Global Tax Transparency FATCA, CRS and Tax Crimes Under AML
David Weisner
US Tax Counsel for Asia Pacific
Citibank, NA Hong Kong
Disclaimer
IRS Circular 230 Disclosure: This presentation is not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. The information contained herein is of a general nature and is based on authorities that are subject to change. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. This presentation does not constitute tax advice. It is for information purposes only.
1
Agenda
• Foreign Account Tax Compliance Act (FATCA)
• OECD Common Reporting Standard (CRS)
• Tax Crimes and AML
4
Global Tax Transparency: Automatic Exchange of Information
FATF – Financial Action Task Force on
money laundering
EU Savings Directive (EUSD)
FATCA IGAs FATCA
Tax
Transparency
Double Taxation Conventions
(DTC)/ Tax Information exchange Agreements
(TIEA)
Local Country Measures
OECD Common Reporting Standard (CRS)
UK FATCA
A 2008 report by the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations estimated the cost to the United States from offshore tax abuse to be $100 billion annually.
The Joint Committee on Taxation estimated that FATCA legislation would bring in $8.7 billion between 2010 and 2020.
Source: “FATCA: Swatting Flies With Atom Bombs.”, Tax Notes International,
April 2, 2015
FATCA
FATCA Background
The Foreign Account Tax Compliance Act (FATCA) is
– U.S. tax legislation that aims to prevent or detect tax evasion by U.S. Persons who
Hold bank deposits and/or securities in offshore accounts, or
Own foreign investment entities (e.g., personal investment corporations and trusts)
FATCA was enacted into law on 3/18/2010 as part of the HIRE ACT
Added new Chapter 4 to the Internal Revenue Code
Basic Requirements:
– U.S. financial institutions (USFIs) and foreign financial institutions (FFIs) will be required to:
Identify and report directly or indirectly to the IRS with respect to: i. Accounts owned directly or indirectly by specified U.S. persons, and ii. Financial institutions that do not comply (or "participate") with FATCA (so-called "non-
participating FFIs”)
Withhold a 30% FATCA tax from certain U.S. source income when paid to: i. Non-participating FFIs (NPFFIs), and ii. If the withholding agent is an FFI, recalcitrant accounts
2
Polling Question #1
How prepared are you for FATCA?
A.Very prepared
B. Good shape but we still have some work to do
C.Just getting started
D.I am too embarrassed to say
FATCA Requirements – 5 Key Focus Areas
New Account Due Diligence
FATCA Withholding
Preexisting Account Due
Diligence
Monitoring for Changes in
Circumstance
Applies to:
• Accounts opened on or after
July 1, 2014 for individuals and
January 1, 2015 for entities
FATCA Requirements:
• Collect documentation to
establish FATCA status at
account opening
• Identify U.S. indicia that make
the claimed status incorrect or
unreliable
• Collect and verify GIINs for
certain FFIs
• Validate tax documentation
collected against all account
information
Applies to:
• U.S. source FDAP income paid
on / after July 1, 2014, unless
an exception applies (e.g.
grandfathered obligations,
short-term debt).
• Gross proceeds and foreign
pass thru payments paid after
2016
• Generally does not apply
during due diligence period for
pre-existing accounts
FATCA Requirements:
• USFIs must withhold on
NPFFIs
• PFFIs must withhold on NPFFIs
and unless the PFFI is located
in an IGA country, on
recalcitrant accounts
Information Reporting on U.S. accounts
5
FATCA Requirements – 5 Key Focus Areas
New Account Due Diligence
FATCA Withholding
Preexisting Account Due
Diligence
Monitoring for Changes in
Circumstance
Applies to:
• Accounts opened prior to July 1,
2014 for individuals and January
1, 2015 for entities
FATCA Requirements:
• Search for indicators of U.S.
status on certain existing accounts
held by individuals (for FFIs only)
• Perform enhanced due diligence
on high net worth individuals (a
value of $1 million or more) (for
FFIs only)
• Search for certain indicators of
accounts held by prima facie FFIs
(for USFIs and non-IGA countries)
• FFIs must request documentation
to establish the foreign status of
individuals with U.S. indicia
• Both USFIs and FFIs must request
documentation to establish the
FATCA status of all entities
Applies to:
• All accounts
FATCA Requirements:
• Monitor for changes in
circumstances that affect the
FATCA Status of the account
• Collect additional
documentation, as required
Applies to:
• PFFIs and Reporting Model 1 FFIs who have
U.S. accounts
FATCA Requirements:
• 2014 - Report year-end account balance/value
• 2015 - Also report income paid
• 2016 and later - Also report gross proceeds
Information Reporting on U.S. accounts
6
• Tax Documentation – Citi requires actual US tax forms (not substitutes) for entity accounts, except for certain limited circumstances. In addition to meeting the FATCA requirements for classification and documentation, they also meet existing tax law requirements for back up withholding certifications (W-9) and treaty claims (W-8BEN-E). The following is a list of acceptable tax forms for entities:
Tax Documentation
U.S. Entity Form W-9
Foreign Intermediary or Foreign Flow-Through Entity Form W-8IMY
Foreign Government and Other Exempt Foreign
Organizations
Form W-8EXP
Foreign Person’s Claim that Income is Effectively
Connected with the Conduct of a Trade or Business in
the U.S.
Form W-8CI
All Other Foreign Entities Form W-8BEN-E
FATCA New Account Due Diligence – How it works
Collect new account
holder documentation
Validate
documentation
received
Verify claimed
FATCA Status
Assign presumed
FATCA Status
(if necessary)
• Obtain appropriate
documentation for each
account, as required by
FATCA
• For U.S. resident
individuals and domestic
entities, obtain IRS
Form W-9, even if entity
is an exempt recipient
• For accounts held by
non-U.S. individuals or
entities and maintained
in the U.S. , obtain IRS
Form W-8
• For accounts
maintained outside the
U.S., alternative
documentation may be
permitted
• Validate that the Form
W-8 is properly
completed
• Review all
documentation and
information for evidence
that account holder
could be a US person
(i.e., U.S. indicia)
• Obtain additional
documentation to
support non-U.S. status
if U.S. indicia are found
• Ensure any legal entity
ownership information
provided is consistent
with AML/KYC
documentation for
certain accounts held by
entities
• Confirm all required
supporting
documentation has
been provided
• Validate FATCA Status
based on
representations made
by the account holder in
documentation received
• For PFFIs and
registered deemed
compliant FFIs, verify
GIIN against a list
published by the IRS
within 90 days
• Record FATCA Status
• If documentation
required to establish the
FATCA status of an
account is missing,
incomplete or invalid,
certain presumptions
must be applied to
determine the FATCA
status of an account
• The FATCA status must
be reassessed if
additional
documentation or
information is
subsequently received
17
FATCA Reporting
FIs will be required to report certain information regarding payments and
financial accounts either directly to the IRS or to a local government
New Form 8966 (FATCA Report) will be used to report information on
– U.S. accounts (direct accounts held by specified U.S. persons)
– Specified U.S. owners of owner-documented FFIs
– Substantial U.S. owners of passive NFFEs
– Recalcitrant account holders in the aggregate
– NPFFIs either in the aggregate or on a specific payee basis
FFIs (but not USFIs) are required to report recalcitrant accounts and NPFFI
accounts on Form 8966
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FATCA Reporting - Substantial U.S. Owners
A “substantial U.S. owner” is a specified U.S. person that
– Owns, directly or indirectly, more than 10 percent of
the stock in a foreign corporation,
the profits interests or capital interests in a foreign partnership, or
the beneficial interests in a trust
– Is a grantor treated as an owner of any portion of a trust
A substantial U.S. owner of a passive NFFE is reportable on a Form 8966
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FATCA Reporting - U.S. Accounts and Specified U.S. Persons
A U.S. account is any financial account maintained by an FFI where the account holder is a “specified U.S. person” or a U.S. owned foreign entity.
A Specified U.S. person is any U.S. person OTHER THAN:
– A publicly traded corporation or member of its expanded affiliated group;
– Organization exempt from tax under Section 501(a) or an individual retirement plan;
– The U.S., the District of Columbia, any state, any U.S. territory, any political subdivision the foregoing, or any wholly-owned agency or instrumentality thereof;
– Banks; REITS; RICs,
– Common trust fund or trust exempt from tax;
– A U.S. registered dealer in securities, commodities or derivatives; or
– A broker.
Above list is similar to list of “exempt recipients” used to identify persons exempt from Form 1099 reporting, except that certain private corporations are specified U.S. persons
A specified U.S. owner of a financial account or an ODFFI is reportable on Form 8966
23
Intergovernmental Agreements (IGA) - Purpose and Implementation
An IGA establishes a partnership between the U.S. and a foreign country
– To improve international tax compliance
– To establish uniform reporting standards and an automatic information exchange
– To eliminate local legal obstacles to FATCA compliance, and
– To implement FATCA in a manner that will reduce compliance burdens and costs
IGAs modify the FATCA compliance obligations of financial institutions located in the IGA country from that otherwise required by the U.S. Treasury Regulations
– There are two primary types of IGAs: Model 1 and Model 2
– Both models suspend the requirement to withhold on or close recalcitrant accounts, provided that the information reporting requirements are met
– Under Model 1, FATCA information returns are to be filed with local tax authorities while under Model 2, these returns are to be filed directly with the IRS
– Allow reliance on self-certifications (IRS form or similar agreed upon form)
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Current Status of IGAs as of April 2015
57 countries have signed an IGA
– 50 are Model 1 IGAs
– 7 are Model 2 IGAs
56 countries have reached an agreement in substance
– 49 are Model 1 IGAs
– 7 are Model 2 IGAs
– Treasury and IRS announced that it would treat IGAs as in effect in countries that have reached an
agreement in substance on the terms of an IGA
Provides FFIs in those countries with clarity on their FATCA status when they register with the
IRS and what they need to do to implement FATCA
– Until the country specific IGA is signed, the terms of the model agreement apply
Updates to the lists of IGAs in effect are posted to the Treasury web site periodically at
http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx
The text of the model agreements can be found at:
http://www.treasury.gov/resource-center/tax-policy/treaties/ Pages/FATCA.aspx
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IGA Countries
1. Australia (4-28-2014) 2. Bahamas (11-3-2014) 3. Barbados (11-17-2014) 4. Belarus (03-08-2015) 5. Belgium (4-23-2014) 6. Bulgaria (12-5-2014) 7. Brazil (9-23-2014) 8. British Virgin Islands (6-30-2014) 9. Canada (2-5-2014) 10. Cayman Islands (11-29-2013) 11. Costa Rica (11-26-2013) 12. Croatia (3-20-2015) 13. Curaçao (12-16-2014) 14. Cyprus (12-2-2014) 15. Czech Republic (8-4-2014) 16. Denmark (11-19-2012) 17. Estonia (4-11-2014) 18. Finland (3-5-2014) 19. France (11-14-2013) 20. Germany (5-31-2013) 21. Gibraltar (5-8-2014) 22. Guernsey (12-13-2013) 23. Hungary (2-4-2014) 24. Honduras (3-31-2014) 25. Ireland (1-23-2013) 26. Isle of Man (12-13-2013) 27. Israel (6-30-2014) 28. Italy (1-10-2014) 29. Jamaica (5-2-2014) 30. Jersey (12-13-2013) 31. Kosovo (2-26-2015) 32. Latvia (6-27-2014) 33. Liechtenstein (5-19-2014) 34. Lithuania (8-26-2014)
35. Luxembourg (3-28-2014) 36. Malta (12-16-2013) 37. Mauritius (12-27-2013) 38. Mexico (11-19-2012 / rev . 4-17-2014)
39. Netherlands (12-18-2013) 40. New Zealand (6-12-2014) 41. Norway (4-15-2013) 42. Poland (10-7-2014) 43. Qatar (1-7-2015) 44. Singapore (12-9-2014) 45. Slovenia (6-2-2014) 46. South Africa (6-9-2014) 47. Spain (5-14-2013) 48. Sweden (8-8-2014) 49. Turks & Caicos Islands (12-01-2014)
50. United Kingdom (9-12-2012)
* All of the above bolded countries will also participate in the Common Reporting Standard (CRS).
1. Algeria (6-30-2014) 2. Angola (11-30-2014) 3. Anguilla (6-30-2014) 4. Antigua & Barbuda (6-3-2014) 5. Azerbaijan (5-16-2014) 6. Bahrain (6-30-2014) 7. Belarus (6-6-2014) 8. Cabo Verde (6-30-2014) 9. Cambodia (11-30-2014) 10. China (6-26-2014) 11. Columbia (4-23-2014) 12. Dominica (6-19-2014) 13. Dominican Republic (6-30-2014) 14. Georgia (6-12-2014) 15. Greece (11-30-2014) 16. Greenland (6-29-2014) 17. Grenada (6-16-2014) 18. Guyana (6-24-2014) 19. Haiti (6-30-2014) 20. Holy See (11-30-2014) 21. Iceland (11-30-2014) 22. India (4-11-2014) 23. Indonesia (5-4-2014) 24. Kazakhstan (11-30-2014) 25. Kuwait (5-1-2014) 26. Malaysia (6-30-2014) 27. Montenegro (6-30-2014) 28. Montserrat (11-30-2014) 29. Panama (5-1-2014) 30. Peru (5-1-2014) 31. Philippines (11-30-2014) 32. Portugal (4-2-2014) 33. Romania (4-2-2014) 34. St. Kitts & Nevis (6-4-2014)
35. St. Lucia (6-12-2014) 36. St. Vincent & the Grenadines (6-2-2014)
37. Saudi Arabia (6-24-2014) 38. Serbia (6-30-2014) 39. Seychelles (5-8-2014) 40. Slovak Republic (4-11-2014) 41. South Korea (4-2-2014) 42. Thailand (6-24-2014) 43. Trinidad & Tobago (11-30-2014) 44. Tunisia (11-30-2014) 45. Turkey (6-3-2014) 46. Turkmenistan (6-3-2014) 47. Ukraine (6-26-2014) 48. United Arab Emirates (5-23-2014)
49. Uzbekistan (6-30-2014)
Model 2 IGA 50. Armenia (5-8-2014) 51. !raq (6-30-2014) 52. Nicaragua (6-30-2014) 53. Macao (11-30-2014) 54. Paraguay (6-6-2014) 55. San Marino (6-30-2014) 56. Taiwan (6-23-2014)
Jurisdictions that have agreements in substance:
Model 1 IGA
Model 2 IGA 51. Austria (4-29-2014) 52. Bermuda (12-19-2013) 53. Chile (3-5-2014) 54. Hong Kong (11-13-2014) 55. Japan (6-11-2013) 56. Moldova (11-26-2014) 57. Switzerland (2-14-2013)
Jurisdictions that have signed agreements:
Model 1 IGA
2015-4-01`
Common Reporting Standard (CRS)
Polling Question #2
With regards to the Common Reporting Standard, my bank is….?
A. familiar with CRS and we have started preparation
B. familiar with CRS but we have not started any preparation
C. not familiar with CRS
• On July 21, 2014, the OECD released the first edition of the Standard for Automatic Exchange of Financial Account Information in Tax Matters which contained:
A Model Competent Authority Agreement (“Model CAA”)
The Common Reporting Standard (“CRS”)
Commentaries on the provisions of the Model CAA and the CRS User Guide
• The CRS is the standard for automatic exchange of financial account information (“AEOI”) developed by the OECD
• The CRS is a comprehensive reporting regime that draws extensively on the intergovernmental approach to implement FATCA
• Similar to FATCA, the CRS requires financial institutions resident in the participating jurisdictions to implement due diligence procedures to document and identify reportable accounts under CRS as well as to establish reporting processes on the reportable accounts identified. However there are differences between FATCA and CRS.
• By October 2014, over 90 jurisdictions had signed or committed to sign the CRS.
• Timeline:
• New Account Due Diligence – Jan. 1, 2016 • Preexisting Account Due Diligence – High value customers by Dec. 31, 2016 with remaining
customers by Dec. 31, 2017 • Reporting – Exchange of 2016 data between countries by Sep. 30, 2017
- Businesses will need to submit info earlier to local tax authorities, expected to be 2Q, 2017
Common Reporting Standard
Common Reporting Standard Signed IGA Agreed in Substance IGA Non-IGA
CRS
New
Procedures
2016
Reporting
2017
Barbados
Belgium
Bermuda
British Virgin Islands
Bulgaria
Cayman Islands
Chile
Curaçao
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Gibraltar
Guernsey
Hungary
Ireland
Isle of Man
Italy
Jersey
Latvia
Liechtenstein
Lithuania
Luxembourg
Malta
Mauritius
Mexico
Netherlands
Norway
Poland
Slovenia
South Africa
Spain
Sweden
Turks & Caicos
U.K.
Anguilla
Colombia
Croatia
Dominica
Greece
Greenland
Iceland
India
Montserrat
Portugal
Romania
San Marino
Seychelles
Slov ak Republic
South Korea
Trinidad & Tobago
Argentina
Faroe Islands
Niue
Uruguay
CRS
New
Procedures
2017
Reporting
2018
Australia
Austria
Bahamas
Brazil
Canada
Costa Rica
Hong Kong
Israel
Japan
New Zealand
Qatar
Singapore
Switzerland
Antigua & Barbuda
China
Grenada
Indonesia
Macao
Malaysia
Saint Kitts and Nevis
Saint Lucia
Saint Vincent and
Grenadines
Saudi Arabia
Turkey
U.A.E.
Albania
Andorra
Aruba
Belize
Brunei
Marshall Islands
Monaco
Russia
Samoa
Saint Maarten
CRS
Timeline
TBD
(none)
Bahrain
Panama
Cook Islands
Nauru
Vanuatu
Non-CRS Honduras
Jamaica
Moldova
Algeria
Angola
Armenia
Azerbaijan
Belarus
Cabo Verde
Cambodia
Dominican Republic
Georgia
Guyana
Haiti
Holy See
Iraq
Kazakhstan
Kosovo
Kuwait
Montenegro
Nicaragua
Paraguay
Peru
Philippines
Serbia
Taiwan
Thailand
Tunisia
Turkmenistan
Ukraine
Uzbekistan
Bangladesh
Cameroon
Congo
Ecuador
El Salv ador
Egypt
Gabon
Guam
Guatemala
Iv ory Coast
Jordan
Kenya
Lebanon
Morocco
Nigeria
Pakistan
Puerto Rico
Senegal
Sri Lanka
Tanzania
Uganda
Venezuela
Vietnam
Zambia
+ All Other
Jurisdictions
Citi Countries are in blue/bold
Early Adopters of CRS (October 2014)
Anguilla
Argentina
Belgium
Bermuda
BVI
Bulgaria
Cayman Islands
Colombia
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Faroe Islands
Finland
France
Germany
Gibraltar
Greece
Greenland
Guernsey
Hungary
Iceland
India
Ireland
Isle of Man
Italy
Jersey
Latvia
Liechtenstein
Lithuania
Malta
Mauritius
Mexico
Montserrat
Netherlands
Norway
Poland
Portugal
Romania
San Marino
Seychelles
Slovakia
Slovenia
South Africa
South Korea
Spain
Sweden
Turks & Caicos
United Kingdom
Common thread between FATCA and CRS
Financial
Institutions
Individuals
Entities
Account Holders
Local Tax
Authority
• Local Tax Authorities are putting the onus on Financial Institutions to report on Account Holders
US IRS
Participating
Tax
Authority
FATCA
CRS
Reporting On Reportable Accounts
CRS – What Companies Should be Doing Now
Establish a compliance program specific for CRS
23
Do gap assessment between FATCA and CRS
Review classification of legal entities within their group according to CRS statuses
Review products and payments form the CRS Financial Account definition
standpoint
Socialize CRS among management
Implement Due diligence procedures described in CRS
Draft new policies and procedures to comply with CRS
AML and Tax Crimes
Polling Question #3
My jurisdiction’s AML regime has introduced tax crime/evasion as a reportable event?
A.Yes
B.Not yet but they will
C.No
D.Don’t’ know
In February 2012, the Financial Action Task Force (FATF), which sets the international
benchmark for anti-money laundering regulations, recommended that tax evasion be
made a predicate offence for the purposes of combating money laundering. The effect
of this is that tax evasion crimes will be included in a country’s anti-money laundering
regime
The Monetary Authority of Singapore (MAS) and Hong Kong Monetary Authority
(HKMA) responding to the FATF recommendation have designated tax crimes as
money laundering predicate offences.
Financial Institutions are expected to assess whether there is suspicion that a client's
assets emanate from serious offences which include fraudulent or wilful tax evasion
and if so file suspicious transactions report.
It is important that FIs act prudently in the conduct of their customer relationships and
do not, knowingly or deliberately, aid and abet tax evasion, or facilitate the laundering
of the proceeds of tax evasion, by their customers.
Questions remain around what is a “tax crime” or “tax evasion” and how it is detected?
Do Financial Institutions have to get tax attestation?
Anti-Money Laundering – Tax Crimes
Thank you
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