value Threshold High Value Threshold High Value Threshold FATCA US $1mn US $50,000 US $1mn US $250,000 CRS US $1mn US $1mn US $250,000 Account aggregation rules apply. Application of thresholds are generally optional. High value limit for pre-existing entities under FACTA is level that triggers reporting for trusts that start off below $250,

27 Due Diligence - Indicia New accounts Individuals & Entities Self certification of tax residence by Account Holder (US citizens are resident in US for tax purposes even if also tax resident elsewhere). Self certification of status if Account Holder is Entity (e.g. passive NFE) & also self certification of controlling persons if trust is passive NFE. Determine reasonableness of the self certifications via KYC procedures (& public information for entities), plus effective system to monitor changes in circumstances. 27

28 Due Diligence - Indicia Pre-existing individual low value Residence address based on documentary evidence (CRS only, if not.) Electronic record search Residence Mailing address (including care of ) Telephone number Standing instruction to transfer funds to reportable jurisdiction Power of attorney to person in reportable jurisdiction. High value: Electronic record search. Paper record search if electronic records are incomplete. Relationship manager inquiry - actual knowledge annual. 28

29 Due Diligence - Indicia Pre-existing entity account : Self certification of Account Holders (entity s) status (i.e. FI/NFE etc.) and tax residence. Establish reasonableness of self certification based on KYC information and/or publicly available information. If account is passive NFE & below $1million, use KYC information to establish tax residence of controlling persons. If account is above $1million obtain self certification from controlling persons. If no self certification obtained, an indicia search must be conducted. 29

30 Financial Institutions & KYC Notable bank fines for AML & sanctions breaches: Bank $bn Date Commerzbank BNP Paribas JP Morgan Chase Standard Chartered HSBC Standard Chartered ING ABN

31 Financial Action Taskforce Recommendations 2012 Recommendation 24 - Legal persons (corporates & foundations) Identify beneficial owners. Ensure timely access. Need not be a register or publicly available. Recommendation 25 legal relationship (trusts) Identify beneficial owners. Ensure timely access. Need not be a register or publicly available. 31

32 UK Response to FATF Recommendations Corporates Register of persons with significant control (PSC). Companies maintain register from 1 st Jan 2016 Companies House filing from April Public access to register. Trusts that hold companies - trustee is PSC, beneficiaries are generally not. Settlor? Request to CDs and OTs to follow suit. Trusts No changes planned. 32

33 EU 4 th AML Directive Key Principle: Access to information without alerting parties involved Article 30 - Corporates & foundations Register of beneficial owners. Public access to register. Trusts that hold companies? Article 31 - Trusts Register when the trust generates tax consequences. Access only to competent authorities. Other issues EU to pressure others to follow (e.g. Switzerland). Commission to publish black list of high risk countries. 33

34 Issues for Practitioners Are you ready for FATCA reporting by 31/5/2015? Are your clients ready for: CDOT reporting by 31/5/2016 CRS reporting by 31/5/2017 Do they need to consider disclosure options? Are your CDD procedures ready for beneficial ownership reporting by 1/1/2016? Are your client s structures still appropriate in a transparent regime. 34

35 Questions 35