Wma journal summer 2015 fatca 10 issues for wma member firms medium

Issue 2 • summer 2014

WMA JOURNAL Working for the Investment Community & their Clients

US TAX

US TAX

paper record search for pre-existing high value accounts and for the latter there is an ongoing requirement to check with any relationship manager associated with the account.

For new individual and entity accounts there is a requirement to obtain some form of self-certification which will enable the FI to determine whether the account holder is resident in the US for tax purposes or is a US citizen or is a CD/Gibraltar person.

WMA has produced separate model self-certification forms for individuals, trusts, and entities.

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Are there any deadlines as to when I have to check these files?

Yes, for pre-existing lower value accounts the FI must complete the review by 30 June 2016. For high value accounts the FI has to complete the review by 30 June 2015.

There are also requirements for pre-existing entity accounts.

FATCA: 10 issues for WMA member firms The US tax authorities introduced the Foreign Account Tax Compliance Act (FATCA) to get Financial Institutions (FIs) to identify and report on US persons to help ensure they pay the right amount of US tax, particularly where these accounts are held offshore.

The UK-US Inter-Governmental Agreement (IGA) helps reduce some of the cost and administrative burden as UK FIs will comply with UK law and report information to HMRC. The UK has signed similar agreements with the Crown Dependencies (Jersey, Guernsey, Isle of Man) and Gibraltar.

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Will it affect my firm and our clients?

Yes, particularly if you hold US investments on behalf of your clients (regardless of whether they are US resident).

But even if you have no US investments, as an FI your firm will need to register with the US Internal Revenue Service (IRS) to obtain a Global Intermediary Identification Number (GIIN). There is no requirement to obtain a GIIN under the UK-Crown Dependencies (CDs)/Gibraltar IGAs.

 22 December 2014 The date by which an FI must obtain a GIIN to avoid any US withholding in 2015.

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What if my firm does not register with the IRS? You will be deemed by the IRS to be a ‘non-participating’ FFI. If you have any US assets they could be subject to 30% withholding tax both on income and gross proceeds. This includes not just equities and bonds but other asset classes such as funds.

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What are the key dates that firms should be aware of?  1 July 2014: The effective start date of both the UK-US and UK-CDs/Gibraltar Agreements. FIs will need a self-certification in respect of all accounts opened on or after that date (see Q6 below).

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 31 May 2015: The first reports under the UK-US IGA for calendar year 2014 are due and thereafter each year for the previous calendar year.

The first reports under the UK-CD/Gibraltar Agreements for 2014 and 2015 are due a year later, by 31 May 2016.

But we do not have any US-resident clients The FATCA definition of a US person goes much wider than US residency. For the purposes of FATCA, FIs must check the following for US indicia: (i) Identification of an account holder as a US resident or citizen; (ii) A US place of birth for an account holder; (iii) A US residence address or a US correspondence address (including a US P.O. Box); (iv) A US telephone number; (v) Standing instructions to transfer funds to an account maintained in the US; (vi) An ‘in care of’ address or a ‘hold mail’ www.thewma.co.uk

8 address that is the sole address shown in the FI’s electronically searchable information for the account holder; or (vii) A power of attorney or signatory authority granted to a person with a US address.

There are similar but not identical due diligence checks under the UK-CD/Gibraltar Agreements where there is no requirement to check telephone numbers and identification is based on tax residency and not citizenship.

This also applies to entities such as trusts, partnerships and companies where FIs will have to check so-called ‘controlling persons’ to ascertain whether they are US Persons or CD or Gibraltar persons. Where the FI provides a discretionary managed service to a trust it will have to obtain information relating to anyone with an interest in the trust.

The IGAs have deemed certain retirement accounts or products (including SIPPs) and certain tax-favoured accounts or products (including ISAs) out of scope.

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What are the different type of accounts for the purposes of both the UK-US and UK-CDs/Gibraltar Agreements?

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FIs must distinguish their accounts as follows: • Is the account a pre-existing account (maintained by an FI as of 30 June 2014) or a new account (opened on or after 1 July 2014)?

• Is the account an individual or entity account? Trusts for example fit into the definition of an entity account.

• Is the account a lower value account or a high value account? For individuals a lower value account is below $1 million while a high value account is above $1 million at 30 June 2014 or at 31 December 2015 or 31 December of any subsequent year.

A lower value entity account is less than $250,000 at 30 June 2014 whilst a high value entity account is more than $1 million at 31 December 2015 or 31 December of any subsequent year.

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What are the due diligence requirements applying to the different accounts?

For pre-existing lower value accounts FIs must undertake an electronic record search for the indicia set out in Q4 above. There may also be a requirement to undertake a

What obligations are there on firms to prove they have done the checks?

The idea of a ‘responsible officer’ in the US Regulations has not been directly replicated in the UK-US Agreement but HMRC are considering the requirement for some form of nominated person to whom HMRC or the IRS could address any concerns or queries.

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What must FIs do now?

Start the checking process for pre-existing clients and ensure accountopening procedures can capture relevant information for new clients.

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Where can I get more information?

More information on the UK-US and UK-CD/Gibraltar IGAs, including relevant Guidance Notes can be found on the HMRC website www.hmrc.gov.uk/fatca.

There is also information available to WMA members on the FATCA page of the website. As well as Q&A the page also includes self-certification forms and due diligence flowcharts in respect of individuals and trusts.

If you have any queries please contact Andy Thompson (andyt@thewma.co.uk) at WMA on 020 7011 9864.

WMA JOURNAL

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