Implications of FATCA for legal entities April 2015 Introduction FATCA and its context Page 3 Section 1 Application variants and entities concerned Page 4 Section 2 Classification of entities under FATCA Page 6 Section 3 Forms and documentation Page 9 Section 4 Decision tool Page 12 Annex Glossary FAQ Page 13 fifatcainfcheen_v1.0b_23032015bp
DISCLAIMER This document is for general information only and aims to remain as objective as possible regarding the key elements of FATCA. The content is provided by way of example and does not claim to be exhaustive. It should not be interpreted as advice or guidance in respect of the actions to be taken by clients concerning FATCA. Moreover, the information contained herein is likely to change in the future. The sources used to draft this document were the FATCA Final Regulations, information on the IRS website about IGAs and IRS Notices regarding FATCA.
Contents Introduction 3 FATCA and its context Section 1 4 Entities concerned by the different FATCA statuses Section 2 6 Classification of entities under FATCA Entities classified as Foreign Financial Institutions (FFI) Entities in a country with an Intergovernmental Agreement Entities opting for the status of Participating FFI Entities opting for the status of Sponsored FFI or Trustee-Documented Trust Entities opting for the status of ODFFI (Owner-Documented FFI) Non-Financial Foreign Entities (NFFEs) Section 3 9 Forms used to document the FATCA & QI status of entities Section 4 10 Decision tool for classifying entities Annex 13 Glossary FAQ 1
Introduction: FATCA and its context Purpose of this document FATCA (Foreign Account Tax Compliance Act) forms an integral part of the HIRE Act (Hiring Incentives to Restore Employment Act) adopted by the US Congress and signed into law by US President Barack Obama on 18 March 2010. The primary objective of FATCA is to combat tax evasion by US Persons (see definition in Glossary below). FATCA places the onus on banking and financial institutions worldwide to identify and report information on US Persons to the US Internal Revenue Service (IRS). Any US Person who does not consent to their identity and information being reported to the IRS will qualify as noncompliant or recalcitrant, and a 30% withholding tax will be applied to all US source income and gross proceeds from the disposal of US assets. All financial intermediaries must comply with the FATCA requirements imposed by the United States, unless they are willing to be barred completely from the US currency and US securities markets. To fulfill their obligations under FATCA regulations, banks such as those of the Pictet Group must document the US or non-us status of individual account holders as well as the FATCA status of entity account holders, before the account can be opened. This document gives an overview of the implications of FATCA for entities holding financial assets. It is particularly intended for the legal owners of entities that are used for wealth planning purposes or that hold private assets, as well as for those responsible for administrating and managing such entities. The document is divided into the following sections: SECTION 1 Entities concerned by FATCA and the different FATCA statuses. SECTION 2 How various entities are classified under FATCA. SECTION 3 Forms used to document the FATCA and QI status of entities. SECTION 4 Decision tool for classifying entities. ANNEX Glossary of the FATCA-specific terms used in this document. Terms defined in the glossary are indicated in bold in the text. Frequently asked questions. This document only gives an overview of FATCA; the entire legislation is extremely complex and involves numerous other cases which are not described here. The onus is on clients to contact and seek advice from a tax expert or lawyer, if necessary, to determine their FATCA status and related obligations. Introduction Section 1 Section 2 Section 3 Section 4 Annex 3
Section 1: Entities concerned and the different FATCA statuses FATCA is a US federal law with far-reaching extraterritorial implications. Numerous countries have negotiated and signed agreements with the United States aimed at facilitating the implementation of FATCA into their national law. These agreements are known as Intergovernmental Agreements or IGAs. Some of the signatory countries have agreed with the United States to introduce a system of automatic exchange of information (Model 1 IGA). Entities in these countries have to collect and consolidate information concerning US Persons at a national level. They report this information to their own tax authorities, which then forward the information to the IRS. Other countries, such as Switzerland, Hong Kong and Japan, have opted for a Model 2 IGA. This model requires each bank and financial institution incorporated in the signatory country to report its information on US Persons directly to the IRS. Some IGAs may also provide for special statuses for entities incorporated in their jurisdictions (e.g. trustee documented trusts in some jurisdictions), exemptions for certain types of investment vehicles, and special conditions regarding the application of certain statuses under FATCA. Entities located in countries that have signed an IGA should refer to that agreement to take account of any specific conditions. Entities incorporated in countries that have not signed an IGA are directly subject to the FATCA rules as issued by the United States. An updated list of countries that have signed an IGA with the United States can be found on the IRS website at www.irs.gov/fatca Entities holding and/or managing financial assets deposited with a financial institution are subject to FATCA, even if none of the beneficial owners are a US Person (i.e. a US taxpayer). The treatment of US entities is not covered in this document. The crucial distinction to be made under FATCA is to determine whether an entity qualifies as a non-us financial institution (Foreign Financial Institution - FFI) or as a Non-Financial Foreign Entity (NFFE). The definition of FFI covers the following categories: Financial institutions such as banks, custodians, life-insurance companies, investment managers and investment funds; Investment entities of all types, subject to certain conditions detailed in the following section. 4 FATCA legislation: Implications for legal entities
FFI Qualification and obligations Entities such as holding companies, trusts and foundations also qualify as FFIs if they meet all of the following conditions: they hold, administer, invest in or manage financial assets; and their income mainly derives from their financial activities; and they are professionally managed (e.g. by a professional trustee, a professional company director, or by way of a management mandate granted to another FFI, such as a bank or wealth manager). Entities that do not qualify as FFIs are thus considered Non-Financial Foreign Entities (NFFEs). FFIs are required to determine their FATCA classification based on their situation. They must also: Register with the IRS as a participating financial institution under certain circumstances; Determine whether their legal owners or beneficial owners include any US Persons; and Provide their national tax authorities (Model 1 IGA) or the IRS directly (Model 2 IGA or no IGA) with certain information regarding legal owners or beneficial owners who are US Persons (i.e. US taxpayers). Entity IGA FFI Final Regs NFFE Active NFFE Passive NFFE Reporting FI Non-Reporting FI Qualification based on IGA rules FI FI FI FI Participating FI FI Qualification based on IRS Regulations Tax-exempt organisations Some entities are exempt from FATCA obligations, such as foreign central banks, diplomatic missions, retirement funds and international organizations. These entities qualify as Exempt Beneficial Owners, subject to specific conditions. Non-profit organizations established and maintained in their country of residence exclusively for religious, charitable, scientific, artistic, cultural or educational purposes; that are exempt from income tax in their country of residence; and that are forbidden, under local regulation, to distribute any benefits to private persons or non-charitable entities are also exempt from the FATCA requirements. Such entities qualify for Non-Profit Organization status under FATCA regulations. Such tax-exempt organizations, when listed in appendix II of the IGA applicable to their jurisdiction, sometimes qualify as Active NFFEs (except under the Swiss IGA, where such organizations are treated as Non-Reporting IGA FFIs). Introduction Section 1 Section 2 Section 3 Section 4 Annex 5
Section 2: Classification of entities under FATCA Entities classified as FFIs Entities that are clients of the Bank will have to certify their classification under the FATCA rules, even if there are no US Persons (i.e. US taxpayers) qualifying directly or indirectly as beneficial owners within the entity. Client entities considered to be FFIs have to document their chosen FATCA status to the Bank. While numerous statuses are possible, this document covers only the most relevant statuses for private wealth entities, which are: Reporting Model 1 or 2 FFIs Participating FFIs(PFFIs) Sponsored FFIs and Trustee-Documented Trusts, and Owner-Documented FFIs(ODFFIs) We reiterate our suggestion to seek the advice of a tax expert or lawyer, as the particular circumstances of your entity could be best served by another status not covered in this document. Entities in a country with an IGA Entities incorporated in a country with an IGA are subject to the specific qualifying and reporting rules applicable in that jurisdiction. The entity concerned must determine its obligations based on the provisions of the agreement between its country of incorporation and the United States. If the entity has a registration and/or reporting obligation under an IGA, it will qualify either as a Reporting Model 1 FFI or a Reporting Model 2 FFI. Entities incorporated in a country that has signed a Model 1 IGA are required to report the information about the accounts held or beneficially owned by US Persons (so-called US Accounts ) to their local tax authorities. The local tax authorities will then report the required information to the IRS. In this case, the only requirement for the entity concerned is to confirm to the Bank that it does report the required information directly to the local tax authorities. This confirmation is usually provided through IRS Form W-8 or another equivalent bank form (see Section 3 for further details). The same rules described above for entities located in Model 1 IGA countries also apply to entities incorporated or organized in Model 2 IGA jurisdictions; except that entities subject to reporting requirements must provide the information relating to their US Accounts directly to the IRS rather than the local authorities. A certain number of entities are classified as deemed-compliant and, provided they meet the requirements of the IGA applicable to them, are exempt from most FATCA requirements. These types of entities are listed in appendix II of the IGA signed by their country of incorporation. Such deemed-compliant entities are designated as Non-Reporting IGA FFIs. Entities opting for the status of Participating FFI A Participating FFI (PFFI) assumes all FATCA obligations itself, including establishing the identity of and documenting any US Person holding an economic interest in the entity, reporting the related information to the IRS and, in certain cases, levying the 30% withholding tax (see the FAQ section for more information on reporting to the IRS). These requirements also apply to FFIs that need to register under an applicable IGA. In this case, the entity directly registers on the IRS website and agrees to comply with the FATCA requirements in order to be allocated its own Global Intermediary Identification Number (GIIN). The entity then confirms its status to the Bank using IRS Form W-8, indicating its GIIN. 6 FATCA legislation: Implications for legal entities
In opting for this category, the entity will have to comply with the FATCA requirements. Considering these requirements, this status is best suited for large entities which are managed by experienced professionals familiar with US tax law (e.g. family office, wealth manager, professional administrator) and which often have US beneficial owners. Entities opting for the status of Sponsored FFI The second option is to delegate the responsibility for complying with all FATCA obligations to a third party, known as the sponsor. An entity is eligible for this status only if it meets the following conditions: It must find a sponsor willing to undertake all FATCA obligations on its behalf. The sponsor must register with the IRS and obtain an ID number (GIIN) specific to its sponsoring role. The sponsor must comply with all FATCA requirements on behalf of the entity, in particular establishing the identity of and documenting any US Person holding an economic interest in the entity, reporting the related information to the IRS and, in certain cases, levying the 30% withholding tax (see the FAQ section for more information on reporting to the IRS). As a close connection is required between the sponsored entity and the sponsor, this status is best suited for entities under the administration of trustee companies, fiduciary companies, family offices or wealth managers. An entity choosing this option is required to provide the Bank with its sponsor's GIIN using IRS Form W-8 (see Section 3 for more information about forms and documentation). However, if the sponsored entity has more than 20 beneficial owners, it must also register with the IRS and obtain its own GIIN, which should be communicated to the Bank. The Bank does not offer sponsoring services. Trusteedocumented trust Entities opting for the status of ODFFI (Owner- Documented FFI) A Trustee-Documented Trust is a certified deemed-compliant status for FFIs under certain IGAs. A Trustee-Documented Trust is a trust, established under the laws of the relevant IGA jurisdiction, to the extent that the trustee is a reporting US FI, a reporting Model 1 FFI or a Participating FFI, and reports all information required to be reported pursuant to the IGA with respect to all US reportable accounts of the trust. This status enables the Owner Documented FFI to delegate its FATCA reporting obligations to its bank, which is then responsible for reporting any information on US Persons to the IRS. The ODFFI status is subject to fulfillment of the following conditions: This status is obtained on the basis of an agreement between the Bank and the entity. The Bank reserves the right to determine the conditions and circumstances under which it provides this service to its clients. The entity should not be affiliated with a banking, financial or insurance group or act as intermediary. All of the entity's bank accounts must be held exclusively with financial institutions that are FATCA compliant, such as Participating FFIs. The entity must provide the Bank, amongst others, with complete and exhaustive information on all of its US and non-us beneficial owners as well as the appropriate documentation required by FATCA on each of its beneficial owners, whether US or not. The entity must also immediately inform the Bank of any changes in its beneficial owners. Introduction Section 1 Section 2 Section 3 Section 4 Annex 7
Considering the administrative burden, this service may be provided by the Bank in return for a fee, and subject to if the entity concerned agreeing to provide complete and exhaustive documentation on the entity and its beneficial owners, as well as to notify the Bank of any changes in this respect. Non-Financial Foreign Entities (NFFEs) An entity that is not engaged in a financial activity, is not professionally managed or does not primarily invest in financial assets will be classified as a Non-Financial Foreign Entity (NFFE). Entities that are engaged in a business (apart from financial) or industrial activity and have their own personnel and infrastructure are considered to be active. Active NFFEs are not subject to FATCA obligations. However, such entities are still required to confirm their status of Active NFFE to the Bank using the form Certification for NFFE (see Section 3 for more information on forms and documentation). Entities not considered active are classified as Passive NFFEs and must fulfill certain FATCA obligations. In particular, they must identify and report to the Bank all of their Controlling Persons and indicate which of these are US Persons (if any). The account holder must provide the Bank with the documents required by FATCA, for both the entity and each Controlling Person. The term Controlling Person means the natural person who exercises control over an entity. For a corporation, this will be the ultimate shareholders. For a partnership, the partners are considered to be the Controlling Persons. In the case of a trust such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries and any other natural person exercising ultimate effective control over the trust. In the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. Should the entity have any Controlling Person that is a US Person, then information relating to that person, as well as the account holder, must be provided to the IRS. If the Passive NFFE does not have any US Controlling Person, it must still confirm this to the Bank. If it fails to do so, it will be considered a recalcitrant or non-consenting legal owner under FATCA and will be subject to a 30% withholding tax on all US source income and gross proceeds from the disposal of US assets. Depending on the applicable IGA, the identity of its beneficial owners will be disclosed to the IRS either automatically or, more likely, by way of a group request for mutual administration assistance. 8 FATCA legislation: Implications for legal entities
Section 3: Forms and documentation An entity s FATCA status will, in most cases, be documented on an IRS form, such as form W-8BEN-E, W-8IMY or W-8EXP. There are, however, special cases where IRS forms cannot be used or need to be completed with additional documentation. One such case is NFFEs. As a result of the definitions of Active NFFEs and Passive NFFEs being modified by the IGAs to which the Bank is subject, NFFEs cannot use IRS forms but, instead, need to complete a replacement form called Certification for Non-Financial Foreign Entities (NFFE Certification). In addition, for Passive NFFEs, the non-us or US status of each Controlling Person must also be documented on a specific form. Except for entities that qualify as an NFFE, all other entities will document their FATCA status on an IRS form. The IRS form to be used will depend, however, on the entity s classification under US tax principles: Form W-8BEN-E is used by entities that are considered the beneficial owner of the income; i.e. entities that are subject to tax on their own on the financial revenues they receive. This will usually be the case for irrevocable and discretionary trusts ('complex trust') and corporate entities,, unless the entity acts as an intermediary, nominee or fiduciary. Form W-8IMY is used by entities that are transparent for tax purposes; meaning that the entity itself is not liable for tax, but rather the owners of the entity. Typical examples are partnerships and trusts qualifying as a grantor trust or simple trust under US tax principles. In addition to form W-8IMY, the partnership, grantor or simple trust must also provide a Withholding Statement and, for each of its owners, a certification as to the non-us or US status of the latter. Form W-8EXP is used by exempt beneficial owners, such as governments, central banks of issue and international organizations. Entities that opt for the ODFFI status will also have to sign an ODFFI Agreement with the Bank, in addition to the relevant IRS forms and related documentations described above. The table below provides an overview of the documentation requirements that are most frequently encountered in practice: NFFE ODFFI Other FATCA status If the entity is the taxpayer NFFE Certification Non-US/US Status form, for each Controlling Person if Passive NFFE W-8BEN-E ODFFI Agreement Non-US/US Status form, for each owner of the entity W-8BEN-E If the entity is tax transparent NFFE Certification Withholding Statement Non-US/US Status form, for each Controlling Person if Passive NFFE W-8IMY ODFFI Agreement Non-US/US Status form, for each beneficial owner of the entity W-8IMY Withholding Statement Non-US/US Status form, for each beneficial owner of the entity Introduction Section 1 Section 2 Section 3 Section 4 Annex 9
Section 4: Decision tool This section should serve as a decision tool for determining an entity s FATCA classification. Under no circumstances should it be considered a service of advice provided by the Bank. Entity is located in an IGA jurisdiction Entity is not located in an IGA jurisdiction A. The Entity is already registered with the IRS and already has a GIIN (Global Intermediary Identification Number). The entity s FATCA status is the status it indicated when it registered with the IRS. B. Is the Entity a tax-exempt organization that meets all of the following? a. It is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organization, business league, chamber of commerce, labor organization, agricultural or horticultural organization, civic league or an organization operated exclusively for the promotion of social welfare; b. It is exempt from income tax in its jurisdiction of residence; c. It has no shareholders or members who have a proprietary or beneficial interest in its income or assets; d. The applicable laws of the Entity s jurisdiction of residence or the Entity s formation documents do not permit any income or assets of the Entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the Entity s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the Entity has purchased; and e. The applicable laws of the Entity s jurisdiction of residence or the Entity s formation documents require that, upon the Entity s liquidation or dissolution, all of its assets be distributed to a governmental entity or other non-profit organization, or escheat to the government of the Entity s jurisdiction of residence or any political subdivision thereof? Yes, Entity is an Active NFFE or, if based in Switzerland, a Non- Reporting IGA FFI Yes, Entity is a Non-Profit Organization C. The Entity operates a business, other than in the financial sector, with its own personnel and infrastructure, and less than 50% of the Entity s gross income and assets are of a financial nature. Yes, Entity is an Active NFFE Yes, Entity is an Active NFFE 10 FATCA legislation: Implications for legal entities
D. The Entity acts as a holding company or provides financing or services to an affiliate that is not a Financial Institution and the Entity does not function (or holds itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes. Yes, Entity is an Active NFFE Yes, Entity is an Excepted Inter-Affiliate FFI E. The majority of the Entity s assets are composed of financial assets (such as money market instruments, foreign exchange; bonds, shares and other transferable securities; commodity futures, etc.) but the Entity has not provided a discretionary mandate to a professional investment advisor (e.g., an asset manager or bank) and is not managed by some other professional management company (e.g. corporate trustee or corporate directors). Yes, Entity is a Passive NFFE Yes, Entity is a Passive NFFE F. All of the following apply to the Entity: a. The Entity is a trust. b. The Entity is established in one of the following jurisdictions: Australia, British Virgin Islands, Cayman Islands, Costa Rica, Czech Republic, Estonia, Gibraltar, Guernsey, Hungary, Honduras, Isle of Man, Israel, Jamaica, Jersey, Latvia, Liechtenstein, Lithuania, Malta, Mauritius, New Zealand, South Africa, Sweden, Austria or Bermuda [subject to new IGA jurisdictions being added]. c. The Entity s trustee will conduct all reporting required by the IGA on behalf of the Entity. Yes (to all), Entity is a Non- Reporting IGA FFI Trustee- Documented Trust N/A Note: the Entity should review its jurisdiction s IGA implementing guidance or local law to determine whether it is established in such jurisdiction (e.g., local implementing guidance in several IGA jurisdictions provides that a trust is established in the jurisdiction in which its trustee is located). G. The Entity has entered into an agreement with a sponsoring entity, where such sponsoring entity will perform all FATCA obligations on the Entity s behalf, and the Entity has 20 or fewer individuals owning any interest in the Entity. Yes, Entity is a Non-Reporting IGA FFI Sponsored, Closely Held Vehicle Yes, Entity is a Certified Deemed- Compliant Sponsored, Closely Held Vehicle Introduction Section 1 Section 2 Section 3 Section 4 Annex 11
H. The Entity has entered into an agreement with a sponsoring entity, where such sponsoring entity will perform all FATCA obligations on the Entity s behalf, and the Entity has more than 20 individuals owning an interest in the Entity. Note: depending on its jurisdiction, the Entity may need to register with the IRS and obtain a GIIN by 31.12.2015. Please contact your tax advisor for assistance with the registration process. Yes, Entity is a Non-Reporting IGA FFI Sponsored, Investment Entity Yes, Entity is a Sponsored FFI that has not obtained a GIIN I. Do all of the following apply to the Entity? a. The Bank has agreed (or proposes) to perform the FATCA diligence and reporting obligations on the Entity s behalf. b. The Entity does not control, is not controlled by, or does not have a parent that controls, any bank, custodian, broker or insurance company that issues cash value insurance or annuity contracts. For this purpose, the term control means own more than 50% of the votes or value of such entity. c. The Entity is not acting as an intermediary (e.g. nominee, fiduciary, etc.). d. The Entity agrees to provide the Bank with FATCA-related documentation and agrees to notify the Bank of any change in circumstances with respect to it. Yes (to all), Entity is an Owner- Documented FFI Yes (to all), Entity is an Owner- Documented FFI J. None of the above applies. Please contact your tax advisor to assess the situation of the Entity as other FATCA statuses may apply. 12 FATCA legislation: Implications for legal entities
Annex Consent to Report Controlling Person Exempt Beneficial Owner Foreign Account Tax Compliance Act (FATCA) Foreign Financial Institution (FFI) Global Intermediary Identification Number (GIIN) Intergovernmental Agreement (IGA) Internal Revenue Service (IRS) IRS Form W-8BEN-E IRS Form W-8IMY IRS Form W-9 Model 1 IGA Model 2 IGA FATCA glossary Authorization given by a US taxpayer to allow the transfer of his or her banking information to the US authorities (not required for accounts open in Model 1 IGA countries). The natural person who exercises control over an entity. For a corporation, this will be the ultimate shareholders. For a partnership, the partners are considered the controlling persons. In the case of a trust such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust. In the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. Entity such as a foreign central bank, diplomatic mission, international organization or certain foreign retirement fund that is not subject to FATCA obligations under certain circumstances. The Foreign Account Tax Compliance Act forms part of the Hiring Incentives to Restore Employment (HIRE) Act, passed by the US Congress and signed into law by US President Barack Obama on 18 March 2010. FATCA aims to combat tax evasion by US Persons holding investments in offshore accounts. Any financial institution that is a foreign entity according to US tax law (i.e. not organized under the laws of a possession of the United States). FFIs include a wide range of entities such as institutions that accept deposits in the ordinary course of a banking or similar business (banks, credit unions), hold financial assets for the account of others as a substantial portion of their business (brokerages, custodians), or are engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities (mutual funds, private equity funds, hedge funds). A 19-character identification number obtained by an FFI that has registered with the IRS under FATCA. The GIIN will be used to report information on US taxpayers to the IRS. Bilateral agreement concluded between the Government of the United States and a partner country for the purpose of FATCA implementation. Revenue service of the US Federal Government responsible for collecting taxes in the United States. Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Entities). Form used by foreign entities that are deemed the beneficial owner of the income they receive according to US tax principles to certify their non-us taxpayer status within the context of FATCA. Certificate of Foreign Intermediary, Foreign Flow-Through Entity for United States Tax Withholding and Reporting. Form used by foreign entities that act as intermediary or that are flow-through entities for US tax purposes to certify their non-us taxpayer status as well as their particular FATCA status. Request for Taxpayer Identification Number and Certification. Form used by third parties to collect and transmit identifying information on US taxpayers to the IRS (such as the taxpayer s name, address and TIN). Under a Model 1 IGA, FFIs in partner jurisdictions will be able to report information on US legal owners to their national tax authorities, which in turn will automatically report it to the IRS. Model 1 IGAs have been concluded between the USA and the Bahamas, Canada, France, Germany, Luxembourg, Italy, Singapore, Spain and the United Kingdom, among others. Under a Model 2 IGA, FFIs in partner jurisdictions will be able to directly report information on US legal owners to the IRS rather than their local jurisdictions. To date, Model 2 IGAs have been concluded between the USA and Switzerland, Hong Kong and Japan, among others. Introduction Section 1 Section 2 Section 3 Section 4 Annex 13
Non-Financial Foreign Entity (NFFE) Non-Participating FFI (NPFFI)/Recalcitrant NFFE Non-Reporting IGA FFI Owner-Documented Foreign Financial Institution (Owner- Documented FFI) Participating Foreign Financial Institution (PFFI) Reporting Foreign Financial Institution under IGA Sponsored Foreign Financial Institution (Sponsored FFI) Taxpayer Identification Number (TIN) Trustee-Documented Trust United States/US Territory US Person Foreign entity that is excluded from the definition of FFI. FATCA distinguishes between Active NFFEs and Passive NFFEs. Active NFFEs are entities that conduct an actual business (apart from financial) or industrial activity and have their own personnel and infrastructure. These are not subject to FATCA obligations themselves but they do have to certify their status to the Bank. All other NFFEs are deemed passive NFFEs, which must provide the withholding agents (the Bank) with certain information regarding their Controlling Persons and indicate if any of them is a US Person. FFI or NFFE that does not comply with its FATCA obligations and is therefore subject to a 30% withholding tax on any payment of US source income and proceeds from the disposal of US securities. FFI listed in appendix II of an IGA that is treated as a deemed compliant FFI. The relevant type of IGA (i.e. Model 1 or 2) will determine whether the FFI is required to register with the IRS (i.e. Reporting Model 1 or 2 FFI) or not required to register (i.e. Non-Reporting IGA FFI). Entity that delegates its FFI reporting obligations under FATCA to a depository bank with which it holds an account. The depository bank agrees to perform the reporting and withholding obligations on behalf of the Owner- Documented FFI. Information collected will then be transmitted to the IRS. FFI that has entered into an FFI agreement with the IRS to comply with its FATCA obligations. By registering, a PFFI agrees to undertake certain due diligence, withholding and reporting requirements for US legal owners. FFI that has entered into an FFI agreement with the IRS on the basis of the specific provision of the applicable IGA. Entity that delegates its FFI obligations under FATCA to a third party (the sponsor ). By registering with the IRS, an FFI seeking to act as a sponsoring entity agrees to perform the due diligence, reporting and withholding obligations on behalf of one or more Sponsored FFIs. However, sponsored entities having more than 20 beneficiaries are also required to register directly with the IRS. Identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. Status very similar to the Sponsored FFI, applicable to a trust established in certain IGA jurisdictions, to the extent that the trustee is a Reporting Model 1 FFI or a Participating FFI, and reports all information required to be reported with respect to all US accounts of the trust. The United States of America, including the federal states thereof and the District of Columbia, but not including the US Territories. The term "US Territory" means American Samoa, the Northern Mariana Islands, Guam, Puerto Rico and the US Virgin Islands. A US Person for US tax purposes (i.e. a US taxpayer) includes any US citizen (by birth or naturalization, including dual citizens of another country); any lawful resident of the United States (including working visa holders or persons who meet the substantial presence test requirements); any green card holder irrespective of their place of residence; any US corporation or partnership; any trust provided that it is subject to the primary jurisdiction of US courts and a US Person exercises control over all major decisions affecting the trust. 14 FATCA legislation: Implications for legal entities
Useful information and FAQ What is a US Person? What information is reported to the IRS? What responsibilities do entities have? How does an entity become registered? In general, a US Person (and therefore a US taxpayer) as defined under US tax legislation is: A citizen of the United States (irrespective of any other nationality held or acquired). A resident of the United States (e.g. work visa, substantial presence test). A green card holder (irrespective of their place of residence). A company or partnership incorporated in the United States. A trust if it meets the following two conditions: A court within the United States is able to exercise jurisdiction over the trust, and the trust is exclusively managed/controlled by one or more US Persons. Entities that have opted for direct registration with their own GIIN are required to submit either to the IRS or to their local tax authorities a complete FATCA reporting if they have one or more beneficial owners who are US Persons. For Sponsored entities which have delegated this responsibility, a FATCA reporting is submitted by the sponsor, if necessary. The Bank is required to produce FATCA reporting for ODFFIs which have US legal owners and for Passive NFFEs with US Controlling Persons. For Model 1 IGAs or Model 2 IGAs, information regarding entities that have US legal owners or Controlling Persons will be reported to the IRS. This concerns the following information: The Bank's details, its own GIIN, the sponsor's GIIN and, if applicable, the entity's GIIN. The entity's details and information on its FATCA status. The details of US owners or Controlling Persons and their TINs. The year-end value, interest and dividend income received, and proceeds from the disposal of securities. Under FATCA, entities have to produce documents to certify their status and must be able to justify it. They also have to take organizational measures to identify changes of circumstances likely to affect their FATCA status or changes concerning legal owners or beneficial owners (e.g. change of address, acquisition of a green card, acquisition or relinquishment of US citizenship) that could have implications on the entity's status. Entities required to register are those opting for the status of PFFI, or Registered Deemed-Compliant FFIs, and those which must be registered by virtue of an IGA (Reporting Model 1 or 2 FFI), sponsors and sponsored entities with more than 20 US beneficial owners. Entities can register on the following IRS website: http://www.irs.gov/businesses/corporations/fatca-registration This website describes the registration procedure and provides other useful information about FATCA. Once registered, the entity will receive its GIIN (a 19-character identification number). The list of registered entities and their GIIN are published by the IRS and thus accessible to the public. Introduction Section 1 Section 2 Section 3 Section 4 Annex 15
What are the consequences for non-compliant entities? Important If, after 30 June 2016, the Bank is unable to classify an entity under the FATCA rules, either because no information has been provided or because the information received is incomplete or unsuitable, the entity must be considered an NPFFI or a RECALCITRANT/non-consenting NFFE. The Bank must then proceed as follows: Under a Model 1 IGA, the identity of these NPFFIs and RECALCITRANT/ non- consenting NFFEs will be automatically reported to the local tax authorities, who will be responsible for forwarding the information to the IRS. Under a Model 2 IGA, statistics of the entities falling under these two categories (NPFFIs and RECALCITRANT/non-consenting NFFEs) will be generated. The Bank must then report these statistics directly to the IRS. On this basis, the IRS could make a group request for mutual administration assistance. Such procedure will result in the Bank disclosing information to the IRS about any legal owners, beneficial owners or Controlling Persons of the entity. In order to avoid paying the above-mentioned 30% withholding tax, all entities must review their status under FATCA. All FFIs must comply with FATCA requirements and all NFFEs must comply with the Bank's requirements. If new accounts are opened for entities, the FATCA status must be documented at the time of opening the account. If this is not done, the Bank is prohibited from opening the account. 16 FATCA legislation: Implications for legal entities
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