FATCA / CRS compliance

grey_gym_sock wrote: »

this is mainly out of interest,

These comments may or may not help satisfy your curiosity...

they already had my name, (UK) address, and (UK) bank account details (so they can pay dividends into it). they wanted to know: date and country of birth, country or countries of citizenship, and of tax residence, with tax identification numbers (apparently, NI number will do for the UK).

Yes, NI number will do, or UTR if you have one.

this is to do with FATCA (a unilateral US act, requiring financial organizations to report info on US citizens and residents to the US), and/or CRS (common reporting standard, a mutual reporting arrangement, which many countries have signed up to, though i'm not sure how far they've implemented it yet). many people seem to think FATCA is stricter, so i wonder if it's more about that ...?

It's about both. US FATCA (and the UK's equivalent between UK and Crown Dependencies / Overseas Territories like Cayman, Channel Islands etc, lets call it UKCDOT) came in earlier than CRS so people have been talking about it for longer but the requirements on reporting are broadly the same.

However, with the earlier regimes, if you didn't have any indicia of US status they wouldn't have to report you, so someone with a UK address and phone number and UK bank account would not be flagged for US reporting under FATCA and probably wouldn't be communicated with (depending on how the particular financial institution implemented its compliance program).

Under UKCDOT you would have had indicia of UK reportable status, for the channel islands-based financial institution, but as both UKCDOT and USFATCA allow pre-existing customers with account balances <$50k equivalent at time of implementation (mid 2014) to be disregarded (as long as the balance doesn't later rise to a very big number), they may not have looked at your account when doing an initial screen.

Under CRS which came in during 2016 and covering reportable people in a lot more jurisdictions (including the UK where it supersedes UKCDOT), there is no lower threshold for an individual's account balance, so all their pre-existing accounts held by individuals are in scope and the financial institutions have to decide by the end of this year whether you are going to get reported, and to whom.

So on your question 'wonder if it's more about that' - no, it's more about CRS, but the self-cert will be dual purpose and give them your FATCA status as well if they hadn't formally given you one before.

computershare say: "Depending on the information you provide, your account details may be reported to the Guernsey tax authority, The States of Guernsey Income Tax, who may then share this information with other international tax authorities".

Yes, they collect information, give it to their local tax authority in either a FATCA report or a CRS report, and the tax authority packages up that data and pings it on to the relevant authority around the world.

which is curious. why wouldn't they report to guernsey in all cases, and guernsey share the info unless your only tax connection is with guernsey itself? perhaps this is all about US persons and FATCA.

They are not going to give the Guernsey tax authority the details of all their customer records and tell Guernsey to sort it. Firstly, they are not going to share all their customers' financial information with anyone if they don't have to. Secondly, Guernsey tax authority is relatively small and the the job of deciding who is reportable to where, lies with the financial institution so they can't just palm it off on the tax authority to work it out.

The tax authority would prefer to receive a report saying John Smith is reportable to UK and US if that is the case but does not also want to know that Jim Smith is eventually reportable to Canada and Jane Smith is eventually reportable to Hong Kong because HK and Canada are not exchanging data with Guernsey for the current financial year.

i'd have thought they should be sharing my info with HMRC anyway, given my UK address and bank account - even if i'd filled in the form claiming to be a panamanian citizen resident in the caymans.

There are a couple of things here.

Yes based on your UK indicia of residence they could just say screw it, let's report him. However, under the local implementing rules in Guernsey they need to notify you they are doing that (or that they might do that) which would mean writing to you anyway.

As they want to include things like tax ID and d.o.b. on the report (which is more useful to HMRC than just knowing it's a John Smith who used to live at 1 High Street), and they are writing to you anyway, it is far more useful to get you to complete a formal self certification process where they get your proper current data and are able to say you have signed off that you are tax resident in UK and France rather than they are guessing you are tax resident in UK because that's where you choose to receive correspondence but actually do all your correspondence online.

If you had said you were a panama person resident in Cayman and were not at all UK resident, that would conflict with the other indicia of status like your mailing address and the fact they have standing instructions to pay monthly income to a UK bank account, so they would want to get some suitably official supporting documentation to go with it, and if they get that they won't need to report you to HMRC.

The process is basically designed to stop them being lazy and reporting people unnecessarily but if a person is not going to cooperate then that person would end up getting reported with the information they have following the assumptions that they make.

Giving you the chance to give them the correct information and sign off on it, stops them making assumptions about you which may be undesirable.

E.g. you are now tax resident in Brazil and not tax resident in the UK and do not want HMRC being told that you are receiving income of £20k a year from Guernsey and appear to be a UK resident (based on the assumptions they made on an address in your system and the fact that you have a UK bank). Perhaps you just can't be bothered to update the address because you deal with everything on line these days, and keep that UK account to receive sterling investment fund proceeds because your bank in your new location of Rio doesn't have a cheap GBP bank account. As a Brazil resident and UK non-resident you would not want HMRC being told that you were a UK resident with Guernsey income. So, the self cert process allows you to see what they have and explicitly tell them where you are tax resident (and if the answer is Brazil and not UK, you may need to prove it).

"What happens if I don't self-certify? There are no financial penalties for failing to complete a self-certification. Your account details will be included in our annual reporting to the State of Guernsey Income Tax Office. We will send you two further reminders to self-certify."

As Guernsey is signed up to CRS (which is a reporting regime not a withholding regime) and to a version of the US FATCA agreement which is also a non-withholding one, they can't financially penalise you, they will just go ahead and report what they think. That's fine as long as they tell you they'll do that. And they will keep sending you reminders because they really do have to have a compliance program that follows things up properly rather than paying lipservice and making no effort. At the end of the day if the customer doesn't want to cooperate, he doesn't want to cooperate, so they will just tell the tax authority he's reportable to country X and/or Y and Z based on what they think.

and presumably guernsey would then report me to the US as somebody who hasn't denied being a US person? or to every tax authority in the world as somebody who hasn't denied being resident in any/every country?

If there are literally no indications of US status then they don't have to report you to US or those other countries for which there's no indications. With a phone number in France (assuming no phone number in Guernsey) and an address in UK and standing instructions to send cash to Germany and power of attorney over the account given to a daughter in US, it would just be those four countries' tax authorities that would be told that one of their residents has a £1m balance and £20k annual income.

surely at some stage, non-compliance should lead, not necessarily to financial penalties, but to a shareholding being frozen, i.e. it not being possible to transfer it to another person, and any cash payouts (dividends or capital) being withheld, until such time as the shareholder explains who they are?

It is already pretty burdensome for the financial institutions who do not get paid by any international organisation or tax authority for doing any of this compliance.

Freezing bank accounts and financial assets is a major penalty and not done lightly. If you didn't reply and then some time later you wanted to sell out of the fund and they say, tough, you didn't send us the form, so if you do that you can catch the next available redemption date in a month's time... you would have hundreds of thousands or millions of people all around the world enraged that their assets had been confiscated because they either forgot to fill a form in or never even received it for one reason or another or whatever, and they have suffered market losses, or they couldn't get the money out of their bank for a week and suffered a massive consequential loss. It would be a sh1tshow.

So, the regime is not going to do that. The regime is about reporting info to tax authorities so that (e.g.) HMRC knows there is a John Smith with £20k of Guernsey income which might not be on his tax return or that the French tax authorities know that Jean Smith has £500k sitting in Guernsey that he's not paying French wealth taxes on or declaring an income from. When the tax authorities audit a person they now have more data.

so i'm not too convinced that this isn't still full of holes.

The US regime imposes an extra layer of withholding taxes on US source income which is how they got the world's financial institutions to sign up and comply. However, to make it administratively work better they ended up with these inter-government agreements between countries where it was negotiated what the local financial institutions would need to do to be compliant.

So now the US institutions only withhold on the income if their direct customer is recalcitrant in providing their residency info or if their customer is another international financial institution who is not compliant with FATCA. Largely those international financial institutions can be compliant by doing the tax reporting and providing information upstream to the US source for withholding to be done based on their downstream investors/customers not being compliant financial institutions.

The financial institutions will all jump into line and be compliant (to avoid losing their customers lots of money in anti-avoidance taxes). But depending on the type of inter-government agreement for their country, might find that the requirement is just reporting customer data to local tax authorities to be internationally shared, rather than actually withholding money from customers.

CRS which came in after FATCA, borrowing its concepts, could not really be designed as a withholding regime because it is multilateral across 101 countries (and counting) and you can't have some standard flat rate of witholding for non-compliance across all those places because it would take decades to agree some standard rate and work out how to implement and administer and share it. So it's reporting only, but basically the tax authorities can now get a lot more data than they used to be able to.

also, should i be expecting similar requests for UK-registered companies which i hold via paper certificates?

Companies (like Tesco plc or Sainsbury plc) held directly and not through a broker or intermediary - no, the are not financial institutions. And likewise if you own Lloyds bank plc shares directly, that ownership is an 'owner' relationship as distinct from a 'customer' relationship where you are considered an accountholder.

Investment companies - yes perhaps, if they are shares in an entity which is a 'financial institution' within the meaning of the legislation and has to treat your shares in it as an 'accountholder' relationship: such as an investment trust. A broker who maintains a nominee account for you is also a financial institution that would treat you as a customer. But different financial institutions will implement the guidance in their own way.

So a UK-based investment trust could say I am going to rely on an assumption here as allowed by the regulations and say the customer's residential address is UK and he is an individual (not a personal holding company or trust that could have multiple people behind it) and there is no indication of any non-UK statuses (such as phone number, bank, POA etc) in our database and he has a low balance so I don't need to manually search old scanned documentation in a customer master file, so I deem him UK resident. As this is a UK fund that's not a foreign residence or a US citizenship so I am not going to report this person for either FATCA or CRS, and I am not forced to write to him to tell him my assumptions because I'm not reporting him and he won't mind being not reported.

However, another UK-based financial institution might say, although the regulations do allow me to assume a UK person with no indicia of foreign status in my database is non reportable, I would rather find out the facts and get it right, because with a balance over a certain amount I have to do more than search the database I have to pull out any paper-based or scanned files I have on the customer master file (anti money laundering documents I obtained etc) and go through them, and if I find something the cure is going to involve a self-cert... so why even bother streaming my investors by account size (and rechecking that account size each year) and going through paper files in the first instance to try to work out what each customer might be - I will start from the angle of getting the customer to confirm their own status. So, let's send self-certs to everyone.

i don't like the unilateral nature of FATCA; but i don't see much problem with the requirements it imposes, at least in terms of privacy versus intrusiveness. (there are also questions about the costs to financial organizations of making sure they are compliant.)

Yes the costs of AEOI (automatic exchange of information, generally including FATCA and CRS and the UK-CDOT thing that came in between FATCA and CRS's launch) are high, and ongoing.

e.g. what is bad about having to tick a box to say whether you're a US person when filling in an application form for a new account? it is already going to be the case that the account won't be opened unless you complete the form, so what is the difference? unless you are really trying to evade tax you owe in the US.

Exactly, it is not majorly burdensome on the customer at account opening (there is still some work to do for the financial institution to validate that what you put on the self-cert for your residences is not inconsistent with other bits of information they know about you). Both FATCA and CRS say the account shouldn't be opened if the info isn't provided at account opening (or reasonable time thereafter)

It is more of a burden when the account is already open and a new regime such as FATCA or CRS comes in and requires banks and investment firms to backfill the data. There are examples on other threads where people who were longstanding existing customers where getting the forms from (e.g.) Lloyds / Halifax and the processes were handled by an outsourced compliance company (as there were millions of customers to get through) and it became a customer service issue as the branch staff didn't know about the project and customers thought the paper forms sent out were not glossy enough and so didn't look like standard bank communication and were concerned it was some fraudster.

In those cases it gets messy because customers already hate banks making you fill in forms 'for things they should already know or have no right to know, what is all this big brother crap, etc etc'

if a UK citizen or resident is also a US citizen or resident, then it is also the USA's business. if they aren't, then they have to tick the box, but their info is not then reported to the US.

while i prefer the mutual approach of CRS, there is certainly nothing to prevent the EU or UK from enacting equivalent legislation to FATCA, to make it work the same in both directions.

The regimes are largely the same (apart from one needing citizenship because of citizenship-based taxation).

When FATCA first got announced (five years ago now) it was unilateral by the US and the threat of withholding money from US income or even entire capital proceeds was pretty strong and concerning to lots of global financial institutions, but the US has the financial reach to make it work for them.

And as local rules (eg on data protection) would have made it difficult for (eg) a UK FI to comply, there needed to be inter government agreements to coordinate and allow the information sharing. In doing that, most of these 'IGAs' *were* set up as bilateral so the US financial institution would have to share info on UK customers just like UK FIs do on US customers. The customer due diligence rules and rules on what gets reported are basically the same both ways.

However, as the US had already got the big threat of withholding tax out there, places like UK would see their financial institutions suffer if they could not quickly agree a route to sharing data so the withholding tax threat on US investment returns would go away. So in negotiating the IGAs and agreeing what we would all share, the UK committed to first sharing (e.g.) financial data for 2014 during 2015, while the US for their part said yes we agree all this stuff should be shared and we will share stuff back the other way under this same agreement... after we have got a workable solution our financial institutions to gather and share it, eventually.

The logic being that UK financial institutions were already going to have to share data direct to US IRS under the globally imposed FATCA rules under threat of withholding, so there was no reason why UK needed extra time to implement it on their side just because it goes through an IGA process making it *less* burdensome; but the US financial institutions were not going to be reporting anything to UK because there were no UK equivalent extraterritorial rules at that time, so this would be a whole new thing for the US financial institutions to get to grips with and it would take time.

So, UK and France, Germany etc are sharing data with US under bi-lateral FATCA agreements that require data sharing both ways, just the US doesn't have to start sharing it yet from its end. So, UK, France, Germany have no clout to get US to sign up to CRS because US is already getting all the data it wants, and has already said it will share back data under the reciprocal FATCA sharing agreements, so it is going nowhere near CRS.

In practice the US has still made no serious efforts to actually implement the 'reciprocal' bit of FATCA because introducing new regulations on US banks to support the international agreements requires a lot of work and imposition on the US businesses. There is no way republicans would have let it go through when Obama was in office. And now they are in office, Trump has zero appetite to get financial data about US accountholders and give it to foreign governments, so it will probably never happen.

So, if you are UK resident and want to hide money from the UK taxman, putting it in a US-based bank account would be a good start. The difficulty you face is that many US financial institutions are pretty insular and ignore the wide world outside the US as if it doesn't exist - so if you don't already have a US social security number and can't say you are a US resident or citizen, you will struggle to open up an account with a US bank or broker.