The much-anticipated UK guidance on the Automatic Exchange of Information (AEoI) regimes has arrived, combining guidance on the Foreign Account Tax Compliance Act (FATCA), Crown Dependencies & Overseas Territories (CDOT), Directive on Administrative Cooperation (DAC) and Common Reporting Standard (CRS). It should be noted that this guidance now replaces all other guidance, i.e. that on FATCA and CDOT. Whilst this guidance is extremely helpful (and has a useful search function), there are a number of areas which will need further clarification (e.g. property investment vehicles), and we understand HMRC will be making further updates to address these points. The guidance needs careful reading and should be analysed in conjunction with the DAC and OECD Commentary, which it augments.
Below are some initial observations on the guidance:
HMRC’s position on the wider approach is reiterated and we understand there is going to be a revision to the UK legislation shortly.
Within the definition of an Active NF(F)E (Non-Financial (Foreign) Entity) there is no longer the comment that this will be treated as having the same meaning as per Section 1005(3) ITA 2007. Instead, as is the case if not defined in the HMRC guidance, the definition as applied in the Common Reporting Standard Commentary will now apply. Consequently, in the absence of any update this summer Financial Institutions will have to revisit all companies that were classed as Active NFFEs that hold accounts cross border to determine if they are now Reportable Persons.
The updated guidance clarifies that income taxed as trading income and income from assets backing insurance business is not considered Passive Income. It should also be noted that the guidance states that Lloyd’s Vehicles are classed as Active NFFEs.
Charities are generally considered Non-Reporting Financial Institutions under FATCA, however this is not the case under CRS. They will be Reporting Financial Institutions unless tax resident in a non-participating CRS jurisdiction, where the charity could be a Passive NFE for CRS purposes.
The guidance continues the current practice of permitting collection of a self-certification within 90 days of the new account being opened, although it does encourage collection in day 1. The section notes that in the absence of indicia the account is reportable to the US Crown Dependencies and Gibraltar, although it is not yet reportable for DAC/CRS. This may be revised when the next version of the schema is released and the undocumented flag is brought into use.
The guidance confirms that mere ownership by an FFI is not enough for an entity to be an investment entity. The FTT must have discretionary authority (just as there is between a trust and a discretionary fund manager) over the assets owned by the subsidiary.
The HMRC guidance suggests that only dividends, interest and income from derivatives with US underlyings need to be reported for NPFFIs. However, the legislation requires 'payments' to be reported only stipulating that consideration for goods or services are not considered 'payments'. However, HMRC have confirmed they will accept either set of information and not consider this to be inaccurate reporting.
It is clear that challenges remain, and more will undoubtedly come to light during the reporting period. It will also be interesting to see how schemas develop once tax authorities assess the quality of the information that is being reported to them.
If you have any questions on the above or would like to discuss further please contact your usual KPMG contact or the UK Operational Taxes team.
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