FATCA the final countdown

Transcription

1 TISA FATCA the final countdown 3 June 2013 Current state of play Year March 2010 What has been published? 2010 March 2010 Foreign Account Tax Compliance Act Aug 2010, April + July 2011 Notices 2012 February 2012 Proposed regulations Summer 2012 Various draft forms July 2012 Model I InterGovernmental Agreement (IGA) September 2012 UK US IGA October 2012 Announcement November 2012 Model II IGA and Revised Model I 2013 UK Draft Regulations (International Tax Compliance (USA) Regulations 2013), Draft December 2012 Guidance Notes and Summary of Responses from the consultation 17 January 2013 Final Regulations April 2013 HM Treasury announcement on multi-lateral information exchange 31 May 2013 Final Regulations and guidance from HMRC? Still to come? Local IGA legislation Local IGA Guidance Standard FFI agreement Final IRS Forms W-8 Multi-lateral FATCA 1

2 Clydesdale Bank - FATCA Level Setting As of 12 Feb 2013 FATCA timeline for FFIs under UK IGAs / 2018 FFI governance July IRS FATCA registration portal available (Note 2) Oct Last day to register for inclusion on the Dec 2, 2013 IRS list of PFFIs and RDCFFIs Dec First IRS list of PFFIs and RDCFFIs to be published Jan Earliest date that an FFI can be a Partner Country FI Due diligence for preexisting accounts Dec Complete identification and review of preexisting high value individual accounts (Note 3) Dec Complete identification and review of all remaining preexisting individual and entity accounts (Note 3) Procedures for new accounts Withholding (Note 5) Jan Enhanced account opening procedures must be in place to establish the FATCA status of new accounts (Note 4) Jan Begin FATCA withholding on US source FDAP income for NPFIs (Note 5) Jan Cut-off date for grandfathered obligations (Note 6) Reporting Prior to Sep 30, 2015 Reporting FATCA Partner FI will need to provide required information to FATCA Partner prior to IGA deadlines in order for FATCA Partner to be able to meet corresponding deadlines (Note 7, 8) 2016 Reporting FATCA Partner FI to report to FATCA Partner Country the name and the aggregate amount of payments made in 2015 and 2016 to NPFI (Note 7) 2018 Reporting FATCA Partner FI to obtain and report TIN of each specified US account holder for preexisting accounts (Note 7) (1) IGA: Intergovernmental Agreement. (2) The IRS has committed to making the FATCA registration portal available no later than July 15, Thus, it could be available earlier. (3) Due diligence for pre-existing Accounts is subject to the application of thresholds (4) Dates for withholding on gross proceeds and passthru payments are highly speculative and will be worked out between the US and FATCA partner countries in the next two years. (5) Withholding applies to US source income paid to nonparticipating financial institutions by reporting FATCA Pa rtner financial institutions acting as a withholding QI, withholding foreign partnership or withholding fore ign trust. Other reporting FATCA Finanical Institutions must provide information necessary to allow an immediate payor to withhold. (6) Generally applies to obligations that can produce a withholdable payment. Grandfathered obligations also include: (1) any obligation that gives rise to a w ithholdable payment solely because the obligation is t reated as giving rise to a dividend equivalent pursuant to section 871(m) and the regulations thereunder, provided that the obligation is executed on or before the date that is six months after the date on which obligation s of its type are first treated as giving rise to dividend equivalents; (2) with respect to foreign passthru payments, any obligation that is executed on or before the date that is six months after the date on which final regulations defining the term foreign passthru payment are filed with the federal register; and (3) any agreement requiring a secured party to make a payment with respect to, or to repay, collateral posted to secure a grandfathered obligation. (7) Dates will be provided under legislation or regulations issued by FATCA Partner tax authorities. (8) For 2013 and 2014 reporting is limited to: name, address, U.S. TIN (date of birth for preexisitng accounts if no U.S. TIN), account number, name and identifying number of the reporting institution, and account balance or value. For 2015 reporting includes the information reported for 2013 and 2014, plus the income paid to the account. For 2016 and beyond, reporting includes the information reported for 2015 plus proceeds from the sale of property. The FATCA Requirements Identify Financial Institutions (Legal Entity Analysis) Identify Financial Accounts (Financial i Account Analysis) Classify holders of pre-existing and new Financial Accounts Identity Reporting Requirements Confirm financial institution analysis Entity classification Determine which activities and products offered by FI s are Financial Accounts Financial Account analysis Pre-existing accounts classification Report information on Relevant accounts to relevant authority Implement governance and controls with appropriate assurance Compliance & assurance Achieve FATCA Compliance New account requirements Search pre-existing individual and entity accounts to classify them for FATCA purposes Identify information that will be reported as U.S. accounts Reporting Register with IRS as required Agreements & Procedures Ensure on-boarding Processes capture Self-Certification and agree approach to test reasonableness 2

3 Onboarding new accounts from How to identify US reportable accounts Individuals Under UK IGA ($50,000 de minimis threshold for certain new accounts) General requirements 1. Obtain a Self-Certification which may be part of the account opening documentation to determine whether the account holder is resident in the U.S. for tax purposes 2. Confirm reasonableness based on information obtained with the opening of the account, including any documentation collected for AML/KYC procedures If Self-Certification establishes that the account holder is resident in U.S. for tax purposes, treat as U.S. Reportable Account and obtain Self- Certification that includes the U.S. TIN Continue to monitor for changes in circumstances Entities Under UK IGA (no de minimis for new entity accounts) Through publicly held information, or information in its possession, determine whether account holder is: 1. A UK Financial Institution or an FI in another IGA jurisdiction, or 2. An Active NFFE In all other cases, the entity needs to be classified through Self-Certification, so that includes: 1. A Specified US person, 2. A Participating FFI 3. Deemed Compliant FFI 4. Exempt Beneficial Owner 5. Excepted FFI 6. Passive NFFE If identified as a NPFI, this is not a US reportable account but payments made need to be reported Classification of accounts Thresholds & Aggregation Before classifying accounts for FATCA - Various aggregated thresholds can reduce some classification / reporting obligations: $50,000 for pre-existing financial accounts held by individuals that aren t cash value insurance or annuities New depository accounts or cash value insurance contracts and annuities $250,000 for pre-existing financial accounts held by entities, and pre-existing cash value insurance and annuity contracts $1m pre-existing high value individual accounts Threshold for an ongoing annual check for preexisting accounts previously under the threshold pre-existing entity accounts that may require further validation If a Financial Institution does not make an election under the Regulations to apply the threshold exemptions, then it will need to review all pre-existing individual accounts. 3

4 Pre-existing account classification How to identify US reportable accounts... UK IGA Pre-existing Individual accounts Pre-existing Individual accounts 1. Electronically search for US indicia if none, nothing further 2. For High Value accounts also search paper file and Relationship Manager check 3. If US indicia on file require Self-Certification to confirm whether US person or not If review establishes that the account holder is resident in U.S. for tax purposes, treat as U.S. Reportable Account and obtain Self-Certification that includes the U.S. TIN UK IGA Pre-existing Entity (ie Trustheld, corporate) accounts Pre-existing Entity Accounts Undertake various steps to establish and document the type of entity holding the account for FATCA purposes, and for certain entities establish controlling persons : 1. Is entity a Specified US person? 2. Is entity a Financial Institution and if so, determine what type of FI? 3. Is entity a UK / other IGA jurisdiction FI? 4. Is entity a Non-participating FI? 5. If entity is a Non-Financial Foreign Entity (NFFE) is it Active or Passive? 6. If a Passive NFFE, you need to confirm controlling persons Evidence that needs to be held /obtained to justify above treatment can vary depending on type of entity. Reporting (Under the UK-US IGA) Reportable Year Information to be reported Reportable Account Reporting Payments made to NPFI Reporting Date to Report to HMRC Date that HMRC reports to IRS 2013 In relation to each specified US person that is the holder of a N/A 31 March Sep reportable account and in relation to each controlling person of an entity account who is a specified US person, the information i to be reported is: Name Address, US TIN (For Pre-Existing accounts a date of birth can be provided if no US TIN available) Account number (or functional equivalent) Name and identifying number of the reporting institution Account balance or value 31 May Sep In addition to the above: For Custodial Accounts - the total gross interest, total gross dividends and the total gross amount of other income generated with respect to the assets held in the account. For Depository Accounts - the total gross amount of the interest paid or credited to the Account For any other account - the total gross proceeds paid or credited to the Account Holder In addition to all the above: The total gross proceeds from the sale or redemption of property paid or credited to the Account 2017 All of the above TBC (Note 1) Name of the Non-Participating Financial Institution Total amount of payments made to each Non-Participating Financial Institution 31 May Sep 2016 Same as above 31 May Sep 2017 (1) Article 10 Term of Agreement specifies that Parties shall, prior to December 31, 2016, consult in good faith to amend this Agreement as necessary to reflect progress on the commitments set forth in Article 6. Article 6 highlights that the Parties are committed to work together to develop a practical and effective alternative approach to achieve the policy objectives of foreign passthru payment and gross proceeds withholding that minimizes burden. 4

5 US Indicia & Cure - Based on Guidance 10 May 2013 i. ii. iii. iv. v. vi. vii. Indicia of U.S. status Identification of the account holder as a US citizen or resident Unambiguous indication of a US place of birth Current US mailing or residence address (including P.O. Box) Current US telephone number / One or more US telephone numbers being numbers associated with the account Standing instruction to transfer funds to an account maintained in the US Current effective power of attorney or signatory authority granted to a person with a US address An in care of or hold mail address that is the sole address the Financial Institution holds for the account holder. Documentation to cure US Indicia A Self-Certification showing that the account holder is neither a US citizen nor a US resident for tax purposes, and Evidence of the account holder s citizenship or nationality in a country other than the US (for example passport or other government issued identification) A Self-Certification showing that the account holder is neither a US citizen nor a US resident for tax purposes. Evidence of the account holder s citizenship or nationality in a country other than the US (for example passport or other government-issued identification); and A copy of the account holder s Certificate of Loss of Nationality of the United States or a reasonable explanation of the reason the account holder does not have such a certificate or the reason the account holder did not obtain US citizenship at birth. A Self-Certification that the account holder is neither a US Citizen nor a US resident for tax purposes; and A form of acceptable documentary evidence which establishes the account holder s non US status. (See next Slide for acceptable documentary evidence) A Self-Certification that the account holder is neither a US Citizen nor a US resident for tax purposes; OR A form of acceptable documentary evidence which establishes the account holder s non US status. (See next Slide for acceptable documentary evidence) Acceptable Documentary Evidence - Based on Guidance 10 May 2013 Documentary Evidence Examples (if applicable) Individuals Entities i. A certificate of residence issued by an appropriate tax official of A Certificate issued by HMRC A Certificate issued by HMRC the country in which the payee claims to be resident ii. Any valid identification issued by an authorised Government body (for example, a government or agency thereof, or a municipality), that includes the individual s name and is typically used for identification purposes Driving Licence N/A iii. Any financial statement, third party credit report, bankruptcy filing, or US Securities and Exchange Commission report iv. For natural persons (one or more of the following documents): (a) Passport With respect to an account maintained in a jurisdiction with (b) National identity card anti-money laundering rules that have been approved by the (c) Armed Forces identity card IRS in connection with a Qualifying Intermediary Agreement (as (d) Driving licence described in relevant US Treasury Regulations), any of the (e) Shotgun certificate issued by documents set out in addition to a Form W-8 or W-9 referenced a UK police authority in the jurisdiction s attachment to the QI agreement as being acceptable for identifying individuals For legal persons: (a) For partnerships: a copy of the partnership agreement (b) For corporations: a copy of the certificate of incorporation or the memorandum and articles of association (c) For trusts: either a copy of the trust deed and any subsidiary deed evidencing the appointment and powers of trustees, or certified copies of extracts from the deeds 5

6 Self-Certification for Individuals Self-Certification may be used by a Financial Institution in relation to individual account holders as follows: To establish whether a holder of a New Individual Account is a US citizen or US resident for tax purposes, To obtain a US TIN from a new individual account holder who is a US resident for tax purposes, or, In order to show that an individual is not in fact a US citizen or US resident for tax purposes, even if US indicia are found in respect of a Lower Value or High Value Pre-existing Individual Account that they hold. A Self-Certification provided by an Account Holder cannot be relied upon if a Financial Institution has reason to know that it is incorrect or unreliable or there is a change in circumstance which changes the account holder s status. Self-Certification for Individuals -Format Format Self-Certification Requirements Follow up process Telephone Countries of tax residency Verify if they are / are not a US citizen Paperwork confirming: Countries of tax residency US TIN (if US person) US citizen ii / Non US Citizen ii confirmation Online Countries of tax residency N/A Verify if they are / are not a US citizen US TIN (if US person) Paper application form Countries of tax residency Verify if they are / are not a US citizen US TIN (if US person) In the absence of a valid Self-Certification being gprovided by the account holder, the account would become reportable. N/A 6

7 Non IRS forms for Individuals -Format Financial Institutions can use their own form instead of an official IRS form only where the replacement form contains the following information: The form must contain the following: The name and permanent residence address of the individual City/town and country of birth All countries that the individual is resident in for tax purposes Tax identification number(s) if available for each country listed The form must be dated and signed and should be accompanied by documentary evidence that supports the individual s status By asking the individual for their City / Town and Country of Birth PLUS their tax residency questions, this should cover the Financial Institution for future Multi lateral agreements Self-Certification for Entities Self-Certification is required in relation to entities as follows: If a Financial Institution cannot reasonably determine that the account holder is not a Specified US Person based on information in its possession or that is publicly available. Self-Certification can be used to establish the status of an entity where information indicates the account holder is a Specified US Person To establish the status of a Financial Institution that is neither a UK Financial Institution nor a Partner Jurisdiction Financial Institution, unless a Financial Institution s status can be established from an IRS published list To establish whether an entity is a Passive NFFE To establish the status of a Controlling Person of a Passive NFFE and whether or not they are a resident in the US for tax purposes 7

8 Relationship Manager - Based on Guidance 10 May 2013 When is the Relationship Manager involved? Only in identifying US persons within high value accounts (exceed $1,000,000 taking into account aggregation) What is the responsibility of the Relationship Manager? Highlight any knowledge that the account holder is a specified US person If the relationship manager knows that the account holder is a specified US person then the account must be reported unless the indicia can be cured Ensure that any change of circumstances, in respect to the high value account holder s FATCA status, that is made known to the Relationship Manager is captured in the new change of circumstances procedures For example, if a relationship manager is notified that the account holder has a new mailing address in the US, this would be a change in circumstance and the Financial Institution would either need to report the account or obtain the appropriate documentation to cure or repair that indicia Who is the Relationship Manager? A relationship manger is assumed to be any person who is an officer or other employee of the Financial Institution assigned responsibility for specific account holders on an ongoing basis, and who advises the account holders regarding their accounts and arranges for the overall provision of financial products, services and other related assistance. Aggregation When do the aggregation rules apply? Aggregation is required where the Financial Institution has elected to apply the thresholds in relation to Reportable Accounts and to identify High Value Accounts Requirement is to aggregate all Financial accounts maintained by it or Related Entity to the extent that the current computerised systems link the Financial Accounts by reference to a data element, for example a customer or taxpayer identification number that allows balances or values to be aggregated No requirement to aggregate where the system can link by a common identifier, but does not provide details of the balance or value of the accounts Aggregation is required where accounts can be linked by a data element and details of the balances are provided, but the system does not provide an aggregated balance Relationship Managers To establish whether an account is a High Value account in the case of any accounts that a relationship manager knows or has reason to know are directly or indirectly owned, controlled or established (other than in a fiduciary capacity) by the same person, aggregate all such accounts Exempt Products If a product is exempt from being treated as a Financial Account, it does not need to be included for the purposes of aggregation 8

9 Other key issues Allocation of roles and responsibilities Review and amendment of legal l agreements Review and amendment of service level agreements Sponsoring rules Registration Data Protection Multi lateral FATCA Questions Circular 230: This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding US Federal, state or local tax penalties that may be imposed on any taxpayer. This document has been prepared pursuant to an engagement between PricewaterhouseCoopers LLP and its client and is intended solely for the use and benefit of that client and not for reliance by any other person. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 9