On 17 September 2015, HM Revenue and Customs (HMRC) released their draft guidance on the Automatic Exchange of Financial Account Information guidance. The guidance is intended to help Financial Institutions (FIs) with the four different Automatic Exchange of Information regimes; the US Foreign Account Tax Compliance Act (FATCA), the Crown Dependencies and Overseas Territories (CDOT) and the Common Reporting Standards (CRS) and the EU Directive on Administrative Cooperating (DAC) in tax matters.

The guidance also provides updates around certain key issues previously raised with the HMRC including:

  • Adoption of the 'wider approach' under the CRS
  • The requirement to obtain Tax Identification Numbers (TIN) in non-reportable jurisdictions
  • Guidance regarding the notification of account holders prior to reporting in 2016.

HMRC have stated that the guidance does not replace or override the CRS commentaries; instead it brings together the key concepts and provides additional guidance for UK-specific issues, including where there are differences between the FATCA, CDOT and CRS regimes.

In the next few bulletins, we will highlight the key points of the draft guidance and comment on the practical implications for financial institutions.

In this first bulletin, we cover financial institutions and financial accounts.

Financial institutions

The guidance remains largely unchanged and the impact is expected to be low for most groups, however there are a number of key differences to be aware of:

  • There is no requirement to register for a GIIN number, as under FATCA
  • Professionally managed investment entities resident in non-participating jurisdictions are to be treated as passive NFEs and will be required to provide information on their controlling persons
  • There are now fewer 'deemed compliant'/'non-reporting financial' categories

What does this mean in practice?

  • FIs will need to identify whether their overseas subsidiaries/branches 'introduce' business to them that results in them maintaining financial accounts.
  • Ambiguity remains around the specific categories, which will require case-by-case consideration e.g. holding companies in PE structures.
  • The additional information required for passive NFEs is likely to create an increased burden around the on boarding process particularly and the additional work needed may require some advanced preparation.

Financial accounts

There are some significant changes to the products and services that are potentially in scope.

  • The exemption for listed regularly traded financial accounts has not been included under the CRS
  • Change to the definition of custodial account from 'person that holds one or more financial assets' to 'any financial instrument or contract held for investment'
  • New exemptions for approved holdings in venture capital trusts and the definition for exempt products is now narrower
  • There is now a de-minimis for dormant account under USD 1,000.

What does this mean in practice?

  • Further reviews are required to ensure FIs have made use of all the relevant exemptions
  • FIs will also need to consider how they will implement new processes required for capturing and remediating listed debt and equity
  • Consider whether any group entities that had previously benefited from exemptions, would have substantial obligations under CRS.

In the next bulletin, we will be considering specific requirements for Due Dilligence and Reporting, in order to be ready for 1 January 2017. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.