FATCA Workshop for Portfolio

Managers

Moderator: Michael Friedman, McMillan LLP Speakers Hugh Chasmar, Tax Partner, Deloitte Carlos Amoranto, Amoranto Consulting Carl Irvine, McMillan LLP David Sausen, Kaye Scholer LLP

RBC Offices, 155 Wellington St. West, 11th Floor (Americas Room)

I. Registration on the IRS Portal and Obtaining a GIIN

• Key terms • Obtaining your GIIN – Best Practices and the CRA • Registration process and IRS Form 8957

Registration on the IRS Portal and Obtaining a GIIN

Key terms • Responsible Officer Sec 12.15 CRA Final Guidance • Financial Institution – Reporting vs. Non-reporting status • Canadian Financial Institutions • IRS FORM 8957

Registration on the IRS Portal and Obtaining a GIIN

Best Practices • Impact Assessment – conduct a thorough review of

your organizational structure • Identify FFI vs. NFFE status • Document all findings • Identify a Responsible Officer for each registering FFI • Complete IRS Form 8957 • Register online

Obtaining your GIIN – Best Practices and the CRA

On April 2, 2014, the IRS issued Announcement 2014-17. The registration deadline has subsequently been extended a few times this year. The notice also clarified jurisdictions without IGA agreements in place, but currently have agreed “in substance” with the IRS, and are now considered as having an IGA agreement. A reporting FFI organized within a MODEL I or II IGA is not required to sign an FFI Agreement, but is required to register with the IRS and obtain a Global Intermediary Identification Number or GIIN. IRS Notice 2013-69 addresses the draft FFI Agreement required by participating FFIs established in non-IGA countries. We recommend completing the FFI Registration process regardless of CRA reporting vs. non-reporting status. Many of our clients, including brokers dealers, Portfolio Managers, and Custodians have already registered and obtained their respective GIIN numbers through the IRS Portal.

Registration process and IRS Form 8957

Registration process and IRS Form 8957

In Brief

The IRS announced the opening of the Foreign Account Tax Compliance Act FATCA Registration Portal on Aug 19th, 2013. The registration portal will allow financial institutions (FI’s) to register and obtain a Global intermediary Identification number (GIIN). The preliminary registration period lasts until December 31st, 2013 after which final submissions to the IRS can begin as early as January 1st, 2014. The latest release included a 75-page User Guide providing detailed instructions for completing the online registration process. Tips for logging into the system are also noted. The IRS has also released Form 8957 including instructions. Entities Eligible to Register The registration portal should be used by financial institutions to register itself as either a participating foreign financial institution (PFFI), Registered-Deemed Compliant FFI (RDCFFI) , a limited FFI, or Sponsoring Entity. MODEL I, II IRS FATCA update

Registration process and IRS Form 8957

Lead FI’s and EAG Relationships Clarified A lead FI includes a U.S. Financial Institution, FFI, or compliance FI that will agree to execute FATCA registration for each of its member financial institutions. A Compliance FI is a “lead FI” that agrees to establish and maintain a consolidated compliance program, as well as perform a consolidated periodic review

Creating an Online FATCA Account A FATCA account can be a single, lead, or sponsoring entity. The FI must create an access code password along with questions in case the access code is lost. The online system will provide a six-character FATCA ID to be used in conjunction upon receipt of the 19-character code GIIN number.

Notice of Registration Acceptance and GIIN Composition FFI registration completed by April 25, 2014 will receive a unique GIIN number posted online as early as June 2, 2014. This IRS website will be updated on a monthly basis.

An FFI will use its GIIN to identify itself to withholding agents and other counterparties for FATCA reporting.

In Summary The FATCA registration website has been setup to streamline the registration process where financial institutions register through a secure online portal with around the clock availability. Registration occurs in one place, and ultimately allows for effective and efficient communication with the IRS on future communications to PFFI’s.

Registration process and IRS Form 8957

Registration process and IRS Form 8957

Registration process and IRS Form 8957

Registration process and IRS Form 8957

Registration process and IRS Form 8957

Registration process and IRS Form 8957

Registration process and IRS Form 8957

II. Practical Tips on Onboarding, Documentation and Due Diligence

Onboarding of Clients

• Documentary proof of residency/tax status

• “Self-certification” – alternative forms

– US prescribed forms – W8-BEN/W-9

– “In-house” forms

• Individuals – focus on individual attributes

• Entities: corporations, partnerships, trusts

– Entity classification

– Focus on stakeholders in certain entities

Timing of Onboarding Compliance

Individuals

• New accounts – July 1, 2014

• Some “new accounts” may be “pre-existing”

Entities – January 1, 2015

Leniency during transitional period

Minimum Content – Individuals

• Whether a “US person”

• Residencies for tax purposes

• Clients that are US persons – TIN

• Signed declaration attesting to correctness and completeness of the statements made

Self-Certification

Self-Certification

Optional/Recommended Content

• “Snowbird” declaration

• Undertaking to inform of changes to status

• Acknowledgment/approval by client

• Referral to CRA website

• Tax residence in other countries

• Declarations regarding “US indicia”

Self-Certification – Entities

“In-house” documentation vs. W-8BEN

• Jurisdiction of entity : Canada vs. U.S.

• Financial institution vs. non-FI

• Non-financial institutions

– Active trade or business

– “Passive” companies – e.g., Holdco’s

• Information regarding shareholders

Due Diligence – Pre-Existing Accounts

Timing for completion:

– High-value accounts – June 30, 2015

– Low-value accounts – June 30, 2016

What documents to search?

What are you looking for?

What you do with what you find?

Relationship manager role/responsibilities

Responsibility for FATCA Compliance

Separately managed accounts

• PM vs. custodian/dealer • Does PM “maintain” financial accounts

Guidance: • PM only provides investment advice, and, • Custodian responsible for AML procedures Financial account of the custodian, not the PM

CRA position supported by IGA Revised guidance may be provided Implications of guidance for PMs

Responsibility for FATCA Compliance

Members with funds: manager and dealer

• Client accounts in “nominee name”

• Shared responsibility for “client-name”:

– Documentation and due diligence – dealer

– Reporting – manager unless dealer takes on

• What manager expects from dealer and why

Responsibility for FATCA Compliance

How manager obtains assurance re: dealers

• Standard form “FATCA Process Agreements”

– Manufacturer’s Agreement (fund manager)

– Dealers/Distributors Agreement

– FundSERV as intermediary

• Can manager rely upon agreements for FATCA-compliant fund status?

– CRA Guidance

• What to do with dealers that don’t respond

III. Completing IRS Forms and Getting Them Right!

Purpose of IRS Forms W-8 and W-9

• Document status for FATCA purposes (Chapter 4)

- Payees can avoid FATCA withholding by submitting a withholding certificate to a withholding agent (generally, the U.S. payor) that documents their FATCA-compliant status or otherwise shows that they are exempt from FATCA withholding.

- FFIs may request withholding certificates (or, in IGA jurisdictions, self-certifications) from account holders to document the account holders’ FATCA status pursuant to FATCA due diligence requirements.

• Document status for U.S. withholding tax purposes, including claiming treaty benefits - Non-U.S. individuals and corporations generally are subject to a 30% withholding tax on U.S.-

source interest, dividends, and other fixed and determinable annual or periodical income, unless they claim a reduced rate of, or exemption from, withholding (on an applicable IRS Form W-8) pursuant to an income tax treaty with the United States.

Types of IRS Forms

• IRS Form W-9 U.S. person, including an individual or entity.

• IRS Form W-8BEN Non-U.S. individual who is the beneficial owner of the payment. This form must be used to claim treaty benefits.

• IRS Form W-8BEN-E Non-U.S. corporation, trust (other than a simple or grantor trust), or estate who is the beneficial owner of the payment. This form must be used to claim treaty benefits.

• IRS Form W-8EXP Generally, non-U.S. governmental entities that are the beneficial owner of the payment and that are claiming a reduced rate of, or exemption from, withholding tax.

• IRS Form W-8IMY Non-U.S. intermediaries, partnerships, and simple and grantor trusts. Note that nonwithholding partnerships and trusts and nonqualified intermediaries generally must attach withholding certificates for the underlying owners as well as a withholding statement allocating the payment to such owners. Qualified intermediaries also may need to attach certain documentation.

• IRS Form W-8ECI Non-U.S. person, including an individual or entity, who is the beneficial owner of a payment that is effectively connected with a U.S. trade or business (“effectively connected income” or “ECI”). With respect to ECI, generally use this form instead of IRS Forms W-8BEN, W-8BEN-E, W-8EXP, and W-8IMY.

Special Rules for Wholly-Owned Disregarded Entities

• If a wholly-owned entity is treated as disregarded for U.S. federal income tax purposes, the owner of the entity generally should complete and provide its applicable IRS Form W-8 or W-9.

How To Complete IRS Form W-8BEN-E: Reporting Canadian FFIs

• Canadian FFIs that do not qualify for FATCA exemption are “reporting Model 1 FFIs.” Such FFIs are required to register with the IRS and obtain a Global Intermediary Identification Number (“GIIN”) by January 1, 2015.

• IRS Form W-8BEN-E

- In Part I.5 (“FATCA Status”), check the box entitled “Reporting Model 1 FFI.”

- In Part 1.9a (“GIIN”), enter the FFI’s GIIN once the FFI receives it from the IRS. If, as of January 1, 2015, the FFI is in the process of registering with the IRS as a reporting Model 1 FFI but has not yet received a GIIN, write “applied for.” The withholding agent requesting the form from the FFI must receive the FFI’s GIIN, and verify it on the list of GIINs published monthly by the IRS, within 90 days.

How To Complete IRS Form W-8BEN-E: Nonreporting Canadian FFIs

• FFIs with Local Client Base - A Canadian FFI can qualify as an FFI with a local client base under the Canadian IGA if

98% of the value of its financial accounts are held by Canadians; it does not solicit customers outside of Canada; and it satisfies certain other requirements.

- IRS Form W-8BEN-E • In Part I.5 (“FATCA Status”), check the box entitled “Nonreporting IGA FFI.”

• Skip Part I.9a (“GIIN”).

• Complete Part XII (“Nonreporting IGA FFI”) as follows: “ I certify that the entity identified in

Part I: (i) meets the requirements to be considered a nonreporting financial institution pursuant to an applicable IGA between the United States and Canada, (ii) is treated as a financial institution with a local client base under the provisions of the applicable IGA; and (iii) if you are an FFI treated as a registered deemed-compliant under an applicable Model 2 IGA, provide your GIIN: NA.”

How To Complete IRS Form W-8BEN-E: Nonreporting Canadian FFIs

• Sponsored Investment Entities

- Registration requirements

- The sponsoring entity must register with the IRS and obtain a GIIN. Thus, a sponsoring entity that is a participating FFI or reporting Model 1 or Model 2 FFI will have to obtain two GIINs: (i) one GIIN as a participating FFI or reporting Model 1 or Model2 FFI; and (ii) a second GIIN as a sponsoring entity.

- If the sponsoring entity identifies U.S. reportable accounts with respect to the sponsored entity, it must register the sponsored entity with the IRS and obtain a GIIN for the sponsored entity by the later of December 31, 2015 and the date that is 90 days after such a U.S. reportable account is first identified.

- Certain closely-held Canadian investment entities may be able to qualify as a sponsored, closely-held investment vehicle. The primary advantage of this type of sponsored entity is that it never needs to be registered with the IRS. Only the sponsoring entity is required to so register.

How To Complete IRS Form W-8BEN-E: Nonreporting Canadian FFIs

• Sponsored Investment Entities (cont.)

- IRS Form W-8BEN-E • In Part I.5 (“FATCA Status”), check the box entitled “Nonreporting IGA FFI.”

• Skip Part I.9a (“GIIN”).

• Complete Part XII (“Nonreporting IGA FFI”) as follows: “ I certify that the entity identified in

Part I: (i) meets the requirements to be considered a nonreporting financial institution pursuant to an applicable IGA between the United States and Canada, (ii) is treated as a sponsored investment entity / sponsored, closely-held investment vehicle under the provisions of the applicable IGA; and (iii) if you are an FFI treated as a registered deemed-compliant under an applicable Model 2 IGA, provide your GIIN: NA.”

• Instructions to the form note that a sponsored FFI currently is not required to provide a GIIN in Part XII, but that a future version of the form may require a GIIN.

How To Complete IRS Form W-8BEN-E: Nonreporting Canadian FFIs

• Investment Advisors/Managers

- Under current FATCA Treasury Regulations, certain investment advisors/managers are exempt from FATCA as “certified deemed-compliant FFIs.” This exemption does not currently apply to Canadian FFIs.

- If the Canadian IGA eventually incorporates the exemption for investment advisors/managers, complete IRS Form W-8BEN-E as follows: • In Part I.5 (“FATCA Status”), check the box entitled “Nonreporting IGA FFI.”

• Skip Part I.9a (“GIIN”).

• Complete Part XII (“Nonreporting IGA FFI”) as follows: “ I certify that the entity identified in

Part I: (i) meets the requirements to be considered a nonreporting financial institution pursuant to an applicable IGA between the United States and Canada, (ii) is treated as an investment advisor/manager under the provisions of the applicable IGA; and (iii) if you are an FFI treated as a registered deemed-compliant under an applicable Model 2 IGA, provide your GIIN: NA.”

IV. FATCA Reporting to the CRA

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Sources of Part XVIII reporting obligations:

• Paragraph 2(a) of the IGA

• Subsection 266(1) of the Income Tax Act (Canada)

• Required to electronically file return in “prescribed form”

• Guidance on Part XVIII reporting obligations”

• Guidance on Enhanced Financial Accounts Information Reporting (June 2014)

• 2015 XML specifications for Part XVIII Information Return

• New guidance on electronic filing of Part XVIII Information Return (released October 23, 2014)

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What do we know about Part XVIII Reporting Obligations?

Each “reporting Canadian financial institution” (a “Reporting FI”) with “U.S. reportable accounts” (each a “reportable account”) in a year is required to electronically file a Part XVIII Information Return for that year with the CRA.

• CRA has said that if a Reporting FI has no reportable account it is not required to file a “nil” return

• Consider possible limitation period issues

• Part XVIII Information Return consists of:

• “slips” (i.e., information slips) containing detailed information about each reportable account

• a “summary” containing information about the Reporting FI and summarizing the contents of the information slips

…

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Reporting Obligations

Each slip contains information about individual reportable accounts

For each reportable account, the corresponding slip must include:

• name of account holder

• account holder address

• US tax identification number (SSN, TIN, EIN, GINN, as applicable)

• Where unavailable for pre-existing accounts during 2014-16, should report date of birth, if available

• Canadian tax identification number (SIN, BN, ITN)

• account number (or functional equivalent)

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Content of Information Slips

Country of residence

• for entities:

• type of entity (specified U.S. person, NFFE, FFI, owner documented FFI with specified US owners)

• for owner documented FFIs with specified US owners, information slip must also include information about “controlling persons”

• unique document reference identifier (self-generated by Reporting FI)

• account financial information (discussed below)

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Content of Information Slips

Nature of financial information reported on slips depends on nature of reportable account

• In all cases, slips must report the account balance or value as at the end of the relevant calendar year (subject to special rules for closed accounts, discussed later)

• If year-end valuation is not possible, use the normal valuation point that falls within the particular year and that is closest to December 31

• Note that account balance or value is the only financial information required for 2014

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Content of Information Slips- Financial Information

Where an account is a custodial account, the information slip must include information about the following amounts paid or credited:

• Total gross interest

• Total gross dividends

• Total gross amount of other income generated with respect to assets held in the account

• Total gross proceeds from the sale or redemption of property

• This information does not need to be reported for 2014

• Information contained in first three bullet points is only required for 2015 and subsequent reporting years

• Information contained in final bullet point is only required for 2016 and subsequent reporting years

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Content of Information Slips – Financial Information

• Where account is a depository account, the information slip must include the total gross amount of interest paid or credited to the account in the year

• This is only required for 2015 and subsequent reporting years

• For all other accounts, the information slip must include the total gross amount paid or credited to the account with respect to which the Reporting FI is the obligor or debtor, including the aggregate amount of any redemption payments made to the account during the year

• This is only required for 2015 and subsequent reporting years

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Content of Information Slips – Financial Information

For 2015 and 2016, Reporting FI’s must report the name and aggregate amount of certain payments made by the Reporting FI to an account held by a NPFI:

• non-US source interest

• non-U.S. source dividends

• other non-US source payments (other than payments for services, licenses, leases, interest on accounts payable from the purchase of goods and services, etc.)

• Reporting FI can choose to treat all payments as non-US source

• No reporting for payments for which the Reporting FI played only a passive role (e.g. processing a cheque, arranging an EFT, etc.)

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Content of Information Slips - Financial Information

Summary portion of Part XVIII Information Return contains the following information:

• name

• business address

• business number

• GINN (if applicable)

• CRA guidance appears to recognize that not all Reporting FIs will be required to obtain a GINN

• contact information

• contact name, phone number, email address

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Content of Part XVIII Information Return Summary

• If a sponsored Reporting FI, information about the sponsor

• Total number of information slips associated with the return

• Totals for amounts reported in information slips (where applicable)

• account balances

• dividends

• interest

• gross proceeds

• other amounts

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Content of Part XVIII Information Return Summary

Joint Accounts

• The balance or value to be reported is the entire valance or value of the accounts

• i.e., if 2 specified U.S. persons jointly hold a reportable account with an account balance of $100,000, the Reporting FI should have a information slip for each specified U.S. person, each reporting a $100,000 balance.

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Special Circumstances

Account closures

• Where specified U.S. person closes an account in the year, the account balance should be reported as at time the Reporting FI received instructions to close the account.

• CRA says that it is acceptable for the Reporting FI to use the value or balance recorded within 5 days of receiving instructions

• If not available, use the most recent balance or value that is obtainable after FI has received instruction to close account (which may be a balance or value that predates the instruction date)

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Special Circumstances

Change in account status

•All reporting is based on status of the account holder as of year-end (or account closure)

• If account holder ceases to be a specified U.S. person prior to the end of the year, the account generally ceases to be a reportable account

• In the case of account closures, account status is determined based on the status of the account holder at the time of closure

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Special Circumstances

V. Strategies to Successfully Implementing FATCA and Tips on How to Comply

Questions