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FATCA Guidance for UK Trustees

Posted by William Byrnes on May 7, 2014

The Law Society, Institute of Chartered Accountants, and STEP published guidance with an accompanying flow chart that are intended to help United Kingdom trustees and their advisers determine whether FATCA registration is required.  See Law Society and Institute of Chartered Accountants FATCA Guidance for UK Trust Companies (May 2014)  (Chartered Accountants link)

The Law Society states that: “This guidance is relevant for all UK trusts and trustees, whether or not they have any known US connections. UK financial institutions must meet the requirements of the Treaty and UK legislation in order to avoid the withholding tax.  All UK trusts and trustees, whether or not they have any known US connections, need to consider their status under the UK/US agreement. If they are required to register with the IRS under the agreement, they must do so by 25 October 2014.”

The guidance states that: “The major impact of FATCA will fall on banks and investment houses but it is essential to understand that firms such as yours are directly affected, even if you only have UK clients. As partners (or as directors, administrators and trustees) you have direct UK legal obligations that must be met if you are to avoid financial (and reputational) penalties. The full guidance is available at http://www.hmrc.gov.uk/drafts/uk-us-fatca-guidance-notes.pdf.” (see page 2).

See the Flow Chart for UK trustees (under the UK/USA Intergovernmental Agreement (IGA))

Guidance excerpts below …

So what do I have to do?

Identify and classify the entities comprising your practice and the client entities with which you are connected such as trusts;
Register any FI for a Global Intermediaries Identification Number (GIIN);
Review your practice systems and implement any necessary changes to:

1) engagement letters
2) client take-on process
3) client identification
4) establishing reportable transactions
5) effecting the report
6) client communications;

Make the appropriate reports to HMRC.

United Kingdom Deadline

The deadline is October 2014, by which time you need to register any FIs with the IRS as an FI. At that time you will also need to demonstrate that you have adequate systems in
place to identify and record US Persons. The first reporting will be for the calendar year 2015, but systems will need to be put in place now. The mechanics of reporting, which will
be to HMRC, are not yet known.

Corporate trustees

Where there is a corporate trustee, it registers and reports on the trust; the individual trusts do not need to register or report. It may be worth considering whether there is merit in
appointing a corporate trustee in place of or in addition to the individual trustees to eliminate the need for the individual trust to register and report. The responsibility for doing so is
passed to the corporate trustee. In this situation the trust itself becomes known as a Trustee Documented Trust.

Owner documented trusts

Instead of registering it may be possible for trustees to opt for owner documented status. They can only do so without challenge if they have enough regular information to prove that
all owners (beneficiaries who receive one or more distributions) are and remain non-US Persons.

They will also have to recertify their status every three years via form W8-BEN-E and if at any time the trustees become aware that an owner has become a US person, they will have
to register with the IRS and report to HMRC in the normal way. Further, they will need to appoint a withholding agent. It is understood that banks and investment businesses, which
already act as Qualifying Intermediaries for US tax purposes, are currently considering whether they will be prepared to offer this service. The current indications are that they will
do so.

Trustees must notify withholding agents of any change in status within thirty days. They will need to have systems and procedures in place to ensure that this is adhered to.

Creation of new trusts

The current regulations are unclear as to the deadline for obtaining a GIIN or otherwise regulating the FATCA status of trusts created after October 2014, i.e. once the first set of
registration is completed. Taking into account the requirements of banks and other institutions to be able to operate accounts, the advice must be that FATCA status, and
registration as necessary, should be an integral part of the process for creating any new trust and completed as soon as practicable.

There is a particular point of concern surrounding executors. Executors themselves are not entities within FATCA and will therefore be reported upon as usual. There is one exception in that the accounts of deceased persons are not reportable accounts as long as the FI concerned is in possession of the death certificate. However, it is not uncommon for
executors to become the trustees of a will trust and the point of transition between the two can be difficult to identify with precision. Practitioners will need to be alert for this
circumstance and ensure that the appropriate steps are taken in good time, including whether a corporate trustee should be appointed, and align with the records at banks and
investment managers etc.

book cover
The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.  The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.  

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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