How to complete your bank s new form:

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1 How to complete your bank s new form: tax residency self-certification under CRS and FATCA June 2016 Stewardship Briefing Paper Stewardship, 1 Lamb s Passage, London EC1Y 8AB t: e: enquiries@stewardship.org.uk w: stewardship.org.uk

2 This Briefing Paper and others like it are provided free of charge and help a great many churches and charities. Their development involves many hours of dedicated professional expertise both from within and outside of Stewardship. They are provided at our own cost as part of our mission to equip you. If you find the material in this Briefing Paper to be of value, we would invite you to respond in the following ways: Subscribe to receive our bulletins at our website, and Tell others in your church or charity about our resources. If you regard the material to have been of particular help and significance to you in your work (for example using it to inform a church or charity group/network) perhaps you would consider making a financial gift to Stewardship in appreciation (though please feel under no obligation). CONTACT DETAILS Stewardship 1 Lamb s Passage, London EC1Y 8AB t: e: enquiries@stewardship.org.uk w: stewardship.org.uk Stewardship is the operating name of Stewardship Services (UKET) Limited, a registered charity no , and a company limited by guarantee no , registered in England Copyright Stewardship 2016 COPYRIGHT This publication is the copyright of Stewardship. We want our resources to have the maximum impact, therefore you are welcome to reproduce or otherwise distribute this material in whole or part. We simply ask two things: (1) there must be no use for commercial gain, and (2) Stewardship is clearly acknowledged with the following wording Reproduced with permission from Stewardship. If extracts are to be used in another context, permission should be sought in advance by ing enquiries@stewardship.org.uk or telephoning Thank you. DISCLAIMER Whilst every care has been taken in the preparation of this material, Stewardship cannot be responsible for action taken or refrained from in reliance thereon. It is recommended that appropriate professional advice be sought in each relevant individual circumstance. 2

3 table of contents Page About Stewardship Introduction The need for the questionnaires Which institutions are likely to send a questionnaire to your charity? Background to the forms Types of form... 7 Appendix 1: CRS Template Questionnaire Appendix 2: Charities that have further CRS obligations

4 About Stewardship Stewardship s mission is to transform generosity by: making giving easy inspiring greater generosity strengthening Christian causes and our vision is: for the world to encounter Jesus through the generosity of his church Since 1906, Stewardship has been helping the Christian community in the UK to give and receive. We love making giving easy and help over 25,000 individuals to give around 60 million each year, to our database of over 19,000 charitable causes. We are committed to strengthening Christian causes, by offering practical, tailored support to help churches and Christian charities to transform the world. And we inspire greater generosity from this community too, through our wealth of resources, courses and campaigns for individuals and churches alike, including the multiple award winning 40acts campaign and website. 4

5 1 Introduction From 2016, churches and charities in the UK can expect to be receiving tax residency selfcertification questionnaires from their bank(s), investment advisors and similar organisations, with which the charity transacts. These forms will be sent to existing account holders where the bank or other financial institution holds insufficient due deligence data to comply with their legal obligations. The same questions and certification requirements will appear in account opening forms. Therefore, charities that are moving their bank account or opening a new account will benefit from reading this paper. The questions asked are likely to be incomprehensible to most people, perhaps excepting those who work in the banking or financial services sectors, as they use some rather alien concepts, terminology and definitions. There are several problems that arise from this: The organisations that will be sending these questionnaires out to their clients are doing so because they are now required by law to do so; If the charity wishes to open, or retain, an account with them, they will have to complete these forms; The banks themselves are unlikely to be willing to give other than very basic, generic advice to their account holders; Lawyers, etc., if they are sufficiently aware and experienced with the context of the forms, are likely to charge a fee for completing or helping to complete the forms. This Briefing Paper is, therefore, intended to help churches, in particular, and charities in general to be confident enough to complete these forms without reference to their bank or other financial entity, or for the need to refer to a lawyer or other professional advisor. The Paper has been written by Stewardship after extensive engagement with relevant officials from HMRC s International Exchange of Information Team. 2 The need for the questionnaires Why are these forms needed? The forms enable Financial Institutions to gather relevant information on matters such as the tax residence of the account holder. The law requires them to collect this in order to report the details, where appropriate, to HMRC, in order to help prevent tax evasion. In particular, the aim is to prevent a taxpayer in one country hiding assets from the tax authorities, by siting those assets or accounts in another country. Using the forms, information gathered by Financial Institutions in 5

6 country A will be sent to the revenue authority in country A (in the case of the UK, this is HMRC). HMRC will in turn exchange that information with the appropriate authority in country B, where an account is held in country A by an account holder that is tax resident in country B. To facilitate this, Automatic Exchange of Information Agreements have been made between the UK and a large number of other countries. The UK has entered into these Automatic Exchange of Information Agreements under four separate regimes: United States Foreign Account Tax Compliance Act (FATCA) The agreement between the UK and USA requires UK financial institutions to report to HMRC on US customers that hold accounts with them. Crown Dependencies and Overseas Territories (CDOT) Regulations The agreement between the UK and its Crown Dependencies and UK Overseas Territories to report on those who are tax residents in one territory and hold accounts in the other. Common Reporting Standard (CRS) The (global) OECD standard for all automatic exchange of financial information. Directive on Administrative Co-operation (DAC) The Directive which applies the Common Reporting Standards throughout the European Union. Whilst this Directive was made by the European Union, it is based on the OECD CRS. As such, we do not expect the UK to change the rules for UK entities following the referendum decision for the UK to leave the EU. References to Automatic Exchange of Information include all of the above. Important: Fraud warning When completing any questionnaires asking for sensitive information on your organisation and responsible individuals within it, bear in mind that this could be used by fraudsters against you or your charity. Before you provide any information, make sure the request is genuine. If you aren t sure, check. The following is a link to advice provided by Action Fraud: Advice on how to spot fraudulent activities 6

7 3 Which institutions are likely to send a questionnaire to your charity? Financial institutions include, for example, banks, building societies, insurance companies, investment companies and trusts. Counter intuitively, it is possible for a charity to be classified as a Financial Institution in respect of its grant making activities! In this case, grant recipients are viewed as account holders and the charity will be placed in a similar position to a bank and will themselves have to send out questionnaires to each of their grant recipients. Thankfully, only a small proportion of charities will fall into this category. In particular, charitable companies that are Financial Institutions will not have any obligations to report on grant recipients. We briefly describe this topic more fully in Appendix 2. The remainder of this Paper deals with how to complete a questionnaire received by a UK church or charity, where they are not themselves regarded as a Financial Institution. 4 Background to the forms The forms that are being sent out to account holders are likely to be based on a generic form, CRS-E, agreed by an international group of experts and the British Bankers Association, with a view to delivering consistency in the information requested from account holders. A copy of the generic CRS form is reproduced in Appendix 1 and has been used in the descriptions below as a point of reference to completing any forms that your charity may receive. 5 Types of form As a charity, you should only be sent the entity version of the Common Reporting Standard (CRS) form or, a FATCA form. Entity version of the CRS form Appendix 1 reproduces the generic Entity Tax Residency Self-Certification Form and Instructions as agreed by the British Bankers Association. The following notes set out the required responses that the majority of churches / Christian charities will need to make. Exceptionally, reference should be made to Appendix 2 if your charity relies to a greater extent on investment income, rather than donation income. Part 1 Identification of the Account Holder These details are straightforward. 7

8 Part 2 Entity Type Question 1 Charities (other than charities falling within Appendix 2) will not be classed as Financial Institutions. Instead, they will be classed as an Active Non-Financial Entity (or Active NFE). The church / charity should, therefore, tick box 1(f). Question 2 This is not relevant and should be left blank. Part 3 Country of residence for Tax Purposes / Taxpayer Identification Number ( TIN ) For UK tax purposes, an entity s Taxpayer Identification Number (TIN) is the Unique Taxpayer Reference Number (UTR), issued by HMRC. The UTR is a 10 digit number, but a charity is only likely to have one if they have been asked to make a tax return. TINs (and, therefore, the need to insert the charity s UTR) are only mandatory information where the charity have been issued with the 10 digit unique taxpayer reference. If your charity has not been issued with one, the space should be left blank, and the reason provided, if this is requested. Financial institutions are aware that not all UK charities have been issued with TINs and this is stated within the OECD guidance on the Common Reporting Standard. Therefore, Part 3 of the form should be completed as follows: Where the charity has not been issued with a UTR Country of tax residence: UK 1 TIN: Reason: Explanation: leave this blank B (The account holder is otherwise unable to obtain a TIN or equivalent number) The charity has not been issued with a TIN by HMRC. Where the charity has been issued with a UTR Country of tax residence: UK 1 TIN: Reason: Explanation: [Insert 10 digit HMRC Unique Taxpayer Reference Number] Leave blank Leave blank Part 4 Declaration and Signature This is straightforward and should be completed. 1 Very broadly, a charity is a UK charity if the majority of trustees are resident in the UK. 8

9 FATCA Form In many cases, the form that you receive will combine both FATCA and CRS requirements. In this case, treat the form primarily as a CRS form. The terminology used is very similar, but not identical. Where you would otherwise state that your charity is an Active Non Financial Entity (Active NFE) under the CRS, you will refer to your charity as an Active Non Financial Foreign Entity (Active NFFE) under FATCA. The FATCA part of the form may ask if the entity completing the form is a certified Deemed Compliant Foreign Financial Institution (e.g. a registered charity). This should NOT be ticked unless your charity is, exceptionally, a Financial Institution (for which, see Appendix 2). 9

10 Appendix 1: CRS Template Questionnaire Entity tax residency self-certification form INSTRUCTIONS CRS - E Please read these instructions before completing the form. Regulations based on the OECD Common Reporting Standard ( CRS ) ] require [insert Financial Institutions or insert the individual Financial Institution s name] to collect and report certain information about an account holder s tax residency. If your tax residence (or the account holder, if you are completing the form on their behalf) is located outside [insert : individual country name (e.g. Italy) or following text the country where the FI maintaining the account is located ], we may be legally obliged to pass on the information in this form and other financial information with respect to your financial accounts to [insert: name of local tax authorities (e.g. HMRC) or text the tax authorities in the country where the FI is located ] and they may exchange this information with tax authorities of another jurisdiction or jurisdictions pursuant to intergovernmental agreements to exchange financial account information. You can find definitions of who is classified as an account holder, and other terms, in the Appendix. This form will remain valid unless there is a change in circumstances relating to information, such as the account holder s tax status or other mandatory field information that makes this form incorrect or incomplete. In that case you must notify us and provide an updated self-certification. This form is intended to request information consistent with local law requirements. Please complete this form where you need to self-certify on behalf of an entity account holder. If you are an individual account holder or sole trader or sole proprietor do not complete this form. Instead please complete an Individual tax residency self-certification form. For joint or multiple account holders please complete a separate form for each account holder. If the Account Holder is a U.S. tax resident under U.S. law, you should indicate that you are a U.S. tax resident on this form and you may also need to fill in an IRS W-9 form. For more information on tax residence, please consult your tax adviser or the information at the following link: [OECD AEOI Portal]. Where the Account Holder is a Passive NFE, or an Investment Entity located in a Non-Participating Jurisdiction managed by another Financial Institution Please provide information on the natural person(s) who exercise control over the Account Holder (individuals referred to as Controlling Person(s) ) by completing a Controlling Person tax residency self-certification form for each Controlling Person. This information should be provided by all Investment Entities located in a Non-Participating Jurisdiction and managed by another Financial Institution. If you are completing the form on the Account Holder s behalf, Then you should indicate the capacity in which you have signed in Part 4. For example you may be the custodian or nominee of an account on behalf of the account holder, or you may be completing the form under a signatory authority or power of attorney. As a financial institution, we are not allowed to give tax advice. If you have any questions about this form, these instructions, or defining your tax residency status, please speak to your tax adviser or local tax authority. You can also find out more, including a list of jurisdictions that have signed agreements to automatically exchange information, along with details about the information being requested, on the OECD automatic exchange of information portal. 10

11 Entity tax residency self-certification FORM - (please complete parts 1-3 in BLOCK CAPITALS) Part 1 Identification of Account Holder A. Legal Name of Entity/Branch* B. Country of incorporation or organisation C. Current Residence Address Line 1 (e.g. House/Apt/Suite Name, Number, Street, if any)* Line 2 (e.g. Town/City/Province/County/State)* Country * Postal Code/ZIP Code (if any)* D. Mailing Address (please only complete if different to the address shown in Section C above) Line 1 (e.g. House/Apt/Suite Name, Number, Street) Line 2 (e.g. Town/City/Province/County/State) Country Postal Code/ZIP Code Part 2 Entity Type Please provide the Account Holder s Status by ticking one of the following boxes. 1. (a) Financial Institution Investment Entity i. An Investment Entity located in a Non-Participating Jurisdiction and managed by another Financial Institution (Note: if ticking this box please also complete Part 2(2) below) ii. Other Investment Entity (b) Financial Institution Depository Institution, Custodial Institution or Specified Insurance Company If you have ticked (a) or (b) above, please provide, if held, the Account Holder s Global Intermediary Identification Number ( GIIN ) obtained for FATCA purposes.... Page 2 of 5

12 (c) Active NFE a corporation the stock of which is regularly traded on an established securities market or a corporation which is a related entity of such a corporation If you have ticked (c), please provide the name of the established securities market on which the corporation is regularly traded: If you are a Related Entity of a regularly traded corporation, please provide the name of the regularly traded corporation that the Entity in (c) is a Related Entity of: (d) Active NFE a Government Entity or Central Bank (e) Active NFE an International Organisation (f) Active NFE other than (c)-(e) (for example a start-up NFE or a non-profit NFE) (g) Passive NFE (Note: if ticking this box please also complete Part 2(2) below) 2. If you have ticked 1(a)(i) or 1(g) above, then please: a. Indicate the name of any Controlling Person(s) of the Account Holder:* b. Complete Controlling Person tax residency self-certification form for each Controlling Person.* Please see the definition of Controlling Person in Appendix Page 3 of 5

13 Part 3 Country of Residence for Tax Purposes and related Taxpayer Identification Number or functional equivalent* ( TIN ) (see Appendix) Please complete the following table indicating (i) where the Account Holder is tax resident and (ii) the Account Holder s TIN for each Reportable Jurisdiction indicated. Jurisdictions adopting the wider approach may require that the self-certification include a tax identifying number for each jurisdiction of residence (rather than for each Reportable Jurisdiction). If the Account Holder is not tax resident in any jurisdiction (e.g., because it is fiscally transparent), please indicate that on line 1 and provide its place of effective management or country in which its principal office is located. If the Account Holder is tax resident in more than three countries please use a separate sheet If a TIN is unavailable please provide the appropriate reason A, B or C where appropriate: Reason A - The country where I am liable to pay tax does not issue TINs to its residents Reason B - The Account Holder is otherwise unable to obtain a TIN or equivalent number(please explain why you are unable to obtain a TIN in the below table if you have selected this reason) Reason C - No TIN is required. (Note: Only select this reason if the domestic law of the relevant jurisdiction does not require the collection of the TIN issued by such jurisdiction) Country of tax residence TIN If no TIN available enter Reason A,B or C Please explain in the following boxes why you are unable to obtain a TIN if you selected Reason B above Page 4 of 5

14 Part 4 Declaration and signature* I understand that the information supplied by me is covered by the full provisions of the terms and conditions governing the Account Holder s relationship with [insert following text the Financial Institution that maintains the account or insert FI s name] setting out how [that Financial Institution /insert FI s name] may use and share the information supplied by me. I acknowledge that the information contained in this form and information regarding the Account Holder and any Reportable 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 the Account Holder may be tax resident pursuant to intergovernmental agreements to exchange financial account information with the country/ies in which this account(s) is/are maintained. I certify that I am authorised to sign for the Account Holder in respect of all the account(s) to which this form relates. I declare that all statements made in this declaration are, to the best of my knowledge and belief, correct and complete. I undertake to advise [the Financial Institution/insert FI s name] within [XX] days of any change in circumstances which affects the tax residency status of the Account Holder identified in Part 1 of this form or causes the information contained herein to become incorrect or incomplete (including any changes to the information on controlling persons identified in Part 2 question 2a), and to provide [the Financial Institution that maintains the account/fi s name] with a suitably updated self-certification and Declaration within [up to XX] days of such change in circumstances. Signature:* Print name:* Date:* (dd/mm/yyyy) Note: Please indicate the capacity in which you are signing the form (for example Authorised Officer ). If signing under a power of attorney please also attach a certified copy of the power of attorney. Capacity: * INTERNAL - Page 5 of 5

15 Appendix 2: Charities that have further CRS obligations Which charities are affected? Some charities that rely heavily on investment income rather than donated income would be classified under the CRS as investment entities. As such, they potentially have additional obligations under the CRS and related agreements, meaning that the charity will have to supply information on financial accounts to HMRC. An investment entity is one of several forms of Financial Institution. So, charities can, in certain circumstances (outlined below), be regarded under the CRS (and FATCA) as investment entities and, as a result, a Financial Institution. However, HMRC has now 2 confirmed that a charity that is a Financial Institution, but is formed as a charitable company, will have no reporting obligations under the CRS. For the position under FATCA, see below. Where a charitable trust is regarded as an Investment Enitity (and, therefore, a Financial Institution ), recipients of grants from that charity will be regarded as account holders and the charity will need to report on those account holders to HMRC, having carried out appropriate due diligence on each grant recipient and obtained information on their tax residence, etc. in accordance with the principles outlined in the main body of this paper. When will a charity be classified as an Investment Entity? In broad terms, a charity, or other not for profit association, may fall within the definition of an Investment Entity where it is: managed by a Financial Institution, and more than 50% of its income comes from investing in financial assets. Relevant income would include interest, dividends, royalties, annuities and other income from investing in financial assets. In arriving at the proportion of income from investment, this is compared to all sources of income, including donations. Example 1: Charity A has the following income sources: Donations 100,000 Dividends and other income from investment portfolio 2,000 Interest income 500 In this example, Charity A is nowhere near falling within the definition of an Investment Entity, as it does not derive a majority of income from investment activity. 2 Late June

16 Example 2: Charity B is an endowed charity. As such, it has a large historic investment portfolio. It sources of income are as follows: Donations 20,000 Dividends and other income from investment portfolio 20,000 Interest income 500 Here, investment income amounts to 50.6%. If any of the financial assets giving rise to the above investment income are managed by a Financial Institution, then Charity B is likely to be classed as an Investment Entity. If they provide grants to recipients from this income, they are likely to have to carry out due diligence on those recipients and ask them to self certify their tax residence, TIN, etc. There is presently no de minimis level of grant. Charity B would then have to provide information to HMRC in order for them to fulfil their Automatic Exchange of Information obligations. This is done using an online submission, for which there are penalties for delayed / incorrect returns etc. HMRC Guidance HMRC has recently published guidance for charities on the Automatic Exchange of Information regime. Their Internal Manual provides further detailed information on Investment Entities in the context of charities at IEIM The guidance for charities describes the charity s due diligence and reporting obligations in more detail and gives a link to the online reporting portal. At the time of writing, this guidance does not yet reflect HMRC s agreement that company charities have no reporting obligations under the CRS. FATCA forms Under FATCA, registered 3 charities in the UK are treated as Deemed Compliant Foreign Financial Institutions under an Inter-Governmental Agreement (or IGA) between the Governments of the United Kingdom and the United States of America, which means that they are exempt from the requirements of FATCA and do not need to report on accounts held, or withhold tax, in accordance with the provisions of FATCA. This applies to all registered charities, whether they are formed as charitable companies or charitable trusts. Therefore, charities that are also investment entities (and, therefore, Financial Institutions ) should tick the box on the FATCA part of the form that confirms that they are a Certified Deemed Compliant Foreign Financial Institution. 3 Under the Inter-Government Agreement between the UK and USA Governments, a registered charity refers to one registered with the Charity Commission in England & Wales, with OSCR or with HMRC for charitable tax purposes.