Guidance

International agreements to improve tax compliance

Published 16 October 2014

US announcement: notice 2014-33

The US announced certain amendments to the on-boarding processes for new entity accounts opened between 1 July and 31 December 2014.

The UK won’t be adopting these amendments.

Where UK financial institutions are required to obtain self-certification for a new customer these obligations will apply from 1 July 2014.

Treatment of accounts held by non-financial charities and other not for profit organisations

Following discussions with the Crown Dependencies and Gibraltar an amendment will be made to make sure that there will be no obligation to report on the controlling persons of a non-financial foreign entity that meets certain conditions to be a not for profit organisation.

This amendment will allow UK financial institutions to treat non-financial not for profit organisations under the International Tax Compliance (Crown Dependencies and Gibraltar) Regulations 2014 in the same way that they’re treated under The International Tax Compliance (United States of America) Regulations 2014.

In the case of any UK financial institutions which have already put in place systems or processes to identify these controlling persons there won’t be a requirement to actually report those persons identified, but the amendment also makes sure that collecting the data will still be fully compliant with Data Protection laws.

Trusts as investment entities

HM Revenue and Customs (HMRC) will update the US guidance notes in August 2014 to clarify when:

• a trust will qualify as a financial institution as a result of the professional management of the trust’s assets by another financial institution
• the assets under management are considered to be the assets of the trust

In the interim, a basic overview of HMRC position is set out below.

If a financial institution manages the financial assets for a trust, then the trust will be an investment entity. A financial institution manages the financial assets ‘for the trust’ where both the following apply:

• the assets are directly held by the trust
• the direct holding(s) of the trust are what is being professionally managed

If the managed assets are at a pooled level below the product or service purchased by the trust this won’t be professional management of the trust assets.

Investment products and services of this nature may include:

• insurance products
• investment bonds
• other collectively managed investments, direct interests in funds, funds of funds, or other collective or discretionary portfolios of funds management

But whatever the nature of the financial assets, if the trust itself is professionally managed, or the trust has also appointed a manager to manage these investments (so the direct holdings of the trust are also being professionally managed) the trust will then still qualify as an investment entity.

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