Sponsored Entities registration and trust developments | KPMG | NZ

FATCA - Sponsored Entities registration and trust developments

Sponsored Entities registration and trust developments

The IRS has upgraded its online registration process to allow Sponsored Entity “GIINs” to be issued to Sponsoring Entities.

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US Internal Revenue Service (“IRS”) allows Sponsored Entity registrations
The IRS has upgraded its online registration process to allow Sponsored Entity Global Intermediary Identification Numbers (“GIINs”) to be issued to Sponsoring Entities.

A Sponsoring Entity elects to undertake the FATCA compliance obligations, including reporting, on behalf of Sponsored Entities.

Until now there was no ability to register Sponsored Entities. Instead, for any FATCA reporting and compliance, the Sponsoring Entity’s GIIN has had to be used.

Sponsoring Entities will need to register their Sponsored Entities by 31 December 2016.

The link to the IRS FATCA registration portal is available.

Application of FATCA to trusts – draft guidance

Inland Revenue has released, for consultation, further draft guidance on the application of FATCA to trusts.

A trust can be a Financial Institution for FATCA purposes. This may be because the trust itself is a Financial Institution. A trust (including a family trust) that is managed or administered by other Investment Entities can also be a Financial Institution.

(A manager whose business is trading securities, collective portfolio management or otherwise investing, administering or managing funds on behalf of other persons will be an Investment Entity.)

As an Investment Entity, a trustee company or investment manager will make a trust to which they provide services also an Investment Entity. The latest draft guidance includes examples of trusts which are, and are not, Financial Institutions under this rule.

There are also different definitions of Financial Institution in the US Treasury FATCA regulations and the US-NZ Intergovernmental Agreement on FATCA (the “IGA”). A trust may be a Financial Institution under the IGA but not under the US Treasury definition. The draft guidance would require a trust to disclose its reliance on the US Treasury definition when confirming its FATCA status. This means that a Financial Institution will not mistakenly assume that the trust is a Reporting Financial Institution (which it would be if the IGA definition applies).

Inland Revenue has also released a step by step guide for determining the FATCA status of NZ trusts that are not US Persons.

Competent Authority Agreement on FATCA trust residence

A New Zealand tax resident entity or a NZ branch of a Foreign Financial Institution can be a NZ Financial Institution. New Zealand does not have general tax residence rules for trusts other than unit trusts. There has, therefore, been uncertainty regarding the residence test for FATCA, for trusts. Earlier draft guidance took a view different from other countries.

The US and New Zealand have entered into a Competent Authority Agreement that defines “resident in New Zealand” for trusts:

  • Prior to 1 April 2017, a trust may rely on any reasonable concept of residence to determine NZ residency. This includes if the settlement or execution of the trust is in NZ or the trust is governed by NZ law.
  • From 1 April 2017, a trust will be resident in New Zealand if:
    a trustee is tax resident in New Zealand; or
    it is managed by a branch of a trustee located in NZ that is subject to NZ regulatory supervision.

A trust will not be New Zealand resident if it is resident in another country that has implemented FATCA.

Updated Inland Revenue FATCA user guide

The Inland Revenue has updated its FATCA user guide for changes to the IRS’s FATCA schema. This includes changes to the default Taxpayer Identification Number (“TIN”) values for recalcitrant accounts. These changes may impact your FATCA reporting. The latest user guide (version 7.0) is available.

© 2017 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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