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

21

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

24

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)

9

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

10

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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