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Tax Transparency: FATCA, CRS and Other Interna8onal Efforts to Eliminate Tax Evasion
• John Staples
• Burt, Staples & Maner
• Danielle Nishida • KPMG, LLP
• Paul Heller • Royal Bank of Canada
• Susan Grbic • WeiserMazars LLP
1
FATCA
3
FATCA Since IncepJon
• 2009: FATCA is just a gleam in Congress’ eye.
• March 18, 2010: FATCA is born and immediately begins mulJplying.
• Announcements! 2010-‐22; 2012-‐42; 2014-‐1; 2014-‐17; 2014-‐38.
• No8ces! 2010-‐46; 2010-‐60; 2011-‐34; 2011-‐53; Revised 2011-‐53; 2013-‐43; 2013-‐69; 2014-‐33; 2014-‐59.
• Rev. Procs.! 2014-‐13; 2014-‐38; 2014-‐39
• Forms (Issue Dates)! 6-‐6-‐12; 8-‐14-‐12; 8-‐16-‐12; 8-‐18-‐12; 3-‐3-‐14; 3-‐5-‐14;
3-‐10-‐14; 3-‐30-‐14; 6-‐25-‐14; 6-‐27-‐14.
• FATCA Regula8ons! 2-‐8-‐12; 1-‐17-‐13; 9-‐9-‐13; 2-‐20-‐14.
• Harmoniza8on Regula8ons! 2-‐20-‐14; 6-‐30-‐14.
• FATCA FAQs! Under constant modificaJon.
FATCA Spreads Globally • The IGA Joint Statement of 2-‐8-‐12: France, Germany, Italy, Spain and
UK agree to the IGA Concept.
• Model IGAs Issued and Revised: 7-‐26-‐12; 11-‐12; 5-‐9-‐13; 7-‐12-‐13;
8-‐19-‐13; 11-‐4-‐13; 6-‐6-‐2014; 11-‐30-‐2014
• “UK FATCA”: Enacted for Crown Dependencies and Offshore Territories (“CDOT” for Anglophiles).
• CRS: OECD Issues “Common ReporJng Standard” which is based largely
on FATCA concepts.
• Early adopters commit to start implemenJng CRS on January 1, 2016.
4
5
IGA Snapshot
• Model 1 IGAs • Signed: 51 • In substance as of 30 June 2014: 37 • In substance as of 30 November 2014: 10 • IGAs call for exchanges of informaJon to begin 30 September 2015.
• Model 2 IGAs • Signed: 7 • In substance as of 30 June 2014: 6 • In substance as of 30 November 2014: 1
Some Issues With IGAs
• Slow Local Law Implementa8on: IGAs require implemenJng legislaJon and regulaJons, but few countries have either.
• Treasury will cut these countries a break provided they are making efforts to implement locally.
• Poten8al Conflicts in Law: NaJvized FATCA does not necessarily equal the FATCA regulaJons.
• Self-‐Cert Example: • IRS FAQ says self-‐cert is mandatory up front. • Annex I says self cert “must” be obtained “upon account opening.”
• Canada, UK both allow the account to open if the self-‐cert is obtained as part of the “account opening process.”
6
FATCA DocumentaJon Snapshot
• Preexis8ng Account Due Diligence Deadlines • 31 December 2014 – Prima Facie FFIs • 30 June 2015 – High Value Individual Accounts • 30 June 2016 – Lower Value Individual Accounts & EnJty Accounts
• New Account Due Diligence Deadlines • 1 July 2014 – Individual Accounts • 1 January 2015 – EnJty Accounts
• Early Results in Valida8ng the New Forms W-‐8 • Problems with invalidaJons (Note: The Form W-‐8BEN-‐E runs 8 pages and has XXX parts).
• Don’t forget why there was a VCAP in 2004 …… 7
8
Overview of FATCA ReporJng In 2015 • Forms 1042-‐S: 16 March 2015
• Forms 8966: 31 March 2015, automaJcally extended 90 days to 29 June 2015
• Cau8on: Model 1 Repor8ng Deadlines Vary (E.g) • BVI – 30 June 2015 • Canada – 2 May 2015 • Cayman – 31 May 2015 • Malta –15 June 2015 (recently extended) • Singapore – 31 July 2015 (recently extended) • United Kingdom – 31 May 2015
9
Withholding Snapshot • Limited To U.S. Source Income
• FATCA withholding does not yet extend to gross proceeds or “foreign passthru payments.”
• Not too much withholding yet (by design). • USFI Withholding:
• Undocumented prima facie FFIs. • PreexisJng documented NPFFIs. • Newly documented or presumed NPFFIs. • NFFEs that fail to cerJfy regarding U.S. owners.
• Non-‐IGA FI Withholding: • All of the above, plus new recalcitrant account holders.
• IGA FI Withholding • Only withhold (or arrange for withholding) on new NPFFIs (as well as any documented preexisJng NPFFIs).
The New World of Qualified Intermediary (“QI”) Compliance • Overview
• Revenue Procedure 2014-‐39 was issued in June 2014 to provide a comprehensive new QI Agreement (superseding old agreement).
• Effec8ve Date: June 30, 2014. • Key change was to coordinate the QIs new FATCA responsibiliJes with the pre-‐exisJng Chapters 3/61responsibiliJes
• Responsible Officer (“RO”):
• QI must appoint an RO as the QI’s responsible party for FATCA and Chapters 3 and 61 EVEN IF the QI is located in a Model 1 IGA jurisdicJon.
• The RO must establish a compliance program for the QI. • CerJficaJons instead of audit report submission.
10
UK Crown Dependencies & Overseas Territories
(UK CDOT)
What is UK CDOT?
12
• From the beginning, the UK embraced FATCA, becoming the first country to implement the IGA into local law.
• Leveraging FATCA, the United Kingdom released an equivalent regime for reporting between the UK and its Crown Dependencies and Overseas Territories.
• Applies to:
• United Kingdom, Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Montserrat, and Turks & Caicos.
• With respect to the Isle of Man, Guernsey, Jersey and Gibraltar, reciprocal agreements are in place resulting in UK Financial Institutions needing to identify and report relevant data on account holders/controlling persons of Passive NFFEs who are residents of the Isle of Man, Guernsey, Jersey and Gibraltar.
UK CDOT Repor5ng Examples
13
UK Financial Institution
Cayman Financial
Institution
Cayman Acct Holder
Jersey Acct Holder
UK Acct Holder
Jersey Acct Holder
Local Tax Authority
Local Tax Authority
Reports the Specified Jersey Person to HMRC NOTE: Does not need to report the Cayman account
Reports the Specified UK Person to Cayman TIA NOTE: Does not need to report the Jersey account
OECD Common Reporting Standard (CRS)
Development of CRS
• G-20 Calls on OECD to Develop Multilateral Standard for Automatic Exchange of Financial Account Information in September 2013
• OECD Develops CRS Together with G-20 Countries • July 2014: OECD issues Standard for AutomaJc Exchange of Financial InformaJon in Tax Maners:
• Model Competent Authority Agreement (MCAA) • Common ReporJng Standard (CRS) • CRS Commentary
• September 2014: G-‐20 calls on all financial centers to commit by October 2014 to adopt the CRS and automaJc exchange of informaJon
• October 2014: 51 jurisdicJons sign mulJlateral competent authority agreement to automaJcally exchange informaJon based on the CRS
• As of June 2015: • 61 countries have signed onto the mulJlateral competent authority agreement to automaJcally exchange informaJon based on the CRS
• 94 countries have commined to exchange informaJon on an automated basis under the common reporJng standards for automaJc exchange of informaJon starJng in 2017 or 2018
15
Automa5c exchange standard Basic approach -‐ CRS + CAA = exchange standard
16
Country A Bank
Country A
Country B Account Holder
Bank Country A Account Holder
Country B
Reporting of information based on Common Reporting and Due Diligence Standard (CRS) implemented via domestic law
16
Automatic exchange of information based on bilateral treaty, TIEA, or MAC, & MCAA
Reporting of information based on Common Reporting and Due Diligence Standard (CRS) implemented via domestic law
Implementation Commitments
JURISDICTIONS UNDERTAKING FIRST EXCHANGES BY 2017 (Onboarding Procedures by January 1, 2016) Anguilla, ArgenJna, Barbados, Belgium, Bermuda, BriJsh Virgin Islands, Bulgaria, Cayman Islands, Chile, Colombia, CroaJa, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, MauriJus, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom, Uruguay JURISDICTIONS UNDERTAKING FIRST EXCHANGES BY 2018 Albania, Andorra, AnJgua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, China, Costa Rica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Marshall Islands, Macao (China), Malaysia, Monaco, New Zealand, Qatar, Russia, Saint Kins and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates JURISDICTIONS THAT HAVE NOT INDICATED A TIMELINE OR THAT HAVE NOT YET COMMITTED Bahrain, Cook Islands, Nauru, Panama, Vanuatu *NoJce that the United States is not one of the countries listed
17
Multilateral Agreement Signatories
18
ALBANIA ANGUILLA ARGENTINA ARUBA AUSTRALIA AUSTRIA BELGIUM BERMUDA BRITISH VIRGIN ISLANDS CANADA CAYMAN ISLANDS CHILE COLOMBIA COSTA RICA CROATIA CURAÇAO CYPRUS CZECH REPUBLIC DENMARK ESTONIA FAROE ISLANDS
FINLAND FRANCE GERMANY GHANA GIBRALTAR GREECE GUERNSEY HUNGARY ICELAND INDIA INDONESIA IRELAND ISLE OF MAN ITALY JERSEY KOREA LATVIA LIECHTENSTEIN LITHUANIA LUXEMBOURG MALTA
MAURITIUS MEXICO MONTSERRAT NETHERLANDS NEW ZEALAND NORWAY POLAND PORTUGAL ROMANIA SAN MARINO SEYCHELLES SLOVAK REPUBLIC SLOVENIA SOUTH AFRICA SPAIN SWEDEN SWITZERLAND TURKS & CAICOS ISLANDS UNITED KINGDOM
Status of Implementing Guidance
• CRS and associated Commentary provide guidance on: • Due diligence procedures for ascertaining idenJty and tax residence of account holders
• ReporJng requirements (e.g. informaJon on accountholder(s), financial account assets, and annual income and sales proceeds)
• Procedures: • Financial insJtuJons reporJng informaJon to local tax authoriJes
• Receiving jurisdicJons exchanging informaJon with residence jurisdicJons
• EU DirecJve issued December 2014 – onboarding procedures must be in place by January 1, 2016
• No country has provided comprehensive local guidance • UJlizing XML CRS Schema for reporJng and exchange of informaJon • OECD is issuing CRS FAQs (similar to IRS FAQs for FATCA)
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20
Key Differences Between CRS and FATCA • Scope of CRS largely the same as U.S. Model 1 IGA across three key
dimensions:
• Financial informa8on to be reported includes all types of investment
income (including interest, dividends, income from certain insurance
contracts and other similar types of income) but also account balances and
sales proceeds from financial assets.
• Financial ins8tu8ons that are required to report under the CRS include not only banks and custodians, but also other financial insJtuJons such as
brokers, certain collecJve investment vehicles and certain insurance
companies.
• Reportable accounts include accounts held by individuals and enJJes (which includes trusts and foundaJons).
21
Key Differences Between CRS and FATCA • Similar scope means work is grouped in common themes:
• En8ty classifica8on/defini8ons • Onboarding • Preexis8ng customers/remedia8on
• Repor8ng • Withholding (no withholding under CRS)
• Governance
• Important differences between CRS and FATCA will require modifica8ons to exis8ng FATCA compliance programs
Key Differences Between CRS and FATCA
22
Individuals
• Residence (not including citizenship) • No thresholds • Residence address test for pre-existing
accounts building on EU Savings Directive
• Simplified indicia search
Entities
• Look-through for Reportable Entities that are Passive NFEs
• Look-through for investment entities in non-participating jurisdictions
• No “regularly traded exception” for investment entities
Low risk FIs and products • General exclusion for country specific low-risk reporting financial institutions and accounts
22
No Withholding
CRS Due Diligence Procedure -‐ Individuals In
divi
dual
s
Pre-existing accounts
No de minimis threshold
Lower Value Accounts: permanent residence address test based on
documentary evidence or electronic indicia search
Higher Value Accounts: enhanced due diligence procedures (paper
record indicia search, actual knowledge test by the relationship
manager)
New accounts Self-certification without de minimis threshold
23 23
CRS Due Diligence Procedure -‐ En55es En
titie
s
Pre-existing accounts
No review for accounts below 250,000 USD
Reportable person: available information (AML/KYC
procedures), in certain cases self-certification
Passive NFE and controlling persons: available information or
self-certification
New accounts
Same assessments as for pre-existing accounts, but no
de minimis threshold & self-certification required to identify
reportable persons
24 24
Different Account Holder InformaJon to Be Collected and Reported
• Self-‐cerJficaJon for individuals must include date of birth (and in some cases place of birth)
• Self-‐cerJficaJon must collect tax residence of each reportable account holder (not just U.S./non-‐U.S. status)
• Data protecJon rules may limit ability to collect tax residence for accounts that are not (yet) reportable – potenJal need for conJnuous remediaJon of accounts
• Controlling Person informaJon for reportable enJJes that are passive NFEs
• Controlling Person informaJon for Investment EnJJes in non-‐parJcipaJng jurisdicJons
• Country-‐specific exclusions for low-‐risk financial insJtuJons • Not all FATCA exempJons were adopted. Some excepJons simply aren’t necessary (e.g., no sponsored enJJes) while others are significant (e.g., No publicly traded excepJon for Investment EnJJes)
25
Governance Issues – Global Exchange of Informa5on
Consistent Global Framework for Automatic Exchange of
Information
■ Crown Dependencies IGA (Isle of Man, Guernsey and Jersey);
■ Bri8sh Overseas Territories IGA (the Cayman Islands, the BriJsh Virgin Islands, Bermuda, Anguilla, Turks and Caicos islands, Montserrat and Gibraltar).
UK FATCA Agreements
■ Model 1 and 2 IGAs – more than 100 either signed or in substance;
■ MulJple IGA versions.
U.S. FATCA Agreements
■ More than 60 countries and jurisdicJons commined;
■ Each country will sign a mulJlateral or bilateral agreement with other countries.
OECD Common Repor8ng Standard
U.S. Treasury Regula8ons (Temporary and Final)
U. S. FATCA Regula8ons
Of more than 100 jurisdic8ons required to enact enabling legisla8on for FATCA, very few have done so, and none for the CRS. Each jurisdic8ons’ enactment could vary from others. Even within a jurisdic8on the FATCA and CRS rules will not be iden8cal.
Global firms need a way to track these differences as they occur to ensure cost-‐efficient global compliance
FATCA and Automa5c Exchange of Informa5on
• The issues • Tracking and implemenJng potenJally more than 100 countries’ bi-‐lateral or possibly mulJ-‐lateral agreements (IGA and Competent Authority Agreement (CAA)) and the implemenJng regulaJons can be a significant challenge with resource and cost implicaJons.
• Uncertain Jming of bi-‐lateral IGA and CAA and domesJc implementaJon increases the complexiJes and costs of implementaJon.
• CRS conJnues IGA trend of deferring to local country for detailed definiJons and rules. ResulJng conJnual changes to interpretaJon, polices and requirements make standardisaJon and implementaJon difficult.
• United States has not commined to CRS which means there may be a look-‐thru with respect to some US enJJes
• ImplicaJons/Challenges • Keeping Policy and Requirements up to date (Time, cost). • The operaJonal impact of monitoring and remediaJon (FTE’s, cost, Jme). • The reputaJonal damage of gevng things wrong (Quality, Jmeliness).
• A different approach is required • Track and monitor only ‘deltas/interdependencies’ between model agreements and local variaJons. • Manage implementaJon Jmelines by tracking local guidance and differences closely. • Clear and concise traceability of exisJng implementaJons to reduce the risk of quality gaps, effort, Jme and cost on operaJng model by implemenJng “deltas” rather than full system implementaJons.
But there is significant overlap – “It’s a bit like digging up the same road over and over again”
Overlap & Interplay Between FATCA, CDOT,
and CRS
29
The Par5cipants
Early Adopter 2018 Reporter No CRS Commitment
FATCA IGA
Anguilla*, Barbados, Bermuda*, BVI*, Belgium, Bulgaria, Cayman Islands*, Chile, Colombia, Croatia, Curacao, Cyprus, Czech Rep, Denmark, Dominica, Estonia, Finland, France, Germany, Gibraltar*, Greece, Greenland, Guernsey*, Hungary, Iceland, India, Ireland, Isle of Man*, Italy, Jersey*, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat*, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Rep, Slovenia, S. Africa, S. Korea, Spain, Sweden, Trinidad & Tobago, Turks & Caicos*, United Kingdom*
Antigua, Australia, Austria, Bahamas, Bahrain, Brazil, Canada, China, Costa Rica, Grenada, Hong Kong, Indonesia, Israel, Japan, Macao, Malaysia, New Zealand, Panama, Qatar, Saudi Arabia, Singapore, St. Kitts, St. Lucia, St. Vincent, Switzerland, Turkey, United Arab Emirates
Algeria, Angola, Armenia, Azerbaijan, Belarus, Cabo Verde, Cambodia, Dominican Republic, Georgia, Guyana, Haiti, Holy See, Honduras, Iraq, Jamaica, Kazakhstan, Kosovo, Kuwait, Moldova, Montenegro, Nicaragua, Paraguay, Peru, Philippines, Serbia, Taiwan, Thailand, Tunisia, Turkmenistan, Ukraine, Uzbekistan
No FATCA IGA
Argentina, Faroe Islands, Niue, Uruguay Albania, Andorra, Aruba, Belize, Brunei Darussalam, Cook Islands, Marshall Islands, Monaco, Nauru, Russia, Samoa, St. Maarten, Vanuatu
Any Country Not Listed
* Denotes that the jurisdiction is subject to UK CDOT
30
An approximate overview of the overlap between information exchange regimes, for example:
• FATCA alone incorporates a withholding aspect • FATCA requires registration of FFIs, while UK CDOT requires
“registration” merely for reporting purpose, and CRS has no registration requirement (thus far)
• CRS reporting will be more onerous as it requires identification of the broadest range of Reportable Accounts
• CRS due diligence is more onerous as it does not utilize de minimis thresholds
0
2
4
6
8
10 Definition of FFI
Registration
Documentation
Identification of Individual Accounts
Identification of Entity Accounts
Reporting
Withholding
FATCA/UK CDOT/CRS Overlap
FATCA
CRS
UK CDOT
Registra5on
31
Regime Registration Requirements
FATCA (Regs)
FFIs register through IRS Portal to obtain a GIIN.
CRS
No CRS registration requirement, all reporting done through local taxing authority
UK CDOT
No IRS-style registration requirement Reporting Financial Institutions will need to “register” on the Government Gateway in order to submit a return
Iden5fica5on of Individual Accounts
32
Regime Pre-existing Accounts New Accounts
FATCA (Regs)
Pre-existing accounts not exceeding $50,000 do not need to be reviewed Cash value insurance contracts/annuity contracts with a value not exceeding $250,000 Pre-existing account is one open on June 30, 2014
New accounts are those opened from July 1, 2014
CRS
No de minimis threshold, all pre-existing accounts must be reviewed For lower value accounts, can rely on residence address for tax residency without performing an indicia search Higher value accounts require paper record search and “reason to know” test for relationship manager
No de minimis threshold Self-certification of jurisdiction of residence is required
UK CDOT
Substantially the same as FATCA
Substantially the same as FATCA
Iden5fica5on of En5ty Accounts
33
Regime Pre-existing Accounts New Accounts
FATCA (Regs)
$250,000 de minimis threshold for pre-existing entity account review Pre-existing accounts are those open on June 30, 2014 (December 31, 2014 if applying Notice 2014-33)
New entity accounts below $50,000 with procedures in place such that the account cannot exceed $50,000 are not subject to review and reporting New accounts are those opened from July 1, 2014 (Jan 1, 2015 if applying Notice 2014-33)
CRS
May use available information (e.g. AML/KYC) to determine whether reportable Must confirm residency of controlling persons of any Passive NFE Jurisdictions permitted to offer an election such that pre-existing entity accounts below $250,000 need not be reviewed Pre-existing accounts are those open on December 31, 2015
$250,000 election not available, self certification required for all new accounts In certain cases, an FI may treat a new account for a pre-existing client as a pre-existing account New accounts are those opened from January 1, 2016
UK CDOT
Identification of Specified UK CDOT persons, information for regulatory/customer relationship purposes may be relied upon (e.g. AML/KYC) Exceptions to Specified Persons are substantially the same as FATCA
Substantially the same as FATCA
Documenta5on
34
Regime Required Documentation
FATCA (Regs)
Applicable U.S. Tax documentation: W-9, W-8BEN, W-8BEN-E, W-8IMY, W-8EXP, W-8ECI Self-Certification permitted for offshore obligations
CRS
Self-Certifications Citizenship not required Tax residency required for all new accounts
UK CDOT
Self Certification required to: 1. Establish tax residency 2. Obtain appropriate TINs 3. Cure residency if indicia of CDOT residency found 4. Provide status (entities)
Repor5ng
35
Regime Report to Taxing Authorities Scope of Information
FATCA (Regs)
Model 1 IGA jurisdictions report to local authority; Model 2 IGA jurisdictions report to U.S.; U.S. Withholding Agents report to U.S.
Name, Address, TIN, Account #, Name and Identifying # of Reporting Financial Institution, Account balance/value
CRS
No direct reporting to other taxing authorities, a single report is filed with the local taxing authority. Local Authority in Country A exchanges information with Local Authorities in all partner jurisdictions
Same as FATCA, except: Tax residency and Date & Place of Birth also reported
UK CDOT
No direct reporting to other taxing authorities FIs report to their Local Authority which exchanges information with HMRC
Same as FATCA, except: Date of Birth also reported
Withholding (Or Penal5es)
36
Regime Withholding Alternate Enforcement Mechanisms
FATCA (Regs)
Potential 30% withholding on U.S. source withholdable payments made to non-compliant entities
IRS information reporting penalties apply (IRC §§ 6721 – 6724)
CRS
No withholding
No central penalty, but local penalties will be implemented by each participating jurisdiction
UK CDOT
No withholding
Local penalties will apply, for example: 1. £300 for failure to comply
with an obligation (per obligation)
2. Up to £3000 for certain circumstances involving inaccurate information
Timelines -‐ Repor5ng
37
REGIME 2015 2016 2017
FATCA
March 16 – 1042 and 1042-S reporting with respect to 2014 March 31 – USWA and Model 2 IGA Begin annual Form 8966 reporting Sept – Model 1 IGA authorities submit info to IRS (Many jurisdictions requiring their FIs to report by May 31)
March 15 – 1042 and 1042-S reporting with respect to 2015 March 31 – Form 8966 for non-Model 1 May – Sept Model 1 IGA reporting to local authorities
March 15 – 1042 and 1042-S reporting with respect to 2015 March 31 – Form 8966 for non-Model 1 May – Sept Model 1 IGA reporting to local authorities
CRS
NOT APPLICABLE
NOT APPLICABLE
March – First CRS reporting to tax authorities September – Exchange of information between authorities
UK CDOT
NOT APPLICABLE
May 31 – Reporting on both individual and entity accounts for both 2014 & 2015 With respect to 2015, additional info on gross payments required
May 31 – Reporting on individual and entity accounts for 2016 Additional reporting regarding gross proceeds required
Examples – Tax Residency
38
Individual • Stan, a U.S. citizen, lives and works in London, England as a professor. Stan spends
3 months each summer excavating Neolithic grave sites in Guernsey. Stan receives a request for self-certification from Lloyd’s Bank inquiring as to his tax-residency. How should Stan respond?
• U.S. tax resident (all U.S. citizens are U.S. tax residents) • UK tax resident (generally, spending more than 6 months in the UK
equates to tax residency) • Guernsey tax resident (generally, 3 months is sufficient to subject an
individual to tax residency in Guernsey) Corporation • Corporation X is a travel company incorporated in Bermuda. Corporation X
maintains its headquarters in the UK, from where its global operations are organized. Corporation X is opening a new bank account in the UK and is asked to provide a self-certification containing its tax-residency. How should Corporation X respond?
• Bermuda tax resident based upon incorporation • UK tax resident based upon management and control
Example – Due Diligence
39
Fran, a U.S. citizen, lives and works in France. Fran has a savings account with Banque de France that was opened in January, 2014. Fran’s highest account balance during 2014 was $14,000. By 2016, Fran’s account balance had reached $38,000. In 2017, Fran received an inheritance, taking the account balance to $400,000. What are the Due Diligence obligations with respect to Fran’s account in 2014, 2016, and 2017? • 2014 – As a pre-existing account with a balance less than $50,000, Fran’s account does not
need to be reviewed, identified or reported for purposes of FATCA
• 2016 – For FATCA purposes, the account still does not need to be reviewed, identified or reported. For CRS, low-value accounts must be reviewed, but not until December 31, 2017
• 2017 – For FATCA, the account is now a “lower-value” account, but Banque de France is
not required to perform an Electronic Record Search for U.S. Indicia until the account becomes “high value”. For CRS, this is also a “lower-value” account, and Banque de France must perform either a Electronic Record Search, or Residence Address Test
UK CDOT/FATCA Repor5ng Example
40
A UK Financial Institution maintains an account for a Passive Non-Financial Entity based in Guernsey:
1. For FATCA, the account is held by a Passive NFFE and is a Reportable Account if one or more of the Controlling Persons is a US Specified Person.
2. For CDOT reporting to the Isle of Man, Jersey and Gibraltar, the account is also held by a Passive NFFE and is a Reportable Account if one or more Controlling Persons is an Isle of Man, Jersey or Gibraltar Specified Person.
3. For CDOT reporting to Guernsey, the account is held by an entity that is a Guernsey Specified Person and is therefore a Reportable Account.
Suppose the Passive NFFE has a single owner, who is a U.S. citizen, living in Jersey.
• UK CDOT reporting of Guernsey Specified Person (the entity) to UK • UK CDOT reporting of Jersey Specified Person (the owner) to UK • FATCA reporting of U.S. Specified Person (the owner) to UK
Summary – What To Expect
41
• While similarities exist between FATCA and CRS/UK CDOT, FIs will need to perform a gap analysis to determine which current procedures are sufficient, which need additional builds, and identify new processes required that current procedures do not account for
• Additionally, CRS contains considerable flexibility for local implementation; CRS will vary from jurisdiction to jurisdiction
• The focus of CRS and UK CDOT is tax residency, FIs must establish a way to record and track this information which may differ from jurisdiction to jurisdiction
• The various regimes do not come into effect at the same time, thus keeping track of what needs to be implemented/reviewed and when is essential to compliance
• Reporting volumes will be high with CRS to be implemented in over 90 jurisdictions, collecting this information while minimizing the effect on the overall client experience may be a challenge
Ques5ons • What is the IRS going to do with all of the informaJon that they are collecJng under FATCA?
• When will the IRS begin audiJng FATCA and how do they plan on doing it?
• CRS has a preny Jght Jme frame. Will there be extensions similar to those that we experienced with FATCA?
• What will be the enforcement and audit regime under CRS?
• If the United States does not adopt CRS, what are potenJal complicaJons for US financial insJtuJons (e.g., having operaJons subject to both FATCA and CRS in some jurisdicJons; having their US operaJons deemed non-‐compliant by CRS parJcipants, etc.)
42
Ques5ons • Given that UK has announced that CDOT will merge into and be replaced by the CRS standards, what is the likelihood that FATCA will also be subsumed by CRS?
• If you have FATCA under control, will CRS be (relaJvely) easy? • What are the key compliance/operaJonal challenges facing mulJnaJonal FIs as they implement these different regimes?
• The United States has focused considerable anenJon on the Swiss financial center through the DOJ program – what are your views on the possibility that the DOJ and/or IRS might target other offshore financial centers? Or is this likely given the increasing acceptance of tax transparency through FATCA and the CRS?
• What are other countries’ tax transparency efforts?
43
CONTACT DETAILS
• John Staples • Burt, Staples, and Maner • [email protected] • +1 202 783-‐1500 (U.S.)
• Danielle Nishida
• KPMG, LLP • [email protected] • +1 212 954-‐2774 (U.S.)
• Paul Heller • Royal Bank of Canada • [email protected] • +1 212-‐415-‐5923 (U.S.)
• Susan Grbic
• WeiserMazars LLP • [email protected] • +1 212.375-‐6911 (U.S.)
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Disclosures
The following informaJon is not intended to be “wrinen advice concerning one or more federal tax maners” subject to the requirements of secJon 10.37(a)(2) of Treasury Department Circular 230. You (and your employees, representaJves, or agents) may disclose to any and all persons, without limitaJon, the tax treatment or tax structure, or both, of any transacJon described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The informaJon contained herein is of a general nature and based on authoriJes that are subject to change. Applicability of the informaJon to specific situaJons should be determined through consultaJon with your tax adviser.
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