FATCA: THE NEXT PHASE Thursday 05 March 2015 Martin Popplewell & Paul Woodman (Deloitte) Lorraine Wheeler (First Names Group) - Chair STEP Jersey is sponsored by: STEP Jersey FATCA The Next Phase Martin Popplewell Paul Woodman 5 March 2015 1
FATCA The Next Phase Agenda 1) Tax Information Exchange FATCA, CRS and the international backdrop. 2) FATCA Industry Activity where are we now? 3) Technical Update. 4) FATCA Reporting. 5) AML Updates. 6) The End Game Tax Information Exchange Requests. 3 Tax Information Exchange 4 2
A M E R I C A S E U R O P E, M I D D L E E A S T AND A F R I C A A S I A P A C I F I C 03/03/2015 Growth in Information Exchange Regimes Automatic exchange requirements have expanded rapidly and the Common Reporting Standard (CRS) is set to continue this upward trend Annual reporting by non-us FIs on US accounts First reporting 2015 Low number of accounts expected to be reported Annual reporting by CDOT* Financial Institutions on UK account holders Annual reporting by UK FIs on CD and Gib accounts First reporting 2016 Higher number of accounts expected to be reported Annual reporting by FIs on accounts resident in 90+ counterparty jurisdictions Global initiative led by the OECD to increase tax transparency First reporting 2017 Significant number of accounts expected to be reported Increasing number of practical challenges Filing multiple returns covering reportable accounts Managing relationships with multiple authorities and complying with data privacy laws Ensuring reports are filed in respect of all FIs and in the correct format *Guernsey, Isle of Man, Jersey, Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos Islands 5 CRS Who has signed up? Over 90 jurisdictions have committed to CRS with 58 early adopters going live in 2016 Anguilla* Antigua and Barbuda Argentina* Aruba Bahamas Barbados Belize Albania Andorra Austria Belgium* Bulgaria Croatia* Cyprus* Liechtenstein* Lithuania* Luxembourg* Malta* Mauritius* Monaco Netherlands* Australia Brunei Darussalam China Hong Kong India Indonesia Japan Bermuda* Brazil British Virgin Islands* Canada Cayman Islands* Chile Colombia* Costa Rica Curaçao* Dominica Grenada Mexico* Montserrat* Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Saint Martin Trinidad and Tobago Turks and Caicos Islands* Uruguay Czech Republic* Denmark* Estonia* Faroe Islands* Finland* France* Germany* Gibraltar* Greece* Greenland Guernsey* Hungary* Iceland* Ireland* Isle of Man* Israel Italy* Jersey* Latvia* Norway* Poland* Portugal* Qatar Romania* Russia San Marino* Saudi Arabia Seychelles Slovak Republic* Slovenia* South Africa* Spain * Sweden* Switzerland Turkey United Kingdom* United Arab Emirates South Korea* Macau Malaysia Marshall Islands New Zealand Niue Samoa Singapore Key Jurisdictions exchanging by 2017 Jurisdictions exchanging by 2018 6 *Signatories of multilateral CAA signed in Berlin; source: http://www.oecd.org/tax/exchange-of-tax-information/mcaa-signatories.pdf 3
CRS What information has been released? The CRS encompasses several key elements which form the legal basis for exchange between jurisdictions and outline the requirements for FIs Draft Council Directive amending EU laws to allow for AEOI EU DAC Competent Authority Agreement CRS Rules on the exchange of information Equivalent to main body of a FATCA IGA Common Reporting Standard Rules on the due diligence standards Similar to Annex 1 of a FATCA IGA Standard for transmitting info electronically Intended to overcome practical issues Schema Guidance Detailed guidance on the application of the CAA and CRS Including useful examples 7 How does CRS interact with FATCA? CRS is expected to replace UK FATCA but run in parallel with US FATCA, at least in the short-term Local jurisdictions will need to release local laws and guidance to implement CRS To date some draft laws have been released (e.g. Switzerland) and consultations conducted (e.g. UK) US FATCA 2014 1 Jul 14 14 2015 2016 2017 UK FATCA (CDOT) CRS 1 Jan 16 May/Jun 2015 First reporting for US FATCA May/Jun 2016 First reporting for UK FATCA May/Sep 2017 First reporting for CRS? 8 4
FATCA Industry Activity Where are we now? 9 FATCA Overview Relevant timings The timeline below highlights the key workstreams which from part of phase 1 and phase 2 of the FATCA project, with key deadlines highlighted in red. Workstream 2014 2015 2016 Phase 1 Classification of client entities Implement new onboarding procedures Strategy, communications and governance 30 June 2014 (31 Dec 2014 for entities under US FATCA) Phase 2 10 Notes Registration of FIs with IRS Customer classification and due diligence Reporting 1 30 June 2015 classification of pre-existing individual high value accounts completed 2 30 June 2016 classification of all other pre-existing accounts 3 30 June 2015 2014 US FATCA reporting 22 Dec 2014 in an IGA jurisdiction 1 2 3 4 4 30 June 2016 2015 US FATCA reporting, 2014 and 2015 UK FATCA Reporting 5
Industry Activity The current agenda 1) Remaining phase 1 issues to resolve Classification Registration Onboarding 2) Classification requests from banks and other counterparties 3) Approach to due diligence and searches Timeline to work towards? Apply thresholds? Document all clients or follow indicia led approach? Internal processes in regard to reason to know requirements 4) Reporting Understanding the rules and what is reportable Alternative Reporting Regime? XML reporting - the technology requirement 5) Client communications 11 Technical Update 12 6
Technical Update Updated CD Guidance notes issued 15 December 2014 (and updated Jersey Guidance Notes issued 3 February 2015) GSY JSY IOM Reporting Sponsored entities Due diligence General 1) Removal of requirement to report on benefits ( and / or benefit ) 2) Confirmation that no reporting for discretionary beneficiaries if not received distribution in period 3) Confirmation that nil returns will be required per reporting FI 4) Additional guidance on EBTs 5) Confirmation that sponsored investment entities need to register by 1 January 2016 6) Replacement of contractual arrangement with authorisation in regard to requirements to appoint a sponsoring entity 7) Review taking place in regard to the requirement to dissapply threshold elections 8) Onboarding required within a reasonable period 9) Transition period - reasonable efforts 13 FATCA Reporting 14 7
FATCA Reporting Fiduciary scenarios to watch out for 1) Discretionary trusts receipt of distributions 2) Mandatory distributions valuation of future distributions 3) Settlor excluded 4) Settlor not excluded 5) Company shareholders 6) Loans 7) EBTs (per updated guidance) 8) Benefits (per updated guidance) 9) Impact of de minimis thresholds 10)UK resident non-domiciled Alternative Reporting Regime? Survey results:- 15 Automatic Exchange of Information ( AEOI ) Registration (1/2) 16 8
Automatic Exchange of Information ( AEOI ) Registration (2/2) A1234567890 name@email.com FATCA Team 17 Automatic Exchange of Information ( AEOI ) Manage Users 18 9
AEOI Submit report 19 AEOI Data Validation - Unsuccessful 20 10
AEOI Data Validation - Successful 21 AEOI Submission 22 11
AEOI Submission History 23 AEOI Post Submission Email Receipt name@email.com 24 12
EU Fourth Anti-Money Laundering Directive what does it mean for Jersey? 25 EU Fourth Anti-Money Laundering Directive Beneficial ownership of companies and trusts Need / requirement for registers of beneficial ownership of companies and trusts was one of the more politically sensitive aspects of 4MLD. Agreement reached 16 December 2014 between the European Parliament, Presidency and Commission negotiators. Press release stated [4MLD] will for the first time oblige EU member states to maintain central registers [ ] on the ultimate beneficial owners of corporate and other legal entities, as well as trusts. Press release implied public access to registers, to any person or organisation with legitimate interest including, specifically, investigative journalists. Compromise text released 12 January 2015 more measured. 26 13
EU Fourth Anti-Money Laundering Directive Article 29 - Beneficial ownership of companies Requirement for adequate, accurate and current register of beneficial ownership of corporate and other legal entities incorporated in each member State. Choice of whether to make the register public or not. Information to be available to Competent Authority and Financial Intelligence Units ( FIUs ) without restriction. Also to persons or organisations with legitimate interest in accordance with data protection rules and not if such disclosure would expose the UBO to the risk of violence, blackmail, kidnapping, etc. Disclosure is purely on a domestic basis any cross-border access to the register would be under the usual mechanisms of DTA, TIEA, etc. 27 EU Fourth Anti-Money Laundering Directive Article 30 - Beneficial ownership of trusts Trustees required to hold adequate, accurate and current information on the beneficial ownership of trusts; Information includes identity of settlor, the trustee(s), the protector (if any), the beneficiaries, and any other natural person exercising control over the trust. Information to be accessible to competent authorities and FIUs in a timely manner and provided when required for AML purposes when the trustee forms a business relationship or carries out a relevant transaction. Information only required to be held in a central register when the trust generates tax consequences. Tax consequences interpreted to mean domestic tax consequences. Member States must allow unrestricted access to register for domestic Competent Authority and FIU, and may allow access for obliged entities. No requirement to allow access by other persons or organisations. 28 14
EU Fourth Anti-Money Laundering Directive What does it mean for Jersey? No obligation to adopt 4MLD (or any other EU Directive). Voluntary adoption of equivalent measures for a variety of reasons: Protect market access; Follows FATF recommendations; Political pressure; Good neighbour policy. No requirement for public register of ownership of trusts; central register requirement which Jersey already meets. Access by those with legitimate interest can be interpreted by each jurisdiction; must be in furtherance of objectives of Directive. No requirement for trust register unless tax consequence ; trustee information requirements already met under Jersey law. UK electioneering may muddy the waters? 29 Tax Information Exchange Agreement Requests the End Game 30 15
Tax Information Exchange The End Game 1) FATCA and CRS will lead to greater information in hands of tax authorities. 2) Jersey tax law includes wide reaching powers allowing Tax Office to ask for information from a person or from a third party. 3) Also includes provisions which allow powers to be used on requests received from other countries under international agreements. 4) These include DTAs and TIEAs between the States of Jersey and the government of another jurisdiction providing for obtaining and exchanging of information. 5) Jersey can only use powers if a request is made in relation to a specific person no fishing expeditions and all other means have been exhausted. 6) Request may start with an informal approach on voluntary basis. 7) Approach may then move to formal basis. 8) Request may require that there is no tipping off. 31 Contact Paul Woodman Director 01534 824208 prwoodman@deloitte.co.uk Martin Popplewell Senior Manager 01481 703229 mjpopplewell@deloitte.co.uk 32 16
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