FATCA: what you need to know | ICAEW

25/09/2014

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FATCA – what you need to know

Friday 26 September 2014The webinar will begin shortly...


FATCA – what you need to know

Friday 26 September 2014

25/09/2014

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Ian Young,

ICAEW Tax Faculty

Introduction

VAT Changes in 2015

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George Hodgson,

Deputy Chief Executive,

Society of Trust and Estate Practitioners (STEP)

Today’s presenters

Lisa Spearman, partner, Mercer & Hole

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VAT Changes in 2015

Ask a question


VAT Changes in 2015

Disclaimer

These slides have been prepared as part of a webinar

on 26 September 2014. They are prepared in good faith but

represent only a brief summary of the position and should

not be taken as advice. No responsibility is accepted for any

actions taken or refrained from without specific professional

advice.

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FATCA : What does its mean in practice?

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Disclaimer

These slides have been prepared as part of a webinar

on 26 September 2014. They are prepared in good faith but

represent only a brief summary of the position and should not be

taken as advice. No responsibility is accepted for any actions

taken or refrained from without specific professional advice.

• Two levels to consider:

• In your practice – how are we affected as professionals and what to we need to do?

• Advising your clients – Who needs to know what when?

FATCA : What does it mean in practice?

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FATCA : what does it mean in

practice?

• FATCA is shorthand term for an exchange of

information protocol

• Although it originated in USA, we are a long way

from Kansas now…

• Now talking about UK law and UK legal

requirements.

FATCA : What does it mean in

practice?

In a professional practice you are affected if :

• you are a financial institution

And/or

• you have clients who are financial institutions

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FATCA

Implications for Trustees

George Hodgson

Deputy Chief Executive

STEP

Myths about FATCA:

• Myth 1 - It doesn’t apply to me, I’m British

• Myth 2 - It doesn’t apply to the trust because

there are no US connections, assets or income

• Myth 3 - It doesn’t apply to the trust because it is

worth less than $50,000/$250,000/$1,000,000

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Facts about FATCA:

• All trusts are deemed to be entities

• Trusts are either Investment Entities - a type of

Financial Institution (FI) - or Non Financial

(Foreign) Entities (NFFE)

• What sort of entity a trust is depends on what

assets are in the trust and who ‘manages’ the

trust

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

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• Trusts that are FIs may need to register with the IRS

and report

• Trusts that are NFFE’s don’t need to register or

report, they will be reported on by any FIs they use

if the ‘account’ is above a threshold level

• FATCA Myth 4 - Having to register and report is to

be avoided at all costs

Categorising trusts - UK/US IGA

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Are any trusts not covered by the IGA?

• Only trusts that are UK tax resident are covered by

the UK/US IGA

• Entities which are registered charities are also

treated as ‘deemed compliant Financial

Institutions’ and do not have to register with the

US authorities

What determines if trust is a Financial Institution?

• Test 1 : Is the trust carrying on business in the

UK and is 50 per cent or more of the trust’s gross

income attributed to trading in money market

instruments, foreign exchange and a range of

other financial instruments, portfolio

management or the investment and

administration of funds?

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• 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 NFFE


• Test 3: Is the trust ‘managed’ by an entity that

carrying on business in the UK where more than

50 per cent of gross income is attributable to a

business trading in money market instruments,

foreign exchange and a range of other financial

instruments, portfolio management or the

investment and administration of funds?

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• If 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 FATCA purposes

• If the trustee is a corporate trustee, the trustee is

likely to be an FI and this will also make the trust

an FI for FATCA purposes

Non Financial Foreign Entities (NFFEs)

• Do not register or report

• If they have an account with an FI they will need to

confirm their status as NFFE to the institution

• If they have an account with an FI will need to do

due diligence to see if there are ‘Specified US

persons’ connected to the trust

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Options for a trust which is a Financial Institution?

Option 1: Trustee Documented trust

• Trustee is a Reporting FI

• Trust becomes a non-Reporting UK FI

• Trust does not need to register or report

• Trustee will register and report on trust

Option 2: Trust Registers as a Financial Institution

• Must register with IRS and obtain a GIIN

• Must report as an FI via HMRC

• Will need to declare its status as a Reporting FI to

all FIs it has accounts with and provide GIIN

• Can use third party service provider, but

compliance responsibilities remain with trust

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Option 3: Trust is a Sponsored Investment Entity

• Sponsor must be authorised to manage trust

• Sponsor must register with IRS as Sponsoring

Entity

• Sponsor must register the funds it sponsors as

‘Sponsored Entities’ with the IRS

• Trust will remain liable for any compliance failure

of its Sponsoring Entity

Option 4: Owner documented Financial Institution

• Must appoint ‘Designated Withholding Agent’

• Designated Withholding Agent must be Reporting

Financial Institution and undertake all due

diligence and reporting for the trust

• Trust need not register with IRS

• Owner documented status only applies to

payments from and accounts with the Designated

Withholding Agent

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Timeline

• IRS portal now open for FIs to register

• First list of FIs published on 2 June 2014

• FI must be on published list by 1 January 2015

• To meet the deadline they will need to be registered by 25

October 2014

• FIs are already sending letters asking for trust’s status

under FATCA

Who gets reported?

• US Specified Persons who are beneficial owners

(AML definition)

• Can generally use information obtained for AML

due diligence

• BUT…new requirement to establish tax residency

of all account holders

• HMRC require ‘nil returns’

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What gets reported?

• For trusts that are NFFEs, FIs will report value of the

accounts they hold

• If trust is an FI, ‘equity interests’ are reported

– For settlor in year of settlement or with any

continuing interest or control, this includes all

assets as of last valuation

– For mandatory beneficiaries it is the Net Present

Value (NPV) of payments

– For discretionary beneficiaries it is based on actual

payments that tax year

What about other FATCA type schemes?

UK IGAS with CDs & OTs

– If FI under UK/US FATCA, also FI under

UK/CD-OT FATCA

– Use same GIINs

– Different ‘indicia’, focus on tax residence

– Reporting timetable is FATCA + 12 months

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What about other FATCA type schemes?

OECD Common Reporting Standard

– Uses same approach as IGAs, technically,

however, no need to register

– No withholding

– Focus on tax residence

– Timetable is FATCA + 18 months

– 40+ jurisdictions ‘early adopters’

– New ‘Global Standard’

FATCA : what does it mean in

practice?

• Identify and classify the entities comprising your practice and the client entities with which you are connected such as trusts

• Register any FI for a Global Intermediaries Identification Number (GIIN);

• Contact relevant clients to ensure they are aware of

their obligations.

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FATCA: what does it mean in

practice?

• Review your practice systems and implement any

necessary changes to:

• engagement letters

• client take-on process

• client identification procedures

• establishing reportable transactions

• effecting the report

• client communications

• deceased estates;

• Make the appropriate reports to HMRC


Any Questions?

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Future webinars

HMRC’s digital developments for tax agentsTuesday 30 September 2014

• This webinar will update agents on the progress on Agent Online Self Serve (AOSS) and the new registration process and provide information about what action will need to be taken and when.

Probate changes – what you need to knowThursday 23 October 2014

• You should join this webinar to find out what you – and your competitors – can do without registering and what services can only be provided by registered persons. It also provides information on the application process, the regulatory requirements and other pros and cons of registering for probate authorisation.


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FATCA: what you need to know | ICAEW