step bermuda impact of crs on private trustees and administered entities a practitioner’s view...

STEP BERMUDA• Impact of CRS on Private Trustees and Administered Entities • A practitioner’s view

Prepared by: David Veness Date: 2 December 2015

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2STEP Presentation- December 2015

Tax environment

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Statement of Early Adopters Group – 19 March 2014

· “Tax evasion is a global problem and requires a global solution. We therefore welcome the

new standard in automatic exchange of information between tax authorities developed by the

OECD (the Common Reporting Standard). This will provide a step change in our ability to

clamp down on tax evasion, which reduces public revenues and increases the burden on

those who pay their taxes.

· The initiative was first launched by France, Germany, Italy, Spain and the UK in April 2013. In

doing so we recognised that only those financial centres which adopt the highest standards in

tax transparency and work in close cooperation to tackle cross-border tax evasion will prosper

in the future. Now that the Common Reporting Standard is agreed, we intend to implement it

among the early adopters group to an ambitious but realistic timetable: …

· The first exchange of information in relation to new accounts and pre-existing individual high

value accounts will take place by the end of September 2017.”

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Key Terminology

· AEOI – Automatic Exchange of Information

· FATCA – Foreign Account Tax Compliance Act

· IGA – Inter Governmental Agreement

· CDOT - Crown Dependencies and Overseas Territories

· CRS – Common Reporting Standard

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1. CRS: Introduction

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Welcome to the ‘Common Reporting Standard’ presentation for STEP Bermuda

This presentation will cover:

• The Common Reporting Standard (CRS)

• OECD Handbook approach and Wave 1, 2 and 3 countries

• What it means for Private Trustees and trust principals

• The Classification process for administered entities

• Identification of Controlling Persons

• Due Diligence and the Self-Certification process

• What to do if there is a Change in Circumstances

• Relationship Manager attestations

• Reporting by the trustee

• Reporting by upstream custodians

• Some examples of classifications

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS) - About the CRS

Comes into effect in stages from 1 January 2016

CRS similar to EU directives / conventionsand FATCA, albeit broader and more global

Approx. 100 countries will adopt legislationApprox. 60 early adopters

Bermuda2016

Reporting 2017

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)Standard consists of the following elements:

FORMSProcedure

Manual

Multilateral and Bilateral

Agreements

Commentaries

LawOrdinance Guidelines

CRSCAA

Guidanceon technicalmatters XML

Standard

Commentaries

Bermuda law

Banks / Trustees

CAA = Model Competent Authority Agreement Bilateral Agreement: Based on CAACRS = Common Reporting Standard Commentaries = CRS commentariesGuidance = e.g. XML schema

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What is the Common Reporting Standard?

· The Common Reporting Standard (CRS) is a global due diligence and reporting standard. It

underpins the Automatic Exchange of Information (AEOI) between Participating Jurisdictions

on a worldwide scale – i.e. it is a standardised model for the automatic exchange of

information between tax jurisdictions.

· It is designed to provide greater global tax transparency and to deter offshore tax evasion by

opening up access to offshore financial account information.

· This will be facilitated using individually negotiated, bilateral intergovernmental agreements

(IGAs) between different jurisdictions to set out the terms of the information exchange.

· Under the CRS, an agreed set of account information will be shared between jurisdictions

automatically, representing a minimum standard of reporting, which jurisdictions can choose to

exceed if they wish.

· In Bermuda we will need to be compliant from 1 January 2016 onwards

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What is the Common Reporting Standard (CRS)?

· To implement CRS, Trustees must identify the tax residence of administered entities, and

gather information on the Controlling Persons of administered entities (both FIs and Passive

NFEs).

· Trustees will identify ‘reportable accounts’ held with trustee administered entities.

– Trustees will take responsibility for reporting financial accounts held with administered FIs, if

they are resident in Participating Jurisdictions. A financial account becomes reportable if the

Account Holder [of an administered entity that is resident in a jurisdiction live for CRS], is

tax resident in another CRS participating jurisdiction.

– Upstream custodians will review Controlling persons of Passive NFEs and Type 2

Investment Entities to determine if those accounts are ‘reportable accounts’, and in those

cases it will be the upstream custodian that is responsible for reporting.

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What are we required to do?

· Responsibilities of Financial Institutions

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AEOI - New obligations for FIs – a new reporting paradigm

New obligations for FIs introduced through FATCA / CDOT / CRS enabling legislation

· To register with the IRS (if needed) [FATCA introduced]

· To perform due diligence on all account holders and establish tax residence

· To keep due diligence records for six years

· To report on reportable accounts

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Process and Procedural changes for Trustees required under Common Reporting Standard (CRS)?

· Trustees need to develop processes and procedural changes required to implement CRS and

to deal with:

– Classification of administered entities

– Identification of Account Holders / Controlling Persons

– CRS Due Diligence requirements, including Self-certification process, Validation &

Reasonableness tests etc.

– Dealing with Changes in Circumstances (account maintenance / servicing procedures)

– Opening and maintaining accounts with Upstream Custodians

– Identification and Reporting of ‘reportable accounts’ (for administered FIs) (and

maintenance and collation of information necessary to report)

· Changes to Trustee systems and databases will be required to capture the necessary data

required to be maintained on both administered entities and Account Holders / Controlling

Persons for reporting purposes.

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Process and Procedural changes for Trustees required under Common Reporting Standard (CRS)?

· Identify processes / procedures/ concepts where Trustees can leverage work done for FATCA

and apply changes where necessary – e.g.

− Entity Classification process,

− Due Diligence process,

− Reason to Know (RtK) concepts, and

− Reasonableness and Validation testing.

CRS shares a number of similarities with FATCA, allowing some leverage of existing FATCA

capabilities to support delivery.

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Entity Classification – Trusts and AEOI

· The following are the same for all types of AEOI (FATCA, CDOT, CRS)

– All trusts are deemed to be entities

– Trusts are either investment entities – a type of Financial Institution (FI) or Non-Financial

Entities (NFEs)

– What sort of entity a trust is depends upon what assets are in the trust and who manages

the trust

– Manage means to have ‘discretionary authority’ to manage the assets

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How are trusts affected?

· Depends on the nature of the trust (whether FI or NFE) ;

· Broadly, if the trust:

– has a professional corporate trustee; and

– derives more than 50% of their gross income from investing, reinvesting and trading in

financial assets

· then the trustees must report directly to the local tax authority (as an FI)

· If the trust does not meet these criteria – trustee may be required to

– report information to a Financial Institution (e.g. a bank) with which the trustee holds a

reportable account, and that financial institution will file its report with its local tax authority

(Passive NFE includes report of Controlling Persons).

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Trusts as Financial Institutions

· If the Trust gets most of its income from financial assets it will be a Financial Institution (FI)

where:

– The Trustee is a FI

– The trustee engages FI to manage the trust

– The trustee engages FI to manage the financial assets of the trust

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The basics - Trusts and AEOI

· Under FATCA trusts that are FIs have registered with the IRS, or have a trustee or sponsor

take responsibility for registering and reporting.

· Under both FATCA and CRS, FIs must either report or make arrangements for someone else

to report for them.

· Trusts that are NFEs don’t need to register or report, they will be reported on by any FIs they

have accounts with.

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Trusts as FIs

· If the Trust holds largely financial assets and the trustee is a corporate trustee, the trustee is

likely to be a FI for AEOI purposes.

· If the trustee is a professional (i.e. he is paid) but he is appointed as an individual the trust is

not necessarily a FI.

· If the trust holds largely financial assets and the trustees appoint a discretionary fund manager

to manage the trust’s assets, the fund manager is likely to be a FI and this will make the trust

a FI for AEOI purposes.

· If the trustees buy retail investment products (unit trusts, insurance bonds etc.) they have not

appointed a discretionary fund manager.

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Most commonly used classification of trusts which are FIs: Trustee Documented Trust (FATCA and CRS)

· Trustee is a Reporting FI (as a corporate trustee)

· Trust becomes a non-reporting FI

· Trust does not need to register (for FATCA) or report (for either FATCA or CRS)

· Trustee needs to register (FATCA) and report on trust (for both FATCA and CRS)

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Alternatively: Trust reports as a FI (FATCA and CRS)

· Must register with IRS and obtain a GIIN (for FATCA)

· Must report as an FI vis local tax authority (for both FATCA and CRS)

· Must declare status as a Reporting FI to all FIs it has accounts with (and provide GIIN/ TIN)

· Can use third party service provider but compliance responsibilities remain with trust

· NB – FATCA options of Sponsored Investment Entity & Owner Documented FI are not available under CRS

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CRS - What should trustees be doing now?

Identify the CRS status of our administered entities and their Controlling Persons

(account holders in the case of administered FIs)

Identify new documentation requirements for account opening and account servicing

events (Change of Circumstances / Distributions) and update procedures (including

new CRS Self-Certification procedures to deal with AO/AS/CoC/Distributions)

Identify process and procedural gaps and changes required - Consider changes and

similarities between FATCA and CRS / gap analysis.

Identify any gaps in information held on existing trust principals – e.g. tax

residency(ies), TINs?

Ensure account opening procedures capture all information requirements under CRS

for new structures

Consider what changes are required for CRS requirements to Trustee processes and

Trustee databases developed for FATCA / UK FATCA (CDOT)

Compare requirements to identify changes required to procedures / manuals

Develop client communications strategyPUBLIC


What CRS means for our trust staff

Because of CRS, our trust teams will need to:

· Identify the CRS status of our administered entities and their controlling persons /

account holders of administered FIs

· Understand the new documentation requirements for account opening and account

servicing events (including the mandatory Self-Certification process for new accounts)

· Understand the new documentation requirements for opening and maintaining accounts

with upstream custodians

· Understand the new CRS Self-Certification requirements, when they apply, and the new

CRS Validation and Reasonableness tests (including CRS Documentary Evidence

requirements)

· Know how to respond to CRS queries from clients who are controlling persons of

administered entities, or account holders of administered FIs.

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CRS: what is required?

• CRS shares a number of similarities with FATCA, allowing some leverage of existing FATCA capabilities to support delivery.

• The scale of change required will depend on the implementation approach adopted by Trustees for FATCA

Gap to: FATCA IGA

Overall client due diligence ► Possible need for dual FATCA and CRS classifications of both

(i) Reportable clients; and

(ii) Reportable accounts

Pre-existing individual CP identification

► Additional indicia checks required but only for high value accounts, or accounts where no current residence address held.

► De minimis limits removed

New individual CP identification ► Current self certification must be amended to cover all countries, rather than a ‘not US’ declaration

Pre-existing entity identification ► Minor changes to entity types – documentation standards and workflow largely preserved.

New entity identification ► A number of changes needed, including a self-certification on residency for all new entity accounts

Reporting ► Reporting to local authorities as under FATCA in a ‘many to many’ manner► No phased implementation, as seen under FATCA ► Multiple reporting formats issued by IRS, OECD and HMRC. Schemas broadly similar, but

some differences

Withholding ► No withholding requirement under CRS

Compliance ► As with FATCA IGA, compliance is under local law

Significant redesign required Process changes and new information requirements Minor or no redesign effort

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• Trustees will need to develop their own set of policies for implementation of CRS.

− For all pre existing accounts, whether to request a self-certification from all

Account Holders / Controlling Persons of administered entities or to rely on

existing KYC / AML information (if this covers tax residency of those Controlling

Persons)?

− What format to adopt for the Self-certification forms that incorporate CRS

requirements – is any tailoring / branding of Controlling Persons forms required by

the trustee?

CRS Implementation by Trustees – some policy decisions required

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· OECD has issued an example of a form that could be used to collect data from

Controlling Persons in relation to the CRS. It is not a mandatory form. Each

Financial Institution is free to use its own form, but as a minimum a Financial

Institution should collect the mandatory data detailed in the CRS commentary in

accordance with local rules and guidance.

· Financial Institutions may also be able to collect the information required to be

reported in another way (i.e., other than on the self-certification). For a self-

certification to be valid, however, it generally must contain the Account Holder’s (i)

name, (ii) residence address, (iii) jurisdiction(s) of residence for tax purposes, (iv)

tax identifying number for each Reportable Jurisdiction, and (v) date of birth.

· Financial Institutions need to choose the time-limits applicable to its own procedures

for collection of the forms, although under CRS financial institutions should not open

new accounts without a Self-Certification.

CRS Implementation by Trustees – Controlling Person self-certification policy decisions required

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· If a Financial Institution requests the form due to a change in circumstances or

because indicia of reportable status is associated with the account, the FI may be

required to obtain Documentary Evidence that:

(i) confirms that the Controlling Person is resident in a jurisdiction other than the

relevant Reportable Jurisdiction;

(ii) contains a current residence address outside the relevant Reportable Jurisdiction;

or

(iii) is issued by an authorised government body of a jurisdiction other than the

relevant Reportable Jurisdiction.

· If a Financial Institution knows or has reason to know that a self-certification is

incorrect, it is expected that in the course of the account opening procedures the FI

would obtain either:

(i) a valid self-certification, or

(ii) a reasonable explanation and documentation (as appropriate) supporting the

reasonableness of the self-certification (and retain a copy or a notation of such explanation

and documentation).

CRS Implementation by Trustees – Controlling Person self-certification policy decisions required

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)

CRS: more disruptive, more complicated, more extensive than FATCAe.g. Due Diligence for Pre-existing accounts and for New Accounts.

FATCA

CRSCRS

W8 BEN – E: not reliable information for CRS purposes: separate CRS Self-Certification will be requested by upstream custodians, and CRS SCs will be required to be obtained by trustees from administered entity Account Holders / Controlling Persons.

CRS

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Developments in Global Tax Frameworks

FATCA• U.S. led initiative

for tax transparency for U.S. citizens globally

• Withholding and Reporting regime

CDOT • Tax information

exchange agreements amongst the UK, Crown Dependencies and British Overseas Territories

• Reporting regime only

CRS• Introducing a

framework for Automatic Exchange of Information with approximately 100 countries intended to participate

• Reporting regime only

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Trustee administered entities and the Common Reporting Standard

· Following FATCA and CDOT, our next classification and reporting challenge for Trustee

administered entities will be implementation of the ‘Common Reporting Standard’ (CRS)

which will be grounded upon a series of bilateral or multilateral treaties, based on a model

Competent Authority Agreement and CRS, which have been published by the

Organization of Economic Cooperation and Development (OECD). These treaties will be

backed by local laws and regulations.

· From January 2016, governments of early adopter jurisdictions will begin requiring

financial institutions to obtain certain details of accounts for tax information exchange

purposes.

· Second wave jurisdictions follow from January 2017.

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Developments in Global Tax Frameworks

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2. Key dates and requirements

Trustees will need to implement processes to meet project milestones / regulatory requirements. The applicable timeframe is determined by the residence of the administered trust or entity.

NewCustomers

1 January 2017New customer

Onboarding processes must be effective for 2018 reporters

31 Dec 2016Review of ‘High Value’ individual pre-existing

accounts must be completed.(Early Adopters)

March 2017*First CRS

reporting by FIs

2016 2017

Early Adopters include BVI, Bermuda, Cayman Islands, Guernsey, Jersey, Luxembourg, and the UK

2018 Adopters include Hong Kong and Singapore.

2018 2019

31 Dec 2018Complete due diligence on all

other pre-existing accounts for 2018

adopters

31 Dec 2017Complete due diligence on all other pre-existing

accounts (Early Adopters)

31 Dec 2017Review of ‘High Value’ individual pre-existing

accounts must be completed for 2018 reporters

?Trustee project milestones

to complete all due-diligence must be within regulatory

deadlines

Trustee Project Milestones to be set

1 Jan 1 Jan 1 Jan 1 Jan

1 January 2016New customer

Onboarding processes must be effective for ‘Early Adopters’

*Will vary across jurisdictions

Reporting

Due Diligence

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AEOI Overview

· Key Bermuda dates for AEOI

FATCA CDOT CRS

Registrations From 1 July 2014 N/A N/A

1st reporting period ends

31 Dec 2014 31 Dec 2014 31 Dec 2016

Report to IRS – by 31 Mar 2015 (extended to 29 June 2015)

HMRC – by 30 Sept 2016

Bermuda –Date TBD

Information exchanged

Direct reporting to IRS for Bermuda as IGA Model 2

Direct reporting to HMRC for Bermuda as IGA Model 2

Bermuda – 30 Sept 2017

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Summary of key dates for “early adopter” jurisdictions

· Pre-existing accounts will be those that are open on 31 December 2015

· New accounts will be those opened from 1 January 2016.

· The due diligence procedures for identifying high-value pre-existing individual accounts

will be required to be completed by 31 December 2016.

· The due diligence procedures for pre-existing entity and low-value individual accounts

will be required to be completed by 31 December 2017.

· The first reporting of information in relation to new accounts and pre-existing individual

high value accounts will take place before September 2017.

· Information about pre-existing individual low value accounts and entity accounts will

either first be exchanged by Governments by the end of September 2017 or September

2018 depending on when financial institutions identify them as reportable accounts.

· Entities (including Controlling Persons) – To be classified by upstream custodians (which

hold accounts for them) by 31 December, 2017 (for early adopter jurisdictions).

Note: New account opening procedures to record tax residence and type of Controlling Person will need to be in place from 1 January 2016.

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FATCA IGA Countries

57countries will start CRS compliance

from

1 January 2016

Information correct as at September 2015

2017 adopters

2018 adopters

Nigeria Venezuela

Pakistan Vietnam

United States**

& any other country not listed

No CRS commitment

** The United States has indicated support for the CRS but remains committed to reciprocal exchange under FATCA

* Date to be confirmed

Algeria Cambodia Honduras Moldova Serbia Ukraine

Angola Dom. Repub. Iraq Montenegro Taiwan Uzbekistan

Armenia Georgia Jamaica Nicaragua Thailand

Azerbaijan Guyana Kazakhstan Paraguay Tunisia

Belarus Haiti Kosovo PeruTurkmenistan

Cabo Verde Holy See Kuwait Philippines

3. Jurisdictions

Antigua Canada Hong Kong Malaysia St. Kitts UAE

Australia Chile Indonesia Panama St. Lucia Ghana

Bahamas China Israel Qatar St. Vincent Uruguay

Bahrain* Costa Rica Japan Saudi ArabiaSwitzerland

Brazil Grenada Macao Singapore Turkey

Anguilla Croatia Germany Isle of Man Mexico Slovak Rep.

Austria Curaçao Gibraltar Italy Montserrat Slovenia

Barbados Cyprus Greece Jersey Norway South Africa

Belgium Czech Rep. Greenland Latvia Netherlands South Korea

Bermuda Denmark GuernseyLiechtenstein Poland Spain

BVI Dominica Hungary Lithuania Portugal Sweden

Bulgaria Estonia Iceland Luxembourg RomaniaTrinidad & Tobago

Cayman Isl. Finland India Malta San Marino Turk and Caicos

Colombia France Ireland Mauritius Seychelles UK

Argentina

Faroe Islands

Niue

Albania Cook Islands Russia

Andorra Marshall Isl. Samoa

Aruba MonacoSaint Maarten

Belize Nauru* Vanuatu*

Brunei Darussalam

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What is the position of the USA?

· The United States has no current plans to implement the CRS but will instead continue to use FATCA

"The United States has indicated that it will be undertaking automatic information

exchanges pursuant to FATCA from 2015 and has entered into intergovernmental

agreements (IGAs) with other jurisdictions to do so. The Model 1A IGAs entered

into by the United States acknowledge the need for the United States to achieve

equivalent levels of reciprocal automatic information exchange with partner

jurisdictions. They also include a political commitment to pursue the adoption of

regulations and to advocate and support relevant legislation to achieve such

equivalent levels of reciprocal automatic exchange.“

OECD

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US position – recent comments

· Treasury Official Says U.S. Adoption of OECD Common Reporting Standard Will Take

Time 194 DTR G-3

· Brett York (Office of International Tax Counsel at the US Treasury) said Oct. 6 that the U.S.

isn't on the list of 40 countries that have agreed to adopt the standard early, because it would

require legislative changes for banks to be able to share some of the information called for

under the standard, developed by the Organization for Economic Cooperation and

Development.

· Even if that legislation were to be enacted, Treasury and the Internal Revenue Service would

still have to issue regulations, York said.

· He noted that the U.S. doesn't anticipate a new agreement on the common reporting standard,

but would implement the standard through existing intergovernmental agreements (IGAs)

under the Foreign Account Tax Compliance Act.

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CRS and FATCA (the Foreign Account Tax Compliance Act)

· Although the CRS is similar to FATCA, there are some key differences between the CRS and FATCA.

· Under FATCA, participating or reporting FIs have to identify and report account holders who are United States Persons to the US Internal Revenue Service (IRS), either directly in Model 2 jurisdictions (as in Bermuda) or via the local tax authority (in Model 1 jurisdictions).

· The CRS has a much wider scope as there are nearly 100 participating jurisdictions.

· We are required to establish the tax residency of our clients (who are controlling persons of entities administered by the trustee), i.e. in which jurisdiction they are or should be paying tax. We will collect this information and if necessary report it to the local tax authority of the jurisdiction where the account is held (Bermuda, where administered entities are resident in Bermuda)

· The information is then exchanged between the relevant tax authorities of all the countries who have signed an agreement to share it.

· Under CRS, there is no requirement to withhold tax. There is no GIIN process – local tax authorities will determine their own registration requirements.

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FATCA vs CRS

· The five stages of AEOI

–Establish Entity Classification (FI, NFE etc) – broadly the same but no sponsored

categories under CRS

–Register if FI – FATCA only, no registration under CRS (other than local

requirements)

–Establish Entity Residence for Reporting – similar, some differences

– Identify Reportable Accounts – significant differences

–Report – Reporting will be common under CRS due to the number of participating

jurisdictions, and reporting will be to the local Tax Authority

· Trustees will generally adopt an approach to classifying pre-existing administered

entities (as at 31 December 2015) for CRS purposes based upon FATCA / CDOT

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High-level comparison between FATCA and CRS

Area FATCA CRSWho is an FI? Financial institutions (FI) that meet the investment entity

or custodial institution definitions, unless specifically exempted as being lower risk.

Financial institutions that meet the investment entity or custodial institution definitions . There are differences and flexibility for local guidance to define specific exemption for low risk entities.

Compliance options

FFIs can choose various approaches to compliance (Lead / Single FI, sponsored entity, etc.)

FIs will be required to comply in their own right, unless they meet the Non-Reporting FI definition, which includes Trustee Documented Trusts. No sponsored approach is available under CRS

Registration Reporting FFIs are generally required to register with the IRS to obtain a Global Intermediary Identification Number (“GIIN”). In some countries, there is also a requirement to register with the tax authorities

No registration. Some countries may require registrations with the tax authorities

Due diligence Separate due diligence for pre-existing and new accounts, and for individuals and entities.

Due diligence modelled off a Model 1 IGA, but with a number of key differences

De minimis limits $50,000 for pre-existing individual accounts / $250,000 for pre-existing entity accounts

No $50,000 de minimis for pre-existing individual accounts. A $250,00 de minimis for pre-existing entities remains

Indicia Focused on US citizenship Focused on tax residency

Account scope For investment entities, most debt and equity holders. Certain exceptions may apply to publicly traded instruments (e.g., exchange-traded entities) and to certain products identified as posing a low risk of tax evasion

For investment entities, includes debt and equity holders. No exception for publicly-traded instruments. Certain “low risk” products are exempt as for FATCA

Reporting To local authorities (Model 1 IGA) or the US (in non-IGA and Model 2 IGA countries). Account balances from 2014, with income and sale proceeds phased in

Reporting to a local tax authority which would subsequently report to other CRS participating countries. Account balances, income and sale proceeds from day one

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OECD handbook version 1 – August 2015

Implications for trusts

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CRS and trusts – new terminology

How the CRS regime applies to trusts

· How this regime applies to trusts and other vehicles used for family wealth structuring is

complex.

· ‘Financial Accounts’ and ‘Controlling Persons’ terminology under the CRS runs counter

to the legal obligations established under a trust deed. These terms have a particular

meaning under the Automatic Exchange of Information (AEOI) regime as under the CRS,

performing client due diligence by trust practitioners is based on the Financial Action

Task Force’s (FATF’s) anti-money laundering (AML) guidance in defining the Controlling

Persons of an Entity.

· The new global model of automatic exchange of information sets a minimum standard

for the information to be exchanged in respect to such financial accounts and, for

instance, under the terminology introduced by this new regime, settlors and beneficiaries

in receipt of distributions may be deemed to hold ‘Financial Accounts’ in trusts.

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CRS and trusts – How the CRS regime applies to trusts (continued)

· If a Trustee administered entity is classified as an Active NFE it could then be reportable

by upstream custodian with which it maintains an account. The Active NFE will need to

provide evidence (i.e. a self certification) to confirm this status to the upstream custodian,

which will report it as required.

· Trustee administered Passive NFEs will additionally be required to provide the Controlling

Persons information upstream, which again will be reported by the upstream custodian

where required.

· If an administered entity is an FI, then the FI will be responsible for its own CRS

compliance. [So far as the upstream custodian is concerned - The FI will pass GIIN

information upstream (plus classification self-certification) so that the custodian can

correctly classify them. The entity itself (or the Trustee) will then be responsible for

identifying and reporting on any financial accounts for administered FIs. It is likely that the

definition of a financial account (i.e. debt/equity interest) will cover a Controlling Person

who is a settlor or beneficiary in receipt of a distribution, who may be reportable as a

result by the FI.

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)The Handbook

Practical guidance to assist

government officials and financial

institutions in the implementation of

the standard

Overview of the legislative,

technical and operational issues

More detailed discussion of the key

definitions

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Trustee administered entities and the Common Reporting Standard – OECD guidance issued on treatment of trusts in August 2015

· In August 2015, the OECD released guidance on implementing the multilateral automatic

exchange of financial account information under the CRS. This guidance included the first

edition of the CRS Implementation Handbook, including Chapter 6 which discusses the

CRS treatment of trusts. This guidance is helpful but there are still a number of

uncertainties.

· The handbook contains a list of 16 optional provisions that countries could adopt to

provide flexibility for FIs, align CRS with FATCA, and reduce costs for FIs. This means

that as Trustees we will need to review the approach taken for each jurisdiction where

administered entities are resident and review jurisdictional guidance as and when issued.

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Investment Entity test

· For CRS, a trust will be an Investment Entity (IE) if (among other tests) the trust’s income

is primarily attributable to investing in financial assets and the trust is managed by

another entity that is an FI. A trust is “managed by” another entity if that other entity

performs certain investment management activities for the trust directly or through a

service provider. Many Trustee administered trusts will be IE FIs under this definition, and

the Trustee will be responsible for reporting any reportable accounts on behalf of

administered IEs. Trust-based collective investment vehicles (e.g., funds structured as

unit trusts) will also be IEs.

· If a trust is an Investment Entity under the ‘gross income’ and ‘managed by’ tests referred

to above and the trust is not resident in a participating jurisdiction FI, reporting FIs who

maintain accounts for the trust (i.e. the upstream custodians) must treat the trust as a

passive NFE and report on its controlling persons.

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TRUSTS WHICH ARE INVESTMENT ENTITIES (IEs)· Where a trust is an IE, the account holders of the trust are the holders of debt issued by

the trust and the holders of “equity interests” in the trust. Trusts do not issue equity as a matter of trust law so the CRS provides special rules to determine who holds the “equity interests” in a trust for CRS purposes.

– Any person treated as a settlor or beneficiary and any other natural person exercising ultimate effective control over the trust holds an equity interest in the trust.

– A discretionary beneficiary is only treated as an account holder in a year in which the beneficiary receives a distribution.

– A contingent beneficiary (i.e. a beneficiary that is included in a class of beneficiaries but has not received a distribution) is treated like a discretionary beneficiary

– If a settlor, beneficiary, or other financial account holder is an entity, the CRS looks through such entity to the natural persons controlling that entity (and the trustee will need to obtain certifications and documentation in respect of the natural persons controlling that entity – whether that entity acts as ‘asset contributor’, receives a ‘distribution’ or performs another ‘controlling person’ function such as acting as ‘protector’)

· A trust that is a reporting FI must report the account information and financial activity for the year in respect of each ‘reportable account’.

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TRUSTS WHICH ARE NON-FINANCIAL ENTITIES (NFEs)· For a trust that is an NFE, if the trust holds an account with a reporting FI (e.g. an

upstream custodian), the reporting FI would generally be required to report the trust for CRS purposes. The trust itself will be a reportable person only if the trust is a tax resident of a reportable jurisdiction and is not exempt or excluded. An account held by a trust that is an NFE is also reportable if the trust has one or more controlling persons that are reportable. The controlling persons include the settlor, the trustee, beneficiaries, protectors, and any other natural person exercising ultimate effective control over the trust.

· The reporting requirements (by the upstream custodian) in respect of trusts which are NFEs are different to the reporting requirements for trusts which are IEs (by the trustee)

· A settlor of an NFE trust is reported regardless of whether the trust is revocable or irrevocable.

· CRS does not require identifying individual beneficiaries of an NFE trust by name where the beneficiaries are possible members of a class. Instead, when a member of the class receives a distribution from the trust or intends to exercise vested rights in the trust property, this is considered a change in circumstances triggering additional due diligence and reporting as necessary in respect of that person.

· Named discretionary beneficiaries of an NFE trust are considered reportable persons (by the upstream custodian) even if they do not receive a distribution during the year.

· Jurisdictions may permit FIs to align the scope of beneficiaries subject to CRS reporting for both FIs and NFEs. Trustees will need to review local guidance on this.

PUBLIC


What CRS expects

Implications for Trustees

PUBLIC


What CRS expects

New account opening policies & procedures

Existing customers due diligence

Reporting to local authority

PUBLIC

http://www.google.com.hk/url?url=http://www.govopps.co.uk/2011/09/page/62/&rct=j&frm=1&q=&esrc=s&sa=U&ei=ch9sVO78KeWTmwWiioKoCg&ved=0CBsQ9QEwAzhk&usg=AFQjCNFZpPm4wSFq6bAFy1ELFnqZuDoz0g


The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)- Other tools

FAQs

AEOI-Portal

PUBLIC


Examples of OECD CRS FAQs – latest update November 2015

PUBLIC

5. Obligations of a Financial Institution to establish tax residency

Question

What are the obligations under the Standard of a Financial Institution to establish the tax residency of

its customers in relation to the New Account procedures?

Answer

A Financial Institution is not required to provide customers with tax advice or to perform a legal analysis

to determine the reasonableness of self-certification. Instead, as provided in the Standard, for New

Accounts the Financial Institution may rely on a self-certification made by the customer unless it knows

or has reason to know that the self-certification is incorrect or unreliable, (the “reasonableness” test),

which will be based on the information obtained in connection with the opening of the account, including

any documentation obtained pursuant to AML/KYC procedures. The Standard provides examples of the

application of the reasonableness tests (Section IV, A, and the associated Commentary).

The Standard also states that Participating Jurisdictions are expected to help taxpayers determine, and

provide them with information with respect to, their residence(s) for tax purposes (Paragraph 6 of the

Commentary to Section IV and Paragraph 9 of the Commentary on Section VI). The OECD is

facilitating this process through a centralised dissemination of the information (on the Automatic

Exchange Portal). Financial Institutions could also direct customers towards this information.



PUBLIC

6. The Validation of TINs

Question

With respect to a Taxpayer Identification Number (TIN) provided on a self-certification, when will a Reporting Financial

Institution know or have reason to know the self-certification is incorrect or unreliable?

Answer

The Standard provides that a Reporting Financial Institution may rely on a self-certification unless it knows or has reason to

know that the self-certification is incorrect or unreliable (Section VII, paragraph A and associated Commentary). This includes,

among the other information provided on the self-certification, the TIN in relation to a Reportable Jurisdiction. The Standard

includes an expectation that Participating Jurisdictions will provide Reporting Financial Institutions with information with

respect to the issuance, collection and, to the extent possible, the practical structure and other specifications of TINs

(Commentary to Section VIII, paragraph 149). The OECD will be facilitating this process through a centralised dissemination of

the information (on the Automatic Exchange Portal).

A Reporting Financial Institution will have reason to know that a self-certification is unreliable or incorrect if the self-

certification does not contain a TIN and the information included on the Automatic Exchange Portal indicates that Reportable

Jurisdiction issues TINs to all tax residents. The Standard does not require a Reporting Financial Institution to confirm the

format and other specifications of a TIN with the information provided on the Automatic Exchange Portal. However Reporting

Financial Institutions may nevertheless wish to do so in order to enhance the quality of the information collected and

minimise the administrative burden associated with any follow up concerning reporting of an incorrect TIN. In this case, they

may also use regional and national websites providing a TIN check module for the purpose of further verifying the accuracy

of the TIN provided in the self-certification.


Examples of CRS FAQs – latest update November 2015

PUBLIC

11. Reason to Know

Question

Should a self-certification contain language requiring the Account Holder to update the Reporting

Financial Institution if there is a change in the information that affects the Account Holder’s status?

Answer

Although this is not a requirement under the Standard, a Reporting Financial Institution may want (or

may be required to under a particular jurisdiction’s domestic law) to include such language in self-

certifications collected from its Account Holders as it may reduce the onus on the Reporting Financial

Institution in applying the reasonableness test. Pursuant to the reasonableness test, a Reporting

Financial Institution may not rely on a self-certification if it knows or has reason to know that the

information contained on the self-certification is unreliable or incorrect. Commentary on Section VII

paragraph 2-3.

Jurisdictions may also consider including in their domestic law implementing the CRS a requirement

on Account Holders to provide a self-certification to the Reporting Financial Institution and to inform the

Reporting Financial Institution if there is a change to information contained in the self-certification that

affects their status under CRS.



PUBLIC

13. The relationship manager test

Question

How might the standard of knowledge test applicable to a Relationship Manager contained in the

Standard be operationalised in practice?

Answer

The standard of knowledge test applicable to a Relationship Manager (for example, Section III, C(4)

and the associated Commentary) could be operationalised through regular (e.g. yearly) instructions

and training by a Financial Institution to all of its employees that could be considered Relationship

Managers according to the Standard (Paragraphs 38 to 42 of the Commentary to Section III, C(4)).

This could include the Financial Institution maintaining a record of a response made by each

Relationship Manager stating that they aware of their obligations and the channels to communicate

any reason to know that an Account Holder for which they manage the relationship is a Reportable

Person. These communications could then be centrally processed by the Financial Institution in the

manner required by the Standard.



PUBLIC

20. Timing of self-certifications

Question

With respect to New Individual and Entity Accounts the Standard provides that the Reporting Financial Institution must

obtain a self-certification upon account opening. In such cases, is it expected that Reporting Financial Institutions can

only open the account once a valid self-certification is received?

Answer

The Standard provides that a Reporting Financial Institution must obtain a self-certification upon account opening

(Sections IV(A) and V(D)(2)). Where a self-certification is obtained at account opening but validation of the self-

certification cannot be completed because it is a ‘day two’ process undertaken by a back-office function, the self-

certification should be validated within a period of 90 days. There are a limited number of instances, where due to the

specificities of a business sector it is not possible to obtain a self-certification on ‘day one’ of the account opening

process, for example where an insurance contract has been assigned from one person to another or in the case where

an investor acquires shares in an investment trust on the secondary market. In such circumstances, the self- certification

should be both obtained and validated as quickly as feasible, and in any case within a period of 90 days. Given that

obtaining a self-certification for New Accounts is a critical aspect of ensuring that the CRS is effective, it is expected that

jurisdictions have strong measures in place to ensure that valid self-certifications are always obtained for New Accounts

(see examples in paragraph 18 of the Commentary on Section IX). In all cases, Reporting Financial Institutions shall

ensure that they have obtained and validated the self-certification in time to be able to meet their due diligence and

reporting obligations with respect to the reporting period during which the account was opened.


Countries need local legislation to enable the “CRS Agreement” before exchange can happen

Local enabling legislation

OECD CRSRequirement

“CRS Agreement”

Legal Basise.g. tax treaties

PUBLIC

Bermuda Law – International Cooperation (TIEA) Act 2005 – clause 4a amendment


The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS) - The CRS - How it works

(Reportable)Account

Reporting FI

Heldby a

Reportable(Jurisdiction)

Person

Reporting of information based on Common Reporting and Due Diligence Standard (CRS) implemented via domestic law

PUBLIC

http://www.flaggenbilder.de/deutschland/deutschland-fahne-006-quadratisch-relief-200x200_flaggenbilder.de.gif.html


Example 1 – Overseas Tax Resident

Information

French Tax Resident

Cayman Islands Government

French Government

PUBLIC


Example 2: Dual Tax Resident

Information

Account

Account

Information

UK Government

Canadian Government

UK/Canadian Tax Resident

UK/Canadian Tax Resident

PUBLIC

61STEP Presentation- December 2015PUBLIC

FinancialInstitution

Country A

Country BAccount Holder

Financial Institution

Country A Account Holder

Country B


61

Automatic exchange of information based on bilateral treaty, TIEA, or MAC, & CAA


The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)Automatic exchange standard: Basic approach - CRS + CAA = exchange standard


The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)- The reciprocal automatic exchange framework

Source: CRS Implementation Handbook page 7


CRS implementation

Summary Features of the Model CRS

PUBLIC


Model CRS: Summary features of the Model CRS

• Definition broadly align to those under the FATCA Model 1 IGA• Trusts and foundations that are professionally managed will be FIs,

others will be Passive NFEs• Residence of an FI based on their place of residence - fiscally

transparent vehicles will use effective place of management as a proxy for residence.


• Broadly similar to the generic classes of Excluded Beneficial Owners in Annex II of the Model 1 IGA: certain pension funds, central bank, governmental entities etc.

• A broad definition is also included that allows domestic law to treat similar low risk entities as non reporting FIs.

• Effectively a jurisdiction will have one generic Annex II for itself – will need to be agreed between the two countries entering into the agreement.

Non Reporting FIs

• Again largely similar to the IGA and FATCA definitions • Includes Depository, Custodial, Cash Value Insurance and

Annuity Accounts• However a key change to scope in change to definition of

equity/debt interests in certain Investment Entities.

Financial Accounts

• The information required to be reported is similar but not the same as that under FATCA and IGA’s

• FIs will be required to report on all individual account holders tax resident in all the other country(s) where there is an agreement

• For entities, reporting includes Active NFEs, Passive NFEs and the controlling persons of Passive NFEs, even if they are resident in the same country as the entity

Reporting

PUBLIC


Model CRS: Summary features of the Model CRS: due diligence

• Broadly treated the same as under the IGA i.e. obtain a self certification and carry out a “reasonableness” test

• However there is no de-minimis threshold- all accounts in scope

New Individual Accounts

• Due diligence contains an option of using a Current residence address test

• Alternatively an Electronic indicia check (note: these indicia differ from the IGA indicia)

• Again no de-minimis threshold, but still a $1m“High Value Account”

Pre-existing individual accounts

• Entity due diligence is broadly aligned to the IGA• $250k de-minimis threshold is retained for pre-existing entity

accounts only – i.e. no de-minimis for new entity accounts • FIs are treated as Jurisdiction FIs based on their place of

incorporation, organisation or residence, or effective place of management if fiscally transparent vehicles

Entity accounts

PUBLIC


CRS implementation

Implications for trusts and trustee administered entities

PUBLIC


− A self certification will need to be obtained as part of account opening

− Confirm reasonableness of the self certification based on account opening/other

documentation collected as part of AML/KYC procedures

− No further Due Diligence required for CRS purposes unless there is a Change in

Circumstances

New Controlling Persons of Trustee administered entities

· When we open an account for a new CP of a trustee administered entity we will

need to collect information about the CP’s jurisdiction(s) of tax residence.

· Self-certification forms can be used to help Controlling Persons of administered

entities provide trustees with this information. The information will be collected as

part of the account opening process.

· This information must be checked to ensure the details are valid and then stored, as

certain information about the Controlling Person may need to be reported to the

local tax authority and to be maintained for audit purposes.

OECD requirements for Controlling Persons (CPs)

PUBLIC


Existing Controlling Persons / Account Holders of Trustee administered entities

· Trustees will also review accounts held by existing Controlling Persons of

administered entities to help identify their tax residence.

· Individuals may require to be asked to provide a self–certification unless a valid and

reasonable self-certification already exists on file.

· Enhanced Review on High Value Individuals (Electronic Review + Paper file review

[if gaps in mandatory CRS data elements] + Relationship Manager Enquiry) to

determine indicia

· If indicia of residence in a Participating Jurisdiction is discovered, then the individual

will be treated as a Reportable Person and the account will be reportable, unless

the relevant cures are applied ( the cure generally includes a self-certification and/or

documentary evidence from the account holder)

Controlling Persons / Account Holders of administered entities

PUBLIC


OECD requirements for Entities (by upstream custodians with which the entity

maintains an account)

− Existing accounts to be classified by 31 December 2017 (early adopters).

− Upstream custodians will perform review of the existing information collected under

AML/KYC and other relevant documents (including certain publicly available

information) to determine whether the account holder is a reportable entity.

− If the Entity is determined to be reportable, then they must be reported unless there a

self certification stating otherwise or other reliable documentation/information is

available (i.e. GIIN number or publically available information).

− If the entity type of a Trustee administered entity is identified as

• Passive Non-Financial Entity, or

• Type 2 Investment Entity in a CRS non-participating jurisdiction

− As part of the Entity Self-Certification, the administered entity will be required to

provide information to the upstream custodian about their the Controlling Person(s)

in order to determine whether such person(s) are reportable (making the account

and controlling person(s) reportable).

Administered entity accounts opened with upstream custodians

PUBLIC


Trustee implications

• An entity self certification will be requested by the upstream custodian as part of

account opening for administered entities.

• The upstream custodian will confirm reasonableness of the self certification based

on account opening/other documentation collected as part of AML/KYC procedures.

• The upstream custodian will identify the controlling person(s) by obtaining self-

certifications to determine any reportable person(s) in respect of Passive NFEs or

Type 2 Investment Entities.

• Thus trustees will be requested to provide ‘Controlling Person’ self-certifications to

upstream custodians in addition to ‘Entity’ self-certifications for Passive NFEs or

Type 2 Investment Entities.

Administered entity accounts opened with upstream custodians

PUBLIC


Self-certifications

Implications for trusts and Trustee administered entities

PUBLIC


Information required to comply with CRS

· Administered Entities− Name − Address− Country of Incorporation− Country(ies) of Tax residence− Tax Identification Number(s) − Entity Type

· Controlling Persons (comparable to Individuals except CPs also certify CP type) − Name − Address− Date of Birth **− Country(ies) of Tax residence− Tax Identification Number(s) − Place of Birth ** − Controlling Person Type

** This information is required where we are permitted to collect it under local law.

PUBLIC


Comparison of CRS data elements / references

Data set CRS Data Element/Reference Individuals Entities

Controlling Persons

CRS Data Elements

Name

Country of incorporation or organisation

Date of Birth

Place of Birth

Entity Type

Type of Controlling Person

Taxpayer Identification Number

Declarations and Signature

Incl. in both Data

sets

Country of Residence for Tax Purposes

Current Residence Address

Mailing Address

CRS Data Reference

s

Telephone Numbers

Standing Instructions

Power of Attorney

Signatory Authority

In care Of and/or Hold Mail

PUBLIC


CRS and Self-Certification

· From the date Bermuda goes live for CRS (1 January 2016), new Trustee administered trust

Account Holders / Controlling Persons will have to provide a self-certification and any

necessary documentary evidence.

· For Trustees there are two types of self-certification :

1) Administered Entities – Trustee to provide self-certification to upstream custodian

2) For Account Holders / Controlling Persons of administered entities - Trustee to

obtain and for certain entity types (Passive NFEs and Type 2 Investment Entities)

also provide to upstream custodians.

· When the Trustee asks a Controlling Person for self-certification information, as a practical

matter it is important to record the request in order to demonstrate the Trustee has made a

reasonable effort to obtain the information and to ensure the Controlling Person does not

receive multiple requests over a short period.

· The Trustee needs to have this record for audit and compliance purposes.

PUBLIC


Individual account holders (i.e. settlors and beneficiaries) with administered FIs

PUBLIC

Self-Certification steps

Process flow Individual Account Holders with trustee administered FIs (e.g. TDTs)

New Client Onboarding Account Servicing

Remediation

Step-1 Request Self-Certification

Step-2Timelines to request Self-Certification

No timeline applies as it will be collected upon on-boarding

Earlier of 90 days or end of

relevant calendar year/

reporting period

31-Dec-2016

Step-3 Validation

Step-4 Reasonableness Test

Implications

Self-Certification received (incl. Validation & Reasonableness Test)

Capture JoTR(s) & Proceed with BAU client onboarding

Capture JoTR(s)

Capture JoTR(s)

Self-Certification not received -Impact on Relationship

Relationship not operationalisedAML /KYC Standards apply

AML/KYC Standards apply

Self-Certification not received - Determination of JoTR

JoTR captured based on existing information

CRS Enhanced Review applies to identify JoTR


What Policies will the Trustee adopt for Due Diligence of pre-existing accounts?

• Accuracy of information? By requesting a self-certification from pre-existing Controlling

Persons, they are able to self-classify their tax residency(ies).

• Cost effective? Scope of records maintained?

• Future proofing – in line with new account requirements and will standardise information on

file for both new and pre-existing customers.

• Obtain self certification forms from all Controlling Persons?

• Settlors / asset contributors

• Beneficiaries in receipt of distributions

• Protectors (and any other natural person exercising ultimate effective control over the

trust)

• Matter for individual Trustee policy in respect of pre-existing accounts whether to seek Self-

Certifications (likely to be requested by upstream custodians in respect of Passive NFEs

and Type 2 Investment Entities)

PUBLIC


Self-Certification Timelines

· Timelines applicable for all Account Holders / Controlling Persons of Trustee administered entities to obtain and successfully process Self-Certifications upon request:

PUBLIC

Trustee CRS process Individual Account Holders with Trustee administered FIs / Controlling Persons

Account Opening New accounts should not be operationalized before Self-Certification is successfully processed

Account Servicing The earlier of 90 days or the end of the relevant calendar year or other relevant reporting period

Remediation of

Pre-existing Accounts31 December 2016


What do we mean by Validation and Reasonableness tests?

PUBLIC

CRS Data Element VALIDATION REASONABLENESS TEST

Signed

By the Controlling Person

Needs to be completed.

Can be electronic or wet signature

None

Dated


Can be populated by trustee on receipt of SC from Controlling Person

None

Name

Individual – Family and First Name are mandatory.

Title and Middle Name(s) are recommended

Individual:

Any valid identification issued by an authorized government body (for example, a government or agency thereof, or a municipality) including the individual’s name which is typically used for identification purposes (e.g. passport) and is acceptable under local AML procedures

Entity:

Any official documentation issued by an authorized government body that includes the name of the entity




Residence address

Must be a current residence address

Town and Country are mandatory

House number etc. and Post/ZIP code etc. are recommended

Individual:

Current utility bill, ID card or anything currently accepted as part of our AML procedures

Entity:

May rely on existing AML procedures. Evidence may include any official documentation issued by an authorized government body. In determining residence, use either the address of its principal office in the jurisdiction in which it claims to be resident or the jurisdiction in which the entity is incorporated or organized.

Mailing address

This is an optional field and should only be completed if there is no current residence address held.

Individual:

ID card or anything currently accepted as part of local AML procedures

Entity:

May rely on existing AML procedures. Evidence may include any official documentation issued by an authorized government body. Should relate to the address of its principal office in the jurisdiction in which it claims to be resident or the jurisdiction in which the entity is incorporated or organized.

PUBLIC



PUBLIC


Jurisdiction(s) of tax residence


Client may have more than

one tax jurisdiction and

should detail ALL of them.

On Account Opening the stated JoTR may be

accepted as valid if there are no conflicts

between the country of residence (or mailing)

address and the JoTR.

TIN

(for each jurisdiction of tax residence identified above)


If Controlling Person claims

not to have a TIN – must

obtain valid reason within

SC

There is no universally standardized TIN

format.

OECD will provide a master list of TINs,

including “functional equivalents” for countries

that do not currently issue TINs.

Trustee will be required to check format of the

TIN against this list.



PUBLIC


Date of birth

Only mandatory if local law

requires – therefore need

to check local guidance.

Where mandated by local law this needs to be

completed but not subjected to any further

reasonableness test unless local AML requires

this.

Place of birth

Only mandatory if local law

requires – therefore need

to check local guidance.

Where mandated by local law this needs to be

completed but not subjected to any further

reasonableness test unless local AML requires

this.

Controlling

Person Type

Needs to be indicated by a tick box

on the form.

No need under CRS to obtain any supporting information

to check reasonableness of CP type. May rely on

existing AML/KYC procedures and information.


Change of Circumstances

Implications for Trustee administered entities

PUBLIC



1. If the existing controlling person Self-Certification is deemed invalid, incorrect or unreliable

the trustee must:

• Request a new self-certification and relevant documentary evidence

• Perform validation

• Perform reasonableness test

• Identify/ capture new JOTR (if applicable)

• Update trustee’s system of record under normal account servicing procedures.

2. If self-certification and relevant documentary evidence not received the trustee must treat the

Controlling Person (if applicable) as Tax Resident of the jurisdiction the Controlling Person(s)

claimed on the original self-certification, and Tax Resident of the jurisdiction where the

Controlling Person(s) may be tax resident as a result of the change of circumstances.

3. Trust relationship managers will be responsible for identifying CoCs and should ensure

changes are recorded in the Trustee’s system of record.

PUBLIC



Example 1:

Individual Account Holder /Controlling Person declared in an existing Self-Certification that his

JOTRs are UK and France. The Account Holder /Controlling Person removes the only CRS

relevant data which confirms France as JOTR (Telephone Number). For this Account Holder /

Controlling Person, the trustee should request a new Self-Certification.

Example 2:

Individual Account Holder / Controlling Person declared in an existing Self-Certification that his

JOTRs are UK and France. The Account Holder / Controlling Person removes one out of many

CRS relevant data which confirm UK as JOTR. For this Account Holder / Controlling Person the

trustee is not required to request a new Self-Certification, as there are still other indicia

remaining on the trust file which indicate that the Account Holder / Controlling Person is tax

resident in UK.

PUBLIC



· When a client updates their information, this may result in a change to their CRS status. This is referred to as a Change of Circumstances. A Change of Circumstances can apply to any controlling person of a Trustee administered entity and to a Trustee administered entity itself.

· Following the go-live date for CRS, the following updates will be considered a ‘change in circumstances’:

• providing a new address that is in another jurisdiction• changing an address to another jurisdiction• changing address to ‘Hold Mail’ or ‘In-Care-Of’ when this is the only address we have

on file• Updating the jurisdiction of tax residence or Tax Identification Number (TIN)

· As well as the changes listed above, there are some additional changes that an administered entity might undergo:

• changing the country of incorporation to another country• change in Entity Type

· Where required, any changes to the Controlling Person’s CRS information must also be provided by the administered entity (i.e. by the Trustee) by self-certification to the upstream custodian.

· Where a Change of Circumstances occurs, we will need to take action to ensure this is properly documented for Trustee administered entities.

− . PUBLIC



A recommended procedure is to require Controlling Persons yo certify on the self-certification Form that they will advise the trustee within 30 days of a CoC that affects their tax status, and to provide a new self-certification form within that timeline.

For trustees, CoC is applicable to both existing and new Controlling Persons and to administered entities (in dealing with upstream custodians).

We must identify if an account servicing event is in scope for CRS (e.g. Controlling Person requests a modification).

If any of the following changes occur (but not limited to) the trustee must check if the existing Controlling Person self-certification on file is still valid and reasonable:

a) A change that results in the addition or removal of information relevant to the

Controlling Person’s CRS status; or

b) A change to the Controlling Person’s account information that may impact CRS status;

or

c) Otherwise conflict with the CRS status of the Controlling Person or administered entity.

PUBLIC



· Account Servicing covers the updates to the client profile for Administered Entities and their Controlling Persons. Updates with a potential impact on the Administered Entity or Controlling Person(s) jurisdiction of tax residence held on the system are deemed a “change of circumstance”. Any request that requires a Controlling Person to update / provide missing data will be considered Account Servicing / Change of Circumstance.

· Where there is a Change of Circumstance or a change to any Jurisdiction of Tax Residence of a Controlling Person, the trustee will seek to obtain and process a new Self-certification and relevant documentation supporting the reasonableness of the new Self-certification within the earlier of 90 days or the end of relevant calendar year/other relevant reporting period.

· Where a Change of Circumstance or a change to any Jurisdiction of Tax Residence of a Controlling Person occurs prior to the deadlines for remediation of Pre-existing Accounts apply the 90-day timer for the determination of the Jurisdiction of Tax Residence(s).

· For removal of Controlling Person CRS information (e.g. Jurisdiction of Tax Residence, mailing or residence address, place of incorporation) which would affect Jurisdiction of Tax Residence of the Controlling Person, a new Self-certification is required, i.e. not merely where this affects Reportable status.

PUBLIC



· An Account Holder / Controlling Person Self-certification remains valid until there is a Change of Circumstance or the trustee has reason to know/actual knowledge that the information on the form is no longer accurate or reliable.

· All Changes of Circumstance and changes of non-reportable Jurisdiction of Tax Residence of Account Holders / Controlling Persons or administered entities will be dealt with under Account Servicing procedures.

· If after 90 days, no new Self-certification is provided by the Controlling Person, or relevant documentation obtained, PWS will treat the Controlling Person as resident in the relevant jurisdictions as follows:– Resident of the jurisdiction the Controlling Person claimed on the original Self-certification– Resident of the jurisdiction the Controlling Person may be resident in as a result of the

change in circumstances– Resident of any jurisdiction based on any other information available such as AML/KYC

information.

· The reason for a change in an Account Holder’s / Controlling Person’s CRS status must be recorded and maintained.

− .

PUBLIC



.

PUBLIC

Account servicing event on

Description

Change of Circumstance

Individual EntitiesControlling Persons

JoTR/TINThe identification of the Account Holder as a tax resident in a new jurisdiction

AddressA change of current mailing or residence address (including a post office box) to a new jurisdiction

Hold mail

A change of a “hold mail” instruction or “in-care-of” address to a new jurisdiction where we do not have any other current address on file for the Account Holder


Change of Circumstances – secondary data categories · CRS allows these to be treated as not a change of circumstances where there is a change

in isolation made to these indicia. Therefore it is not a change of circumstances (nor do we have reason to know) solely because of an addition to any of the following indicia.– One or more telephone numbers in a new jurisdiction– Standing instructions to transfer funds to an account maintained in a new jurisdiction– Currently effective power of attorney or signatory authority granted to a person with an

address in a new jurisdiction

PUBLIC

Account servicing event

onDescription


Individual EntitiesControlling

Persons

Telephone numbers

A change of one or more telephone numbers in a new jurisdiction

Standing instructions

A change of standing instructions (other than with respect to payments made from a Depository Account) to transfer funds to an account maintained in a new jurisdiction

POA / Signatory Authority

A change of a currently effective power of attorney or signatory authority granted to a person with an address in a new jurisdiction



− .

PUBLIC

Account servicing event on

Description



Persons

Business activityA change in business activity that results in a change in entity type (e.g. change from Active to Passive NFE)

Ownership

A change in ownership for a Passive NFE or Type 2 Investment Entity / addition or removal of Controlling Persons ( e.g. a new trustee of a trust being appointed)

Place of incorporation

A change in place of incorporation/organisation or address of an entity to a new jurisdiction

Controlling person

A change in type of Controlling Persons (e.g. a change in ownership so no Controlling Persons by % ownership – need to identify a “senior managing official”)



· The above Account Servicing events may also give rise to changes in respect of entity Self-Certifications provided by the trustee to upstream custodians.

· The CRS rules do not split the indicia into “Primary” and “Secondary” where there is a removal of indicia- only where there is an addition of indicia. Therefore any removal of a data element needs to be considered - but the removal will only be a change in circumstances if it affects the account holder’s reportability status, i.e. if it ultimately affects the administered entity or Account Holder’s / Controlling Person’s Jurisdiction of Tax Residence

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Account servicing event

onDescription



Persons

Removal of indicia

Removal of any CRS relevant data (including telephone numbers, POA / Signatory Authority, Standing Instructions)

New jurisdiction entering CRS agreements

Any non-participating jurisdiction entering CRS agreements


Change of Circumstances – Validity of Documentary Evidence

· The trustee may rely on Documentary Evidence unless it knows or has reason to know that it is incorrect or unreliable however it is expected to give preference to the most recent piece of Documentary Evidence held or obtained. Acceptable Documentary Evidence includes the following:

· a certificate of [tax] residence issued by an Authorised government body (for example, a government or agency thereof, or a municipality)

· with respect to an Individual, any valid identification issued by an authorised government body (for example, a government or agency thereof, or a municipality), that includes the Individual’s name and is typically used for identification purposes, e.g. Passport, Driving Licence etc.

· with respect to an Entity, any official documentation issued by an Authorised government body (for example, a government or agency thereof, or a municipality) that includes the name of the Entity and either the address of its principal office in the jurisdiction in which it claims to be a resident or the jurisdiction in which the Entity was incorporated or organised.

· It is a requirement that the official documentation includes either the address of the Entity’s principal office in the jurisdiction in which it claims to be a resident or the jurisdiction in which the Entity was incorporated or organised. The address of the Entity’s principal office is generally the place in which its place of effective management is situated.

· Any audited financial statement, third-party credit report, bankruptcy filing, or securities regulator’s report.

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Change of Circumstances – Validity of Expired Documentary Evidence?

· Documentary Evidence that contains an expiration date may be treated as valid on the later of that expiration date, or the last day of the fifth calendar year following the year in which the Documentary Evidence is provided to the Reporting FI.

· However, the following Documentary Evidence is considered to remain valid indefinitely:– Documentary Evidence furnished by an authorised government body (such as a

passport);– Documentary Evidence that is not generally renewed or amended (such as a certificate of

incorporation); or – Documentary Evidence provided by a Non-Reporting FI or a Reportable Jurisdiction

Person that is not a Reportable Person.

· All other Documentary Evidence is valid until the last day of the fifth calendar year

following the year in which the Documentary Evidence is provided to the Reporting FI.

· Notwithstanding the validity periods, a Reporting FI may not rely on Documentary Evidence if it knows or has reason to know that the Documentary Evidence is incorrect or unreliable (e.g. a change of circumstances rendering the information on the documentation incorrect).

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Change of Circumstances – Documentary Evidence procedures

· A Reporting FI (i.e. the trustee) is expected to institute procedures to ensure that any change to the customer master files that constitutes a change of circumstances is identified by the Reporting FI.

· A Reporting FI is expected to notify any person providing documentation of the person's obligation to notify the Reporting FI of a change of circumstances.

· A Reporting FI may retain an original, certified copy, or photocopy (including a microfiche,

electronic scan, or similar means of electronic storage) of the Documentary Evidence or, at least, a notation of the type of documentation reviewed, the date the documentation was reviewed, and the document's identification number (if any) (for example, a passport number). Any documentation that is stored electronically must be made available in hard copy form upon request.

· The Documentary Evidence must be sufficient to enable a reasonableness check on a self-

certification.

· The table on the next slide provides a summary the various elements of a self-certification and the required documents to cure each data set if required.

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Acceptable Documentary Evidence to cure CRS Data References [in addition to Self-Certification]

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CRS data reference found Treatment Documentary Evidence to cure CRS Data reference

Tax resident of a Reportable jurisdiction(s)

Treat as resident for tax purposes in each jurisdiction identified

N/A – NO CURE

Current residence address or mailing address (incl P.O. Box) in a Reportable Jurisdiction


Self-Certification of the jurisdiction in which the Controlling Person is resident for tax purposes, confirming not resident for tax purposes in such jurisdiction

AND

Documentary evidence establishing the Controlling person’s non-reportable status, i.e. positive identification of their tax residency status



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CRS data reference found TreatmentDocumentary Evidence to cure CRS Data reference

One or more telephone numbers in a reportable Jurisdiction and no telephone number in the jurisdiction of the reporting FI


Ditto

Standing Instructions to transfer funds to an account maintained in a Reportable Jurisdiction


Ditto

Currently effective Power of Attorney or signatory authority granted to a person with a Reportable Jurisdiction address


Self-Certification of the country in which the Controlling Person is resident for tax purposes, confirming not resident for tax purposes in such jurisdiction

AND

Documentary evidence establishing the Controlling Person’s non-reportable status



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CRS data reference found Treatment Documentary Evidence to cure CRS Data reference

“in Care Of” and/or “Hold Mail” address in a Reportable Jurisdiction (Sole Address held)

Treat as resident for tax purposes in jurisdiction

If no other indicia are present – apply the following in either order to identify any other indicium / cure:

Paper record search, OR

Obtain Self-Certification (as above) AND Documentary Evidence establishing the Controlling Person’s non-reportable status

Where documentary evidence / self cert/ search is not successful then FI must report the account as an undocumented account.


Due Diligence


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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS) - Wave 1 timeline: Due Diligence Requirements

Individual Pre-Existing

Accounts

Individual New Accounts

Entity Pre-Existing

Accounts

Entity New Accounts

Low Value(<$1M)

Review by 31 December 2017

Self Certification from 1 January

2016



2016

High Value(>$1M)

Review by 31 December

2016


2016



2016

De Minimis Exclusions (no reporting or due diligence required)

n/a n/a <$250,000 for all accounts

n/a


The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)- Due Diligence for Individual Accounts

Documentary Evidence (incl. form A) or Electronic Record Search

Electronic Record Search Paper Record Search Relationship Manager Inquiry for

actual knowledge

Pre-existing Accounts

Lo

wer

Val

ue

Hig

her

V

alu

e

New Accounts

Self-certification Checking plausibility of the self-

certification based on the information obtained by the AML/KYC procedures

Checking residence

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Due Diligence – Account Thresholds

· Key differences between FATCA and CRS

IND IND IND IND ENT ENT ENT ENT

PRE PRE NEW NEW PRE PRE NEW NEW

High Value

Threshold High Value



Threshold

FATCA USD1M USD50K X X USD1M USD250K X X

CRS USD1M X X X USD1M USD250K X X

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Due Diligence Indicia

New Accounts – Individuals and entities

· Self-Certification of tax residence by account holder

· Determine ‘reasonableness’ of the self certification via KYC procedures (and public info for

entities) plus have an effective system to monitor Changes in Circumstances

Pre-existing – Low Value Individual· Residence address based on documentary evidence (CRS only, if not…)· Perform Electronic record search

– Residence– Mailing address (including in care of)– Telephone number– Standing instructions to transfer funds to reportable jurisdiction– Power of attorney to person in reportable jurisdiction

Pre-existing High Value Individual– Electronic record search– Paper record search if electronic records are incomplete– Relationship manager inquiry - actual knowledge – annual process

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Due Diligence Indicia

Pre-existing – Entity

· Self-Certification* of account holders (entity status (i.e. FI/NFE) and tax residence

· Establish Reasonableness of self certification based on KYC information and / or publicly

available information

· If account is Passive NFE and below USD1 million use KYC information to establish tax

residence of Controlling Persons

· If account is above USD1 million obtain Self-Certification from Controlling Persons

· If no Self-Certification obtained, an indicia search must be established

* Self-Certification request made by upstream custodian of the entity

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Validation and reasonableness test – Individual account holder

· A self-certification must be validated once received and must be reviewed against the documentary evidence to ensure that it is correct, reliable and consistent in nature.

• Acceptable documentary evidence for confirmation of reasonableness of a self-certification includes the following ( but not limited to):

ValidationAll mandatory data elements in the self-certification complete

and filled in correctly?

Is it signed and dated?

• Validation and Reasonableness tests should be completed as part of the Account Opening and Servicing processes

• Trustees will need to maintain an audit trail of any communication with a trust principal related to CRS and the request for a SC in order to prove that reasonable efforts have been performed

• In case the SC fails the reasonableness test, a replacement SC from the account holder / controlling person will be required and the new request tracked under a ‘90 day timer’

Individual Account: Reasonableness test

Name on SC E.g. Passport/ Driving Licence

Address on SC

E.g. Utility Bill

JOTR on SC E.g. Cert. Tax Residence

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Validation and reasonableness test – Entity check by upstream custodian· Trustee will provide a self-certification to the upstream validated and once received the upstream custodian must review

against the documentary evidence to ensure that it is correct, reliable and consistent in nature. The Controlling Person’s self-certification form (required by upstream custodian for Passive NFEs) will also be validated by the upstream custodian.

• Acceptable documentary evidence for confirmation of reasonableness of a self-certification includes the following ( but not limited to):

Validation

All mandatory data elements in the self-certification complete

and filled in correctly?

Is it signed and dated?

• Validation and Reasonableness tests are completed by the upstream custodian as part of their Account Opening and Servicing processes – i.e. trustees will need comparable processes to ensure Self-Certifications are properly completed.

• Upstream custodians are required to maintain an audit trail of communications related to CRS and the request for a SC in order to prove that reasonable efforts have been performed.

• In case the SC fails the reasonableness test a manual process will be requested and this process will be tracked under a ‘90 day timer’

Entity ClientReasonableness Test

Name on SC Any official documentation that includes the name

Address on SC Existing AML/KYC procedures

JOTR on SC E.g. Certificate of Tax Residence

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Examples of Validation & Reasonableness tests· Example 1: Account Holder/Controlling Person mentions Switzerland as being the JOTR but the TIN

number mentioned in the SC is a UK one. This SC is invalid and therefore a new SC should be requested.

· Example 2: Account Holder / Controlling Person mentions 2 JOTR in the self-certification however there is only one TIN mentioned. (It could be that the second JOTR may not provide TIN’s. If this is the case, it should also be mentioned in the self-certification).

· Example 3: • Trustee obtains a self-certification from the Account Holder/Controlling Person upon account opening. The

residence address contained in the self-certification is not in the jurisdiction in which the account holder claims to be resident for tax purposes.

• Because of the conflicting information, the self-certification is deemed incorrect or unreliable and, as a consequence, it fails the reasonableness test.

• In this example and in any other case where a self-certification fails the reasonableness test, we must obtain a new valid self-certification including documentary evidence enabling us to re-perform the reasonableness test.

· Example 4: • The name on self-certification is “Theresa Vaughan” but on the Passport it states “Theresa Vaughan Fisher”,

the self-certification would fail the reasonableness test. But the Account Holder/Controlling Person then mentions that the name on the passport is her married name and that she’s now divorced and presents the divorce papers. Because we have a reasonable explanation and documentation, we can accept the SC as reasonable.

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Reason to Know (RTK)

· Whenever a trust company employee has actual knowledge or reason to know that the CRS related data on the existing self-certification or documentary evidence is unreliable or incorrect, appropriate actions must be initiated to obtain a new self-certification.

Key Points

• Although trust relationship managers are primarily responsible for identifying any discrepancies

in data that may lead to RtK, all staff are responsible for the application of RtK

• Where actual RtK is identified, meaning that a new CRS self-certification form is required, the

trust officer should request this from the Account Holder / Controlling Person

• The “reason to know” should be updated on the Account Holder / Controlling Person’s record

and the trust officer must initiate the process to request a new self-certification form.

• The request date for the new CRS SC form should also be noted for tracking purposes

RTK

E.g. Verbal exchanges

E.g. Email exchange

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Examples of Reason to Know (RtK) tests

· Under CRS the trustee is considered to have reason to know that an Account Holder/Controlling Person is a

reportable person if its knowledge of relevant facts or statements contained in its electronic or paper

records, self-certification or other documentary evidence (including KYC/AML documentation) is such that a

reasonably prudent person would question the claim being made.

· Reason to Know is applicable in all processes and to all staff.

· Example 1: Trustee has knowledge that the Account Holder/Controlling Person has property in a different

jurisdiction than the JOTR captured, e.g. from “Asset” or “Source of Wealth” information provided at either

account opening or as part of any ”Know Your Client” reaffirmation process.

· Example 2: : Account Holder/ Controlling Person tells the trust relationship manager during a client visit that

he has a passport or driving license from a different jurisdiction than the JOTR captured.

· Example 3 : During a conversation with the trust relationship manager, Account Holder/ Controlling Person

tells him that he works or used to work in a different jurisdiction than the JOTR captured.

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Monitoring

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What monitoring is required under CRS?

· Determination of annual reporting requirements – annual review of reportable persons.

· Specific reviews required under CRS rules of Undocumented Accounts

· Annual Relationship Manager Attestations

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Annual Monitoring – Relationship Manager (RM) Attestation *

CRS regulations mandate that a RM Attestation should be completed on an annual basis.

1. Example of RM attestation: "This is to confirm that I have no actual knowledge or reason to know that the relevant facts or statements contained in any Self-Certification(s), or relevant documentary evidence received from or on behalf of [name of Account Holder/Controlling Person] are unreliable or incorrect. Further, I confirm that I am unaware of any relevant facts that are inconsistent with the Jurisdiction(s) residence for tax purposes status claimed by the Account Holder/Controlling Person.“

2. If during the attestation the RM realizes that the existing self-certification is incorrect and/or unreliable, the trustee is required to– Request a new self-certification and relevant documentary evidence – Perform validation – Perform reasonableness test.– Identify/ capture new JOTR (s).

3. If self-certification or the documentary evidence is not received within the timeline treat the Account Holder/Controlling Person as resident of the jurisdiction in which the Account Holder/Controlling Person claimed to be resident in the original self-certification and the jurisdiction in which the Account Holder/Controlling Person may be resident as a result of actual knowledge or reason to know of the RM.

4. The RM attestation will be captured in the trustee’s system of record.

5. Any requests for new SC forms should be dealt with by the Account Holder / Controlling Person and processed within 90 days.

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Annual Monitoring – RM attestation

CRS Monitoring Activities

Scope Purpose Period Start of activity Due date

Annual Monitoring –RM Attestation

Individual New - after

operationalisedand pre-existing clients

An RM confirms that he has no actual knowledge or reason to know that the information and documentation the trustee holds on file is unreliable or incorrect.

Annual End of calendar year following the end of remediation period (resp. following the year of account opening for new accounts)e.g.: By end of Dec 2017 for Wave 1 for Individuals)

By end of calendar year

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Annual Monitoring – Undocumented Accounts

· For Individual Account Holders who are undocumented (meaning that they have not provided

a Self-Certification form ) an annual Enhanced Review must be completed to identify if there

is any new info to challenge the JoTR(s) defined as part of the initial Enhanced Review.

− Identify Undocumented Accounts

− Perform CRS Enhanced Review

− Mark Account Holder as Undocumented (if only “hold mail” or “in care of” indicia found

above) or capture JOTR(s)

• Capture the information related to undocumented accounts in the trustee’s system of record.

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Annual Monitoring – High Value Undocumented Accounts

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CRS Monitoring Activities

Scope Purpose Period Start of activity Due date

Annual Monitoring –High Value undocumented

Individual clients

Pre-existing clients

Irrespective of account balance

High Value Undocumented accounts (i.e. the only CRS data reference [indicia] is «hold mail» and/or «in care of»)

These clients are subject to an annual CRS Enhanced Review.

Annual End of calendar year following the end of remediation period by end of Dec 2017 for Wave 1)

By end of calendar year


CRS entity classifications


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Requirements: Trustee administered investment entities

All Trustee administered entities must be classified under the Common Reporting Standard

– i.e. similar to the approach under FATCA / UK FATCA:

· Trust companies will be Financial Institutions, as will entities managed by Trustees for

which one or more defined investment activities or operations are performed – which will

be defined as investment entities.

· Many Trustee administered entities will be defined as investment entities as one of the

categories under which an entity is regarded as a Financial Institution under the CRS is

if it conducts as a business (or is managed by a Financial Institution that conducts as a

business) one or more defined investment activities or operations for or on behalf of a

customer (an “investment entity”).

If an administered entity does not meet the criteria of these definitions it will be a Non

Financial Entity (NFE).

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What are The Trustee’s obligations under the CRS?

All entities participating in the CRS, which will include entities administered by Trustees,

must undertake a process of classification and reporting, as follows:

Administered entities:

1. Classify to determine whether Trustee administered entities are a Reporting

Financial Institution under the CRS

2. Determine whether the Trustee administered entity is “resident” in a Participating

Jurisdiction

3. Determine whether Trustee administered entities “maintain” any Financial

Accounts

4. Whether any of those Financial Accounts are held by Participating Jurisdiction

“Reportable Persons”; and,

5. Report annually certain information in respect of these “Reportable Accounts”

to the relevant local tax authorities on behalf of the administered entities.

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Tax Residency of Trustee administered entities

Residence

· For CRS purposes, a trust is resident in any place where a trustee is resident.

· If a trust has multiple trustees resident in different jurisdictions, the trust is a resident of

each such jurisdiction.

· The general trust residence rule based on trustee residence does not apply if the trust

itself is a tax resident in a participating jurisdiction and all information required to be

reported in respect of the trust is reported to the tax authority where the trust is resident.

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Residence

Under the CRS an Entity includes any legal persons or legal arrangements such as corporations, partnerships, trusts or foundations (similar to FATCA / UK FATCA).

· A trust that is a Financial Institution will generally be considered to have its place of

management or residence in the jurisdiction where one or more of its trustees are

resident.

· Trustees will apply comparable policies to establish tax residency of administered entities

as developed under FATCA, principally based on ‘where is the trustee’ considerations.

· Where a FI does not have a residence for tax purposes (e.g., because it is treated as

fiscally transparent, or is a partnership or it is located in a jurisdiction that does not have

an income tax), it is considered to be subject to the jurisdiction of a PJ and thus, a PJFI if:

– it is incorporated or organised under the laws of the Participating Jurisdiction;

– it has its place of management (including effective management) in the Participating

Jurisdiction; or

– it is subject to financial supervision in the Participating Jurisdiction.

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Entity types under CRS

· Some of the CRS Entity types are similar to those used in FATCA. The trustee will classify

the administered entity and will provide its entity type to the upstream custodian as part of

the Entity self-certification, which is likely to be on a standard form provided by the

upstream custodian. Different custodians may use different forms but guidance on a

standard form is available from the OECD.

· The entity type of the administered entity determines who is responsible for reporting and

what information will be reported. The trustee will be responsible for ensuring administered

FI reporting of Controlling Persons is carried out where they are Reportable Persons.

· The types of entities which are potentially reportable by upstream custodians (if resident in

Participating Jurisdictions are:

• Active Non-Financial Entity (NFE)

• Passive Non-Financial Entity (NFE)

• Type 2 Investment Entity in a CRS Non-Participating Jurisdiction (treated as Passive

NFE)

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Trusts that are not Financial Institutions (ie that are NFEs)

· If a trust is not a Financial Institution, it will be a nonfinancial Entity (NFE). NFEs are either Active NFEs or Passive NFEs depending on their activities.

· Examples of trusts qualifying as an Active NFEs include regulated charities or trading

trusts carrying on an active business.

· If a trust is not an Active NFE, it will be a Passive NFE.

· If a trust is holding a Financial Account with a Reporting Financial Institution, such Reporting Financial Institution must treat the trust as a Passive NFE if it is an Investment Entity that is not resident or located in a Participating Jurisdiction.

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Common Trustee administered entity classifications under the CRS mapped to FATCA

Entity Classification for FATCA W8-Ben-E Box Entity Classification for CRS

Active NFFEActive NFFE Active NFE

Sponsored, Closely-Held Investment Vehicle CDC-FFI Certified Deemed Compliant sponsored, closely held investment vehicle Reporting FI

(IGA) Sponsored, Closely-Held Investment Vehicle CDC-FFI Non Reporting IGA FFI Reporting FI

Exempt Retirement Fund Exempt Retirement PlansLikely FI non-reporting (subject to local variations)

Exempt Beneficial Owner Entity wholly owned by exempt Beneficial owners Likely FI non-reporting

Non Profit Organisation Non Profit Organisation Active NFE

Owner Documented FFI Owner Documented FFI Reporting FI

Participating FFI Participating FFI Reporting FI

Passive NFFEPassive NFFE Passive NFE

Sponsored Investment Entity RDC-FFI Registered Deemed Compliant FFI Reporting FI

(IGA 2) Sponsored Investment Entity RDC-FFI Non Reporting IGA FFI Reporting FI

(IGA 1) Sponsored Investment Entity RDC-FFI (NO US A/Cs) Non Reporting IGA FFI Reporting FI

(IGA 1) Sponsored Investment Entity RDC-FFI (US A/Cs) Non Reporting IGA FFI Reporting FI

Reporting Model 1 FFI Reporting Model 1 FFI Reporting FI

Reporting Model 2 FFI Reporting Model 2 FFI Reporting FI

Sponsoring Direct Reporting NFFE Sponsoring Direct Reporting NFFE Passive NFE Trustee Documented Trust Non Reporting IGA FFI TDT PUBLIC


CRS Trustee’s Classification ProcessPRE-EXISTING BOOK

• For existing accounts, it is sensible to derive the CRS Classification of a Trustee

Administered Entity from the FATCA Classification (as this process and classifications

should already be in place).

− Extract all the FATCA classifications for the existing book of Administered Entities

− Perform a one off automatic mapping to obtain the CRS classification for each entity

(based on pre-set mapping criteria)

− Determine CRS Account Holders/Controlling Persons for Trustee Administered Entities

by extracting a report (based on a CP decision tree)

− Apply a Quality Assurance review of the results

− Trust relationship manager to attest the Administered Entity CRS classification and

identified Account Holders/Controlling Persons

− Record the administered entity CRS classification and Account Holders/Controlling

Persons in the trustee’s system of record

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CRS Trustee’s Classification Process

NEW ADMINISTERED ENTITIES

• For new accounts, the CRS Classification of the Administered Entity and CRS

Controlling Persons can be determined by applying a CRS Classification decision tree

and a decision tree to identify Controlling Persons.

• Apply a Quality Assurance review of the results.

• Trust relationship manager to attest the CRS Administered Entity classification /

identified Controlling Persons

• Record the Administered Entity CRS classification and Controlling Persons in the

trustee’s system of record

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TRUSTS AS INVESTMENT ENTITIES

Determining whether the trust is a Reporting Financial Institution or a NFE

· The classification of a trust is based on both the nature of its activities and the assets it

holds as well as whether it is professionally managed. It is expected that a trust will be

most commonly treated as an FI where it meets the definition of an Investment Entity.

· An Investment Entity is broadly to be regarded as an Entity that undertakes relevant

activity on behalf of customers, or is managed by an FI that undertakes those activities

and the gross income of these activities is primarily attributable to investing or trading

in Financial Assets.

· For a trust this will be the case when it has gross income primarily attributable to

investing, reinvesting, or trading in Financial Assets and is managed by another Entity

that is a Financial Institution.

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Non-Reporting FIs administered by Trustees – Trustee Documented Trusts

· A Non-Reporting FI is defined as any Partner Jurisdiction FI described in Section VIII,

B.1 of the CRS. The entity classification most relevant to Trustees will be the Trustee

Documented Trust.

Trustee Documented Trust (TDT)

· A trust established under the laws of a Reportable Jurisdiction that is an FI, is a Non-

Reporting FI to the extent the trustee of the trust is a Reporting FI and reports all

required information with respect to all Reportable Accounts of the Trust

· A trust that is an Investment Entity may be able to utilise the TDT category of Financial

Institution to simplify the reporting process.

· If a Trustee is located in the same jurisdiction as the trust then if the Trustee agrees to

report all the information required to be reported with respect to the trust, the trust may

be able to be treated as a Trustee-Documented Trust and be regarded as a Non-

Reporting FI.

· The same principles will apply to Private Trust Companies, if the PTC is a Reporting

FI, and trusts where PTCs which are Reporting FIs act as trustee.PUBLIC


Non-Reporting FIs categories not available under CRS

· The categories of Non-Reporting Financial Institutions in the Standard (Section VIII, B

and the associated Commentary) include some of the types of institutions contained in

Annex 2 of the Model FATCA IGA.

· During the process of developing the Standard, however, it was decided that several

of the categories in Annex 2 of the Model FATCA IGA were either not appropriate or

not desirable in the context of the Standard and they were therefore not included.

· These include certain categories commonly used by Trustees for FATCA purposes:

– Sponsored Investment Entities

– Sponsored Closely Held Investment Vehicles

Non-Reporting FIs

A Non-Reporting FI is defined as any Partner Jurisdiction FI described in Section VIII, B.1 of the CRS.

The entity classification most relevant to PWS will be the Trustee Documented Trust.

Trustee Documented Trust (TDT) – A trust established under the laws of a Reportable Jurisdiction that is an FI, is a Non-Reporting FI to the extent the trustee of the trust is a Reporting FI and reports all required information with respect to all Reportable Accounts of the Trust

A trust that is an Investment Entity may be able to utilise the TDT category of Financial Institution to simplify the reporting process.

If PWS is acting as trustee of a trust and is located in the same jurisdiction as the trust then if the PWS trustee agrees to report all the information required to be reported with respect to the trust, the trust may be able to be treated as a Trustee-Documented Trust and be regarded as a Non-Reporting FI.

The same principles will apply to Private Trust Companies, if the PTC is a Reporting FI, and trusts where PTCs which are Reporting FIs act as trustee.

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Excluded Accounts

A Financial Account does not include an Excluded Account.

The definition of excluded accounts is broadly the same as provided in Annex II of the

Model 1 IGA.

· For Trustees, excluded accounts will generally be comparable under CRS to FATCA

and the main categories of excluded account most commonly encountered by

Trustees are certain retirement plans, escrow accounts and deceased estate accounts

where the Trustee acts as executor.

· Note: Once it has been established that an account is an Excluded Account then it is

not subject to any due diligence or reporting procedures for CRS purposes.

· N.B. Excluded accounts are not reportable i.e. are out of scope for CRS reporting.

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“The hardest thing in the world to understand is income tax”

Albert Einstein

PUBLIC


CRS Reporting


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Reporting Who

· Who gets reported under FATCA and CRS?

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What accounts are reportable?

· CRS due diligence procedures are designed to identify reportable accounts

· Financial accounts held by tax residents in relevant CRS reportable countries

· A person is considered to have a tax residence in a country if, under the laws of that

country, they are liable to tax due to domicile, residence, place of management, or

any other similar criterion

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Account Holders / Controlling Persons

· Account Holders / Controlling Persons who are reportable persons (i.e. tax resident in another

reportable jurisdiction

· The term Controlling Persons means the natural persons who exercise control over an Entity.

In the case of a trust such term means, the settlor, the trustee, the protector (if any), the

beneficiary or classes of beneficiaries, and any other natural person who exercises ultimate

effective control over the trust.

· The term must be interpreted in a manner consistent with FATF recommendations.

· Account Holders in trustee administered FIs will have a “debt interest” or “equity interest” in

the trust (the terms as defined under CRS regulations).

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Equity Interests

· In the case of a trust that is a FI, an Equity Interest is considered to be held by any person

treated as a settlor or beneficiary of all or a portion of the trust or any other natural person

exercising ultimate effective control over the trust

· A reportable person will be treated as being a beneficiary if they have the right to receive

directly or indirectly a mandatory distribution or may receive a discretionary distribution from

the trust

· For these purposes a beneficiary who may receive a discretionary distribution from the trust

will only be treated as a beneficiary if they receive a distribution in the appropriate reporting

period (i.e. either the distribution has been paid or made payable).

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)- Reporting obligations in Bermuda

Is the trust a FI?

Trust or Trustee reports to local tax administration

Is the trust a passive NFE with reportable accounts at a FI (for example a bank)?

Disclosure to FI, who is obliged to report to local tax administration

Is the trust resident in Bermuda?

No reporting obligations

yes

yes

no

Is the required information reported elsewhere because the trust is treated as tax resident there?

yes

no

no

yes

no

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Who or what is a Reportable Person?

· The CRS defines a Reportable Jurisdiction Person as an Individual or Entity, resident in a

Reportable Jurisdiction under the tax laws of such jurisdiction (i.e. they are “tax resident” in that

jurisdiction) or an estate of a decedent that was resident of a Reportable Jurisdiction.

· A Reportable Person may be tax resident in more than one jurisdiction.

· The CRS sets out a number of exceptions to the definition of a Reportable Person which

broadly are the same as the exceptions under FATCA. However there are some differences and

given the jurisdictional nature of the CRS there may be local variations included in the

agreements.

Reportable Persons do not include the following entity types:

i) a corporation the stock of which is regularly traded on one or more established securities

markets;

ii) any corporation that is a Related Entity of a corporation described in clause (i);

iii) a Governmental Entity;

iv) an International Organization;

v) a Central Bank; or

vi) most FIs (see next slide)PUBLIC


FIs as Reportable Persons?

· Most FIs are excluded from the term “Reportable Person” as they will do their own reporting

or are otherwise considered to present a low risk of being used to evade tax.

· Thus FIs administered by trustees will mostly not be reportable (per se). It is the Controlling

Persons of those Trustee administered FIs that the trustee will have to ensure are reported

(where resident in Participating Jurisdictions).

· However there is a key difference between the way certain Investment Entities are

classified for the CRS as opposed to under FATCA.

• Investment entities (those carrying on Investment activities and managed by another FI)

where they are not Participating Jurisdiction FIs (i.e. they are not located in a

Participating Jurisdiction) are to be treated for classification and reporting purposes as

Passive NFEs – i.e. in such cases the upstream custodian will need to look through these

entities to undertake the identification of any Controlling Persons.

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REPORTING BY THE TRUST as FI vs REPORTING BY THE BANK for NFEs

· There is a clear distinction between reporting carried out by the trust which is a FI (i.e. the

reporting carried out by the trust or trustee) and the reporting carried out by the bank or

upstream custodian in respect of a NFE that is a trust that holds a financial account with that

Reporting FI bank or upstream custodian.

· This distinction applies to both the information to be reported and also in respect of the

accounts which are reportable.

· Reporting of Passive NFE Controlling Persons by the bank or upstream custodian will be

based upon reporting of ‘controlling persons’, whereas reporting by the administered entity

which is a reporting FI will be based on identifying ‘financial accounts’ held with financial

institutions (investment entities) administered by the trustee and determining which of those

accounts are held by reportable persons. Accounts holders of administered FIs to be

reported will generally, in the case of trustee administered investment entities, be determined

based on the definition of ‘equity interest’ in an investment entity in OECD VIIIC:4.

· Reporting by the upstream custodian on Active NFEs does not include Controlling Persons.

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Financial Accounts maintained by Trustee administered entities

· The trustee must then determine if any of the accounts maintained by administered

entities are Financial Accounts - i.e. it will be the administered FI which maintains

the account.

· The type of accounts in scope are largely the same as provided under a Model 1

IGA, with a few differences.

· Categories of Financial Accounts in scope include Equity or Debt interests in certain

Investment Entities.

• For an administered Investment Entity a Reportable Equity or Debt interest

includes : all equity or debt interests in an Investment Entity – so includes debt

and equity interests in professionally managed investment entities

· Thus for the Trustee, administered Investment Entities in scope will be comparable

to FATCA and there will be a comparable requirement to identify all equity or debt

interests in administered Investment Entities.

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Identifying the Financial Accounts of a trust that is a Reporting Financial Institution

· Where a trust is a Reporting Financial Institution, it must identify its Financial

Accounts. If the trust is an Investment Entity, the CRS defines its Financial Accounts

as the debt and Equity Interests in the Entity.

· Debt interest is not defined in the CRS, and therefore what is considered a debt

interest will be determined under the local law of each implementing jurisdiction.

· The Equity Interests are held by any person treated as a settlor or beneficiary of all or

a portion of the trust, or any other natural person exercising ultimate effective control

over the trust. This means that if a settlor or beneficiary is itself an Entity, that Entity

must be looked through, and the ultimate natural controlling person(s) behind that

Entity must be treated as the Equity interest holder.

· A discretionary beneficiary will only be treated as an Account Holder in the years in

which they receive a distribution from the trust.

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Reporting in CRS Jurisdictions, reportable data as applied to Trustee administered entities

· As for FATCA / UK FATCA we are expecting local guidance to be issued by many jurisdictions so some of the complexities in dealing with trusts may be explained in more detail in local guidance.

· Requirements to disclose information in respect of asset contributors and trust beneficiaries will depend on a number of different factors:

· The equity interest attributable to the settlor of any settlor interested trust (or equivalent) will be the whole value of the trust. Where a settlor is excluded from the trust, the equity interest can be considered to be nil but will still be classified under the CRS as a financial account in the trust and hence generally reportable, subject to local guidance.

· In the case of a trust where an individual has a fixed income interest, this will oblige filing of capital values of trust fiduciary assets. Local guidance may vary reporting to attributable interests in some jurisdictions.

· In the case of discretionary trusts, reporting of discretionary beneficiaries should be limited to distributions made in the relevant reporting year.

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Reporting What

· What gets reported under FATCA and CRS?

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Reporting – Reportable Data

1st Year: for all reportable accounts

• Name • Address• Jurisdiction(s) of tax residence• TIN(s) of each Reportable Person • Date and Place of Birth for individual Reportable Persons• Account number (or functional equivalent in the absence of an account number)• Name and identifying number (if any) of the Reporting FI• Account Balance or Value

- including the Cash Value or surrender value for cash value insurance contracts or annuity contracts

- as of the end of the relevant calendar year or other appropriate reporting period - where account closed during a year – as above except instead of balance we

are required to report the fact that the account was closed.

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Reporting – Reportable Data

2nd Calendar year onwards: (i.e. For early adopters -1 Jan 2017 to 31 December 2017)

· Reporting all data from Year 1 plus Gross Proceeds from the sale or redemption of

property paid or credited to the account during the calendar year or other appropriate

reporting period where the Reporting FI acted as custodian, broker, nominee or agent for

account holder

Note: EU countries are now required to report Gross Proceeds in year 1 as this is required

by the OECD Development Assistance Committee (DAC).

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Data to be reported where a trust is a Financial Institution

*the reportable value of a vested beneficiary’s interest in a trust is the total value of all trust property (rather than the value of the vested interest of that beneficiary). However, it is possible that local guidance will be issued which may vary this reporting on a jurisdictional basis.NB – Identifying who are the account holders will depend on interpretation of the definition of equity and debt interest – ie potentially quite a broad analysis which may give rise to uncertainties in practice.

Account Holder Account Balance or Value Gross Payments

Settlor Total value of all trust property Value of any payments made to the settlor in reportable period.

Beneficiary: mandatory Total value of all trust property(may be varied depending on local Guidance Notes)*

Value of distributions made in the reportable period

Beneficiary: discretionary (in a year in which a distribution is received)

Nil Value of distributions made to the beneficiary in reportable period

Debt interest holder Principal amount of the debt Value of payments made in reportable period

Any of the above if account is closed in the reporting per

Report that the account was closed. No values reportable.

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Data to be reported where a trust is a Financial Institution · The financial activity includes the account balance or value, as well as gross payments paid or

credited during the year. In the context of a trust this is interpreted as follows:· The account balance is the value calculated by the Reporting Financial Institution (the trust) for

the purpose that requires the most frequent determination of value. · For settlors and mandatory beneficiaries, this may be the value that is used for reporting to the

Account Holder on the investment results for a given period.· If the Financial Institution has not otherwise recalculated the balance or value for other reasons,

the account balance for settlors and mandatory beneficiaries may be the value of the interest upon acquisition or the total value of all trust property.

· Where an account is closed during the year, the fact of closure is reported. A debt or Equity Interest in a trust could be considered to be closed, for example, where the debt is retired, or where a beneficiary is removed.

· The financial information to be reported will depend on the nature of the interest held by each Account Holder.

· Protectors or Trustees, although defined as Controlling Persons, will generally not be reportable by trusts which are FIs unless they are also settlors or beneficiaries. However, analysis of equity/debt interests (as defined) may give rise to uncertainties as to the scope of reporting – i.e. not always an easy analysis, e.g. whether or not protectors may have financial accounts. Case by case analysis required.

· A person who is both a beneficiary and a settlor of a trust that is an FI (i.e. qualifying as an 'account holder' in the FI trust two times over) would be treated as having two financial accounts with that trust which will need to be separately assessed and reported by that FI trust.

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Data to be reported where a trust is a Non-Financial Entity (NFE)

Reportable Person Account Balance or Value Gross payments

Settlor Total account balance or value Gross payments made or credited to the account

Trustee Total account balance or value Gross payments made or credited to the account

Beneficiary: mandatory Total account balance or value Gross payments made or credited to the account

Beneficiary: discretionary (if jurisdiction allows trust to be treated as an FI)

Nil Value of distributions made to the beneficiary in the reportable period

Protector Total account balance or value Gross payments made or credited to the account

Any of the above if the account was closed

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Data to be reported where a trust is a NFE

· For NFEs, Protectors or Trustees will be reportable by the Reporting FI bank or upstream custodian as they are defined as Controlling Persons.

· The reporting by the FI bank or upstream custodian in respect of a mandatory beneficiary of a NFE trust is likely to be the ‘Total account balance or value’ – that is to say that reporting by the bank or upstream custodian which is a Reporting FI in respect of a NFE trust will not necessarily reflect the value of a Controlling Person’s interest in a trust.

· Unlike the case of an Equity Interest in a trust that is a Reporting Financial Institution, discretionary beneficiaries would be reported regardless of whether a distribution is received in a given year.

· The types of entities which are reportable by upstream custodians are:− Active Non-Financial Entity (NFE)− Passive Non-Financial Entity (NFE)− Type 2 Investment Entity in a CRS Non-Participating Jurisdiction.

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS) - What information is to be reported?

Account holder

Debt interest held

Trustee

Any other contr. person

Protector

Discret. benef.

if account was closed

Mandatory benef.

Settlor

The fact of closure

Account Balance or Value

Gross Payments

Total value of all trust property

Principal amount of debt

nil

Value of payments/

distributions made in reporting

period

Account Balance or Value

Gross Payments

Total account balance or value

nil

Gross payments made or credited

Gross payments made or credited

Total account balance or value

Value of payments/

distributions made in

reporting period

FI-Trust Passive NFE

NA NA

NA

NA

NA

NA

NA NA

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Data to be reported where a trust is a NFE

Local Guidance Notes

· When implementing the CRS, a jurisdiction may allow Reporting Financial Institutions

to align the scope of the beneficiaries of a NFE trust treated as Controlling Persons of

the trust with the scope of the beneficiaries of a trust treated as Reportable Persons of

a trust that is a Financial Institution.

· In such case the reporting FI bank or upstream custodian may only need to report

discretionary beneficiaries in the year they receive distributions from the trust.

However, such reporting FI bank or upstream custodian will require appropriate

safeguards and procedures in place to identify whether a distribution is made by their

trust Account Holders in a given year – i.e. annual reporting would be required by

trustees to the upstream custodian.

· Thus it is possible that the values that require to be reported may be varied under local

Guidance Notes as the CRS does not provide any guidance in relation to determining

the value of the interest of beneficiaries, settlors or persons exercising ultimate control.

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Trusts that are not Financial Institutions (i.e. that are NFEs)

· Identifying whether the account held by the trust with an upstream custodian is a Reportable Account by that upstream custodian:

· The account held by a trust that is a NFE is a Reportable Account if:

a) the trust is a Reportable Person; or

b) the trust has one or more Controlling Persons that are Reportable Persons.

· The trust will be a Reportable Jurisdiction Person only if it is resident for tax purposes in a Reportable Jurisdiction and is not excluded from the definition of Reportable Person.

· If a trust has no residence for tax purposes the trust is not considered to be a Reportable Person. Generally a trust will be considered to be resident where the trustee(s) is resident.

· The account held by a trust will also be reportable if the trust has one or more Controlling Persons that are Reportable Persons.

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Controlling Persons of Trustee administered entities

Implications for the Trustee

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Controlling Persons of a Trust

· The concept of Controlling Person used in the CRS is drawn from the 2012 FATF

Standard on beneficial ownership. As such, the Controlling Persons of a trust are – the settlor(s), – trustee(s), – beneficiary/ies, – protector(s) and – any other natural person exercising ultimate effective control over the trust.

This is a conclusive definition of Controlling Person, which excludes the need to enquire as to whether any of these persons can exercise practical control over the trust.

· As such, a settlor is reported regardless of whether it is a revocable or irrevocable trust.

· Likewise, both mandatory and discretionary beneficiaries are included within the definition of Controlling Persons.

· Unlike the case of an Equity Interest in a trust that is a Reporting Financial Institution, discretionary beneficiaries of Non-financial entities would be reported by the upstream custodian regardless of whether a distribution is received in a given year.

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Class of Beneficiaries

· Where the beneficiaries are not individually named but are identified as a class, the

CRS does not require that all possible members of the class be treated as Reportable

Persons.

· When a member of a class of beneficiaries receives a distribution from the trust or

intends to exercise vested rights in the trust property, this will be a change of

circumstances, prompting additional due diligence and reporting as necessary.

· When a new beneficiary receives a distribution for the first time from a trust that is an

‘Investment Entity’ this comprises opening a new ‘financial account’ with that

‘Investment entity’ which is a Financial Institution. Opening such a new account will

require the ‘Self-certification’ process to be triggered in respect of that new beneficiary.

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Treatment of settlors or beneficiaries that are Entities

· Where a settlor or beneficiary is an Entity, the Account Holder will be the natural

person(s) exercising ultimate control of that Entity. The CRS includes within the

definition of Controlling Person any natural person(s) that exercise ultimate control of

an Entity that is a settlor, trustee, beneficiary or protector.

· Where the settlor or beneficiaries are themselves Entities, the Reporting Financial

Institution must identify the natural person(s) exercising control of the considered

Entity.

· Although the natural person may be exercising ultimate control through a chain of

ownership, only the ultimate natural controlling person(s) would be treated as a

Controlling Person, and not the intermediary Entities in the chain of ownership.

· The requirement to identify the natural persons who are Controlling Persons will apply

regardless of whether the Entity or Entities in the chain are themselves Active NFEs or

Non Reportable Persons.

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CRS

Some more guidance / examples of classifications for Trustee administered entities

PUBLIC


EXAMPLES – TRUSTS AS INVESTMENT ENTITIES OR NON FINANCIAL ENTITIES

FI Example - Trust managed by a trust company

· X, an individual, establishes Trust A, an irrevocable trust for the benefit of X’s children, Y

and Z.

· X appoints Trust Company, a Financial Institution, to act as trustee on behalf of Trust A. As

trustee, Trust Company manages and administers the assets of Trust A in accordance with

the terms of the trust instrument for the benefit of Y and Z.

· Trust A’s assets consists solely of financial assets, and its income consists solely of income

from those financial assets. Pursuant to the terms of the trust instrument, Trustee A

manages and administers the assets of the trust. Trustee A does not hire any Entity as a

service provider to manage or administer the trust.

· Under the definition in the CRS, Trust A is an Investment Entity because it is managed by a

TCSP (Trust and Company Services Provider) or another Financial Institution.

ANSWER

· Trust A is an Investment Entity because it is managed by a Financial Institution and all of its

income is attributable to financial assets

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EXAMPLES – TRUSTS AS INVESTMENT ENTITIES OR NON FINANCIAL ENTITIES

NFE Example - Trust managed by a trust company - only asset is real estate

· Y, an individual, establishes Trust B, for his two grandchildren. Y hires Trust company,

a Financial Institution, to act as trustee of Trust B. Trust B’s assets consist solely of

100% of the shares of Cayman holding company. Cayman holding company’s only

asset is real estate.

ANSWER

· As Trust B’s only indirect holdings are real estate, which is not a financial asset, Trust

B is an NFE.

· The fact that Trust B has a professional trust company as trustee is not relevant in this

example as the underlying assets are not financial assets.

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FINANCIAL ASSETS

The term “Financial Assets” includes, but is not restricted to:· a security (for example a share of stock in a corporation; partnership, or beneficial

ownership interest in a widely held or publicly traded partnership or trust; note, bond, debenture, or other evidence of indebtedness);

· partnership interest;· commodity; · swap (for example interest rate swaps, currency swaps, basis swaps, interest rate

caps, interest rate floors, commodity swaps, equity swaps, equity index swaps and similar arrangements);

· Insurance Contract or Annuity Contract; or · any interest (including a futures or forward contract or option) in a security, partnership

interest, commodity, swap, Insurance Contract or Annuity Contract.

The following would not be considered to be Financial Assets: · A non-debt, direct interest in real property, or· A commodity that comprises physical goods, such as wheat

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Common Reporting Standard- Bermuda jurisdictional specific guidance

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Bermuda CRS implementation (1)

The Ministry of Finance has advised that it will be updating its Annexes to the CRS Agreement and this

will be published on the OECD portal in the very near future at:

http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers/#d.en.347759

Therefore Bermuda as a jurisdiction will be adopting the following measures amongst others in line

with a number of other jurisdictions:

· Filing of nil returns - the submission of nil returns is not mandatory but there should be an option

for Bermuda FIs to file nil returns to Government should they wish to do so.

· Allowing third party service providers to fulfil the obligations on behalf of the financial

institutions - i.e. Bermuda is allowing the delegation of performing various types of CRS

compliance by Bermuda FIs to third parties.

· Bermuda does not have Tax Identification Numbers (TINs) for individuals and entities.

NOTE: The Bermuda Stock Exchange (BSX) will be considered an Established Securities Market

under CRS.

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Bermuda as a jurisdiction will be adopting the following measures amongst others in line with a number of

other jurisdictions:

· Residence address test for Lower Value Accounts of Pre-existing customers

– Optional Exclusion from Due Diligence for Pre-existing Entity Accounts of less than $250,000

– Allowing financial institutions to make greater use of existing standardised industry coding systems for

the due diligence process

– Currency translation - All amounts are stated in USD under CRS and this concession allows for the

use of equivalent amounts in other currencies

– “Wider Approach” - Bermuda has adopted the "wider approach", meaning that Bermuda Reporting

Financial Institutions shall obtain self-certifications from their clients of all tax residencies, (not just those

tax resident in countries which participate in the CRS), in order to simplify the account/product opening

service etc.

· Allowing the due diligence procedures for High Value Accounts to be used for Lower Value

Accounts

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Bermuda as a jurisdiction will be adopting the following measures amongst others in line with a number of other jurisdictions:

· Expanded definition of Pre-existing Account - New accounts held by pre existing customers can be treated as a Pre-existing Account for due diligence purposes. However the pre-existing account must have the required CRS information and documentation i.e. self-certification with tax residency and TIN if appropriate. If the pre-existing account does not then a self-certification is required for the new account and to also cover the pre-existing account.

· Expanded definition of Related Entity - A fund will qualify as a Related Entity of another fund by providing that control includes two entities under common management, and such management fulfils the due diligence obligations of such Investment Entities.

· Expanded definition of Non-Reporting Financial Institution – Under CRS any pension fund established in Bermuda under the National Pension Scheme Act of 1998 is of low risk and is defined in this Agreement as a Non-Reporting Financial Institution.

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The Ministry of Finance announced the following in a meeting with industry on 16 November:· Bermuda Government looking to submit annexes to the CRS Agreement on the OECD

website by 30 November. Once submitted, the annexes will confirm that Bermuda has adopted the "wider approach", meaning that Bermuda Reporting Financial Institutions shall obtain self-certifications from their clients of all tax residencies, (not just those tax resident in countries which participate in the CRS), in order to simplify the account/product opening service etc.

· A joint Bermuda Government-Industry CRS IT Reporting Sub-Committee has been formed. Its objective is to work together in respect of future CRS reporting.

· The Bermuda Government has not yet chosen its Reporting Portal Vendor as the OECD are not going to choose their vendor until 1 April 2016.

· The Ministry of Finance is looking to set up a webpage on the Bermuda Government website, with all CRS documentation and announcements in December 2015.

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Other Bermuda CRS specific comments (5)

· Bermuda Registration requirements on the Bermuda Government Portal – To be confirmed

· Under the BMA AML standards Date of Birth is a local mandatory data element but not Place of Birth

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Tax Environment

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The OECD's Common Reporting Standard for the Automatic Exchange of Financial Information (CRS)

Disclaimer

This information is not intended or written by the author to be used, and cannot be used, by any person or entity for the purpose of avoiding tax penalties that may be imposed on any taxpayer. Readers should not consider this document to be a recommendation to undertake any tax position, nor consider the information contained therein to be complete, and should thoroughly evaluate their specific facts and circumstances and obtain the advice and assistance of qualified tax adviser.

The attached commentary provided represents a practitioner’s view of certain implications for trust processes and procedures arising from CRS and does not represent tax advice.

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APPENDIX

Detailed analysis of differences between FATCA and CRS and key impact for trustees

PUBLIC


1. Entity Classification FI Definition / FI Entity Classification

Area FATCA requirement CRS requirementKey Differences / Impact

1.1 Financial Institution Definitions - FATCA CRS Trustee Implications

Custodial Institution

Any entity that holds financial assets for the account of others as a substantial portion of its business and satisfies the gross income threshold.

Any entity that holds financial assets for the account of others as a substantial portion of its business and satisfies the gross income threshold.

n/a

1.2 FI Entity Classifications Trustee Documented Trust

A trust established under the FATCA Partner's laws to the extent that the trustee is a Reporting US FI, Reporting Model 1 FFI, or Participating FFI and the trustee reports all the information required to be reported pursuant to the IGA as would be required if the trust were an RFI.

A trust that is an FI is a NRFI to the extent that the trustee is a RFI and complies with the reporting obligations with respect to all Reportable Accounts of the trust.

n/a

Sponsored Investment Entity

An Investment Entity for which a Sponsoring Entity has agreed to undertake all necessary FATCA due diligence, reporting and other compliance requirements.

No such concept under the CRS Under the CRS, Sponsored Investment Entities are not recognised as Non Reporting FIs (NRFI).

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1. Entity classificationFI Entity Classification


1.2 FI Entity Classification - FATCA CRS Trustee Implications

Non reporting FI

• Any FATCA Partner FI, or other Entity resident in FATCA Partner, that is described in Annex II as a:

• Non-Reporting FATCA Partner FI;

• Deemed Compliant FFI; or

• An Exempt Beneficial Owner.

• Annex II provides a list of entities and accounts which are excluded from the definition of an FI and Financial Account respectively.

• Any FI that is described as a 'Non-Reporting' FI under Section VIII (B) of the CRS:

• A Governmental Entity, International Organization or Central Bank. However, when any of these entities conduct a commercial financial activity of a type engaged by a Specified Insurance Company, Custodial Institution, or Depository Institution, they will not be regarded as a NRFI with respect to those payments received in connection with such activities.

• A Broad Participation and / or a Narrow Participation Retirement Fund;

• A Pension Fund of a Governmental Entity, International Organization or Central Bank;

• Qualified Credit Card Issuer;

• Any low risk NRFI;

• An Exempt Collective Investment Vehicle;

• A trust to the extent that the trustee is a RFI and meets all its reporting requirements.

Unlike Annex II of the Model 1A IGA, the CRS categorizes all excluded entities (those that are granted an exemption from reporting) as 'Non-Reporting Financial Institutions’.

It does not subdivide these entities, as is done with FATCA, into the categories of 'Exempt Beneficial Owner' or 'Deemed compliant FFIs'.

Other than the category of 'any low risk NRFI', the list of Non-Reporting FIs under the CRS is also listed under Annex II of the Model 1A IGA.

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1. Entity classificationFI Entity Classification


1.2 FI Entity Classification - FATCA CRS Trustee ImplicationsExempt beneficial owner

• Entities that are Exempt Beneficial Owners do not have any reporting or registration requirements in relation to any Financial Accounts that they maintain. Additionally RFIs are not required to review or report on accounts held by Exempt Beneficial Owners

• Exempt Beneficial Owners are entities that fall within the following categories:

• Governmental Entity;• International Organisations or any wholly

owned agency or Instrumentality of an International Organization

• Foreign Central Banks of Issue;• Certain Retirement Funds; and• Investment Entities wholly owned by Exempt

Beneficial Owners.

• EBO is not term used in the CRS Commentary.

• Refer to previous slide for list of CRS Non-Reporting FIs

With respect to the list of entities defined as 'Exempt Beneficial Owners' under the Model 1A IGA, only investment entities wholly owned by Exempt Beneficial Owners is not explicitly mentioned under the CRS list of 'Non-Reporting Financial Institutions.'

Owner documented

Owner Documented FI must provide the required documentation and agree to notify the other Financial Institution which is undertaking the reporting on behalf of the Owner Documented Financial Institution if there is a change in circumstances.

There is no concept of 'Owner Documented Financial Institution' under CRS.

Under the CRS, Sponsored Investment Entities are not recognised as NRFIs.

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1. Entity classificationNFFE Entity Classification


1.3 NFFE Entity Classification - FATCA CRS Trustee ImplicationsActive NFFE – Trading entities

• Less than 50% of the NFFE’s gross income for the previous calendar year or other appropriate reporting period is passive income; and

• Less than 50% of the assets held by the NFFE during the previous calendar year or other appropriate reporting period produce or are held for the production of passive income.

• Less than 50% of the NFE's gross income for the preceding calendar year or other appropriate reporting period is passive income; and

• Less than 50% of the assets held by the NFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income.

n/a

Active NFFE – Listed entities

The stock of the NFFE is regularly traded on an established securities market or the NFFE is a Related Entity of an Entity, the stock of which is traded on an established securities market.

The stock of the NFE is regularly traded on an established securities market or the NFE is a Related Entity of an Entity, the stock of which is regularly traded on an established securities market.

n/a

Active NFFE/NFE - Entities in liquidation

The NFFE was not an FI in the past five years, and is in the process of liquidating its assets, or is reorganising with the intent to continue or recommence operations in a business other than that of an FI.

The NFE was not an FI in the past five years, and is in the process of liquidating its assets, or is reorganizing with the intent to continue or recommence operations in a business other than that of an FI.

n/a

Active NFFE – Government Entities

The NFFE is:• a non-US Government;• a political subdivision of a non-US

Government; • a public body, or its political subdivision,

performing a function of a non-US Government;

• a Government of a US Territory;• an international organisation;• a non US central bank of issue;• an entity wholly owned by one or more of

the above.

The NFE is:• a Governmental Entity;• an International Organization;• a Central Bank; or • an Entity wholly owned by one or

more of the above.

An Active NFE under CRS includes the US Government and US central bank. However, it does not include a political subdivision of a non-US Government and a public body, or its political subdivision, performing a function of a non-US Government.

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Area FATCA requirement CRS requirementKey Differences/ Impact

1.3 NFFE Entity Classification - FATCA CRS Trustee ImplicationsActive NFFE/NFE - Non-profit organizations

The NFFE meets all of the following requirements:• It is established and operated in its

jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare;

• It is exempt from income tax in its country of residence;

• It has no shareholders or members who have a proprietary or beneficial interest in its income or assets;

• The applicable laws of the entity’s country of residence or the entity’s formation documents:

• do not permit any income or assets of the entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the entity’s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the entity has purchased; and

• require that, upon the entity’s liquidation or dissolution, all of its assets be distributed to a governmental entity or other non-profit organisation, or escheat to the government of the entity’s country of residence or any political subdivision thereof.

The NFE meets all of the following requirements:• It is established and operated in its

jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organization, business league, chamber of commerce, labour organization, agricultural or horticultural organization, civic league or an organization operated exclusively for the promotion of social welfare;

• It is exempt from income tax in its jurisdiction of residence;

• It has no shareholders or members who have a proprietary or beneficial interest in its income or assets;

• The applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents do not permit any income or assets of the NFE to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the NFE’s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the entity has purchased; and

• The applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents require that, upon the NFE's liquidation or dissolution, all of its assets be distributed to a Governmental Entity or other non-profit organization, or escheat to the government of the NFE’s jurisdiction of residence or any political subdivision thereof.

n/a

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Area FATCA requirement CRS requirement Key Differences/ Impact

1.3 NFFE Entity Classification CRS Trustee ImplicationsActive NFFE/NFE - Holding companies of non-financial groups

Substantially all of the activities of the NFFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of an FI.

Substantially all of the activities of the NFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of an FI. Substantially all means 80% or more.

n/a

Active NFFE - Start-ups

The NFFE is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of an FI business. However, the criterion can only be satisfied if it is within 24 months after the date of the initial organisation of the NFFE.

The NFE is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of an FI; provided that the NFE shall not qualify for this exception after the date that is 24 months after the date of the initial organization of the NFE.

n/a

Active NFFE-territories

The NFFE is organised in a US Territory and all of the owners of the payee are bona fide residents of that US Territory.

n/a n/a

Passive NFFE/NFE

A “Passive NFFE” means any NFFE that is not an active NFFE

• Any NFE that is not an Active NFE• An Investment Entity in a Non-

participating jurisdiction that is an FI solely because its gross income is primarily attributable to investing, reinvesting or trading in financial assets and the entity is managed by another FI

The requirement to treat Investment Entities in non-participating CRS jurisdictions as Passive NFEs will broaden the scope of CRS.

As the US is a non-participating CRS jurisdiction, US feeder funds will be treated as Passive NFEs and upstream custodians will need to report on any CRS resident Controlling Persons.

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2. Due diligence process Financial Accounts

Area FATCA Requirement CRS Requirement Key differences / Impact

2.1 Financial accounts – FATCA CRS Trustee implications

Investment Entity Financial Accounts

Equity or debt interests that are regularly traded on an established securities market are excluded from being treated as a financial accounts, subject to certain requirements.

Any Equity or Debt Interest in an investment entity. No exception for publicly traded instruments is available under the CRS.

Scope of financial accounts in Investment Entities is largely the same. Under CRS, no exception is available for publicly traded debt and equity interests (e.g., exchange traded funds).

Custodial entity financial accounts

An account created for the benefit of another person that holds any financial instrument/ contract held for investment.

An account, other than an Insurance or Annuity Contract, that holds one or more Financial Assets for the benefit of another person.

The definition provided under the CRS for Financial Assets includes the following two additional categories compared to the IGA:

• securities, including partnership or beneficial ownership interests in a widely held or publically traded partnership or trust;

• partnership interest, commodity, swap or any interest in a security.

Unlike the Model 1A IGA baseline, the CRS commentaries do not exclude from the definition of a Custodial Account financial instruments/contracts (for example, a share or stock in a corporation) held in a nominee sponsored by the issuer of its own shares. However, under CRS the following two assets are specifically excluded from the definition of Financial Asset:

• non-debt, direct interest in real property; • commodity that is a physical good, such as

wheat.

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2. Due diligence process Financial Accounts

Area FATCA Requirement CRS RequirementKey differences / Impact

2.2 Controlling Persons – FATCA CRS Trustee Implications

Controlling persons

• The natural persons who exercise control over the entity.

• For a trust, Controlling Persons will be the:• settlor,• trustees,• protector,• beneficiaries or class of beneficiaries,

and• any other natural person exercising

ultimate effective control over the trust.

• In the case of a legal arrangement other than a trust, Controlling Persons will be the persons in equivalent or similar position.

Noted PWS obtained Group Tax Sign-Off to use US Treasury Regulations Beneficial Owner definitions for FATCA purposes

• The natural persons who exercise control over the entity.• For a trust, Controlling Persons will be the:

• settlor,• trustees,• protector,• beneficiaries or class of

beneficiaries, and• any other natural

person exercising ultimate effective control over the trust.

n/a.

2.3 Excluded accounts

Excluded accounts

• Retirement or pension accounts;• Non-retirement savings accounts;• Certain Term life insurance contracts;• Accounts of Deceased Persons/Estate

accounts;• Intermediary Accounts (Escrow accounts);• Partner Jurisdiction Accounts as defined in

Annex II of each IGA.

• Retirement or pension accounts;

• Non-retirement tax-favoured accounts;

• Term life insurance contracts;• Accounts of Deceased

Persons/Estate accounts;• Escrow accounts;• Depository accounts due to

not-returned overpayments;• Low-risk accounts.

Details on low risk accounts will be communicated when competent authorities release local guidance notes. This may differ to FATCA excluded accounts.

Trustees will need to monitor the evolving requirements to ensure local compliance.

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1. Entity classificationFI Definitions


1.1 Financial Institution Definitions - FATCA CRS Trustee implications


• Depository Institution

• Custodial Institution

• Investment Entity

• Specified Insurance Company

Status of Holding companies and Treasury Centres of Financial Groups depends on the location of the entity.

• Depository Institution

• Custodial Institution

• Investment Entity

• Specified Insurance Company

Holding companies and Treasury Centres of Financial Groups are excluded from being an FI.

The CRS FI categories largely mirror the FATCA FI categories. Under CRS, all holding companies and Treasury Centres of Financial Groups are excluded from being an FI

Investment Entity

An entity is an investment entity and therefore an FFI if it meets the following requirements :•Its gross income is primarily attributable to investing, reinvesting, or trading in financial assets (securities, partnership interests, commodities, notional principal contracts, insurance or annuity contracts as defined in section 1471-5(e)(ii)). The 'primarily attributable' condition is met when 50 per cent of the entity's gross income (during the shorter of the three year period on December 31 of the year preceding the year the determination is made or during which the entity has been in existence) is attributable to the mentioned activities. (Note- Cash is not a financial asset. Bank Interest is therefore passive income)•It is managed by another entity (the managing entity), and•the managing entity performs, either directly or through another third-party service provider, on behalf of the managed entity the activities listed under “Type 1 investment entity” above.

* The above definition is based on the US treasury regulations

A. Any entity that conducts as a business one or more of the following activities or operations for or on behalf of a customer:• trading in money market

instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;

• individual and collective portfolio management; or

• otherwise investing, administering, or managing financial assets or money on behalf of other persons, or

B. Managed Investment Entity which satisfies the Financial Asset Test.

To qualify under (A) or (B) above, the entity’s gross income attributable to the relevant activities must be 50% or more during the shorter of the three-year period ending on 31 December of the year preceding the year in which the determination is made; or the period during which the entity has been in existence.

Under the CRS, a Financial Asset Test must be met before an entity falls within the Investment Entity category.

Entities will not be FIs purely by being professionally managed.

Note that local law interpretations may clarify application of CRS to specific entities in a particular jurisdiction.

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2. Due diligence process Pre-existing individuals (1/3)


2.3 Pre-existing Individual Accounts - FATCA CRS Trustee implications

Availability of threshold exemptions

Threshold exemptions ($50,000) apply to certain pre-existing Individual Accounts unless a RFI elects not to apply these thresholds.

There is no threshold exemption under CRS

Lower Value Accounts - Due diligence

The FI must carry out an electronic data search for any of the US indicia.

Where none of the US indicia are discovered, no further action is required until there is a change in circumstances.

The FI may rely on the Residency Address Test (see below) to establish tax residency. Where not relying on the Residency Address Test, an electronic indicia review (see section 2.7) must be undertaken.

Where no indicia are discovered through an electronic search, no further action is required, until there is a change in circumstances.

Residency test for due diligence may be relied upon or trustees may decide to request self-certifications in all cases.

In determining reportable persons, Trustees may wish to rely on residency test in order to prevent over-reporting

Residence address test - Further due diligence

N/A If the FI has in its records a current residency address, based on documentary evidence, (see section 2.8), the FI may treat the individual as being resident for tax purposes in that jurisdiction

No residence address test under FATCA

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2.3 Pre-existing Individual Accounts - FATCA CRS Trustee Implications

High Value Accounts - Due diligence

The FI must carry out an electronic data search for any of the US indicia.

A paper record search is required where all the information regarding the US indicia is not electronically searchable.

Where Relationship Manager is assigned, an RM inquiry must be performed

The FI must carry out an electronic data search for indicia of tax residence in a reportable jurisdiction.

A paper record search is required where all the information regarding the indicia is not electronically searchable.

Where Relationship Manager is assigned, an RM inquiry must be performed

FIs must undertake indicia reviews to identify account holders that are tax resident in a reportable jurisdiction.

FATCA required indicia searches in respect of US citizenship.

High Value Accounts - Paper record search

The paper record search should include a review of the current customer master file and, to the extent they are not contained in the current master file, the following documents associated with the account and obtained by the RFI within the last 5 years for any US indicia:

a) the most recent documentary evidence collected

b) the most recent account opening contract or documentation;

c) the most recent documentation obtained by the Financial Institution for AML/KYC procedures or for other regulatory purposes;

d) any power of attorney or signature authority forms currently in effect; and

e) any standing instructions to transfer funds currently in effect.

The paper record search should include a review of the current customer master file and, to the extent they are not contained in the current master file, the following documents associated with the account and obtained by the RFI within the last 5 years for any Relevant indicia:

a) the most recent documentary evidence collected;

b) the most recent account opening contract or documentation;

c) the most recent documentation obtained by the RFI pursuant to AML/KYC Procedures or for other regulatory purposes;

d) any power of attorney or signature authority forms currently in effect; and

e) any standing instructions to transfer funds currently in effect.

The paper search requirements for high-value accounts are the same under FATCA and CRS.

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2.3 Pre-existing Individual Accounts – FATCA CRS Trustee Implications

Relationship Manager Inquiry

An account must be reported where the Relationship Manager associated with the account has actual knowledge that the account holder is a Specified US Person

An account must be reported where the Relationship Manager associated with the account has actual knowledge that the account holder is a reportable person

No difference to FATCA

Transition from low value to high value account

If an account is not a High Value account at 30 June 2014, but becomes a High Value Account on the last day of 2015 or any subsequent year, the review procedures must be carried out within 6 months of the last day of the calendar year in which the account becomes a High Value Account.

If a Pre-existing Individual Account is not a High Value Account as of 31 December [xxxx], but becomes a High Value Account as of the last day of [xxxx], the Financial Institution must complete the review procedures with respect to such account within the calendar year following the year in which the account becomes a High Value Account.

If a pre-existing account becomes a high value account, the FI has 6 months following the year end to apply the high value review procedures under FATCA. For CRS, this is extended to one year.

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2. Due diligence process New individuals


2.4 New Individual Accounts - FATCA CRS Trustee ImplicationsThreshold Exemptions-Equity and Debt Interests

There is no threshold exemption for equity and debt financial accounts

There is no threshold exemption for equity and debt financial accounts

Under both FATCA and CRS, all new individual accounts need to be documented

Certification upon account opening

FIs must obtain a self-certification (e.g., a W-9 or W-8 form) to assess if the account holder is a US citizen or US resident for tax purposes.

FIs must assess the reasonableness of self-certification alongside KYC/AML/other regulatory documentation held for the account holder.

For those accounts that are identified as Reportable, the RFI must keep a record of the account holder's US TIN

FIs must obtain a self-certification to determine the individual’s tax residency.

FIs must assess the reasonableness of self-certification alongside KYC/AML/other regulatory documentation held for the account holder.

For those accounts that are identified as Reportable, the self-certification must also include the Account Holder’s TIN with respect to such Reportable Jurisdiction and date and place of birth

For CRS, an FI must obtain a self-certification detailing tax residency, TIN (if the individual is resident in a reportable jurisdiction) and date of birth at account opening

Self-certification – reason to know

An FI cannot rely on self-certification or other documentation if it has reason to know these to be false. It is assumed for this purpose that a RFI should know this if a reasonable prudent person were to know this to be the case.

A FI cannot rely on self-certification or other documentation if it has reason to know these to be unreliable or incorrect. It is assumed for this purpose that a RFI should know this if a reasonable prudent person in the position of the RFI would also question the claim being made.

No difference to FATCA

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2. Due diligence process Indicia (2/3)


2.7 Indicia – Individuals – Curing Documentation FATCA CRS Trustee Implications

Indicia Cures - Individuals

In reference to the US Indicia on the previous page (a – g), where US Indicia is found, the account must be reported unless the FI:

a) Not possible to cure b) maintains a record of all of the following: • a self certification showing that the

account holder is neither a US citizen nor a US resident for tax purposes,

• evidence of the account holder’s citizenship or nationality in a country other than the US; and

• a copy of the account holder’s Certificate of Loss of Nationality of the US or a reasonable explanation of the reason the account holder does not have such a certificate or the reason the account holder did not obtain US citizenship at birth.

c) – g) maintains a record of all of the following:• a self certification that the account holder

is neither a US citizen nor a US resident for tax purposes; and

• a form of acceptable documentary evidence which establishes the account holder’s non-US status.

In reference to the CRS Indicia on the previous page (a-f), where Indicia is found, the account is reportable unless the RFI obtains, or has previously reviewed and maintains, a record of:

• a self-certification from the Account Holder of the jurisdiction(s) of residence of such Account Holder that does not include such Reportable Jurisdiction; and

• Documentary Evidence (See Section 2.8) establishing the Account Holder’s non reportable status.

This applies to all Indicia (a-f).

Cures and process to cure indicia are similar to FATCA, however scope is different

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2. Due diligence process Indicia (3/3)


2.7i Indicia - Entities – FATCA CRS Trustee Implications Identification of an Entity as a Specified Person

Indicators of a Specified US Person include:

• US place of incorporation/ organisation;

• US address

Information indicating that the Account Holder is resident in a Reportable Jurisdiction includes:

• a place of incorporation/organisation in a Reportable Jurisdiction;

• an address in a Reportable Jurisdiction; or

•an address of one or more of the trustees of a trust in a Reportable Jurisdiction.

Note that the existence of a permanent establishment (including branch) in a Reportable jurisdiction is not by itself an indication of residence for this purpose.

Entity indicia are broadly similar

2.7ii Indicia – Entities – Curing documentation

Indicia Cures - Entities

If the information indicates that the Entity Account Holder is a Specified US Person, the Reporting FI must treat the account as a Reportable Account unless:

• it obtains a self-certification from the Account Holder, or

• reasonably determines based on information in its possession or that is publicly available, that the Account Holder is not a Specified US Person.

This applies to all indicia.

In reference to the CRS Indicia above, the reporting FI must obtain:

• A self-certification which contains the account holder's status.

This applies to all indicia.

Cures and process to cure indicia are similar to FATCA, however scope is different

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2. Due diligence process Documentation (1/3)


2.8 Documentation – FATCA CRS Trustee Implications

Acceptable Documentary Evidence

The acceptable documentary evidence to support the account holder's status is:

• A certificate of residence issued by an authorised government body of the country in which the account holder claims to be resident;

• For an individual, any valid identification issued by an authorised government body (for example, a government or agency thereof, or a municipality), that includes the individual’s name and is typically used for identification purposes;

• For an entity, any official documentation issued by an authorised government body that includes the name of the entity and either the address of its principal office in the jurisdiction in which it claims residency or the jurisdiction in which the entity was incorporated or organised;

• Any of the documents referenced in the relevant jurisdiction's attachment to the QI Agreement as being acceptable;

• Any financial statement, third party credit report, bankruptcy filing, or US SEC report.

The acceptable documentary evidence to support the account holder's status is:

• a certificate of residence issued by an authorized government body of the jurisdiction in which the payee claims to be a resident;

• For an individual, any valid identification issued by an authorized government body, that includes the individual's name and typically used for identification purposes;

• For an entity, any official documentation issued by an authorised government body that includes the name of the entity and either the address of its principal office in the jurisdiction in which it claims residency or the jurisdiction in which the entity was incorporated or organised;

• any audited financial statement, third party credit report, bankruptcy filing, or securities regulator's report.

Documents referenced in the jurisdiction’s attachment to the QI Agreement in addition to Forms W-8 or W-9 are additionally acceptable under FATCA.

CRS provides additional guidance on the preference of documents

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2.8 Documentation - FATCA CRS Trustee ImplicationsSelf-certification errors

A W-series form is valid if it contains an error or omission that is “inconsequential” and the withholding agent has sufficient documentation on file to supplement the missing information. A failure to establish an entity type or make a required certification, however, is never inconsequential.

Below are a few examples from the IRS bulletin 2013-15 of consequential and inconsequential errors:

Inconsequential errors• an abbreviation of the country of residence

if the withholding agent has government issued identification for the person from a country that reasonably matches the abbreviation

• the form was not dated• the person signing the form does not also

print their name when required to do so on the form

Consequential errors• an abbreviation for the country of

residence that does not reasonably match the country of residence shown on the person’s passport

• a failure to select an entity type• a failure to check a box to make a required

certification• a failure to provide a country of residence• information on a withholding certificate

that contradicts other information contained on the withholding certificate

Self-certification is valid if it contains an inconsequential error and there is sufficient documentation to supplement the missing information.

A failure to provide a jurisdiction of residence is not an inconsequential error, nor is an error which contradicts other information provided by the account holder.

CRS Commentary is less specific, however it is expected that it should be broadly aligned to the inconsequential errors guidance issued by the IRS.

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2.8 Documentation – FATCA CRS Trustee Implications

Documentary evidence - validity

Generally, documentary evidence is valid until the last day of the third calendar year following the year in which the documentary evidence is provided to the RFI. Documentary evidence that contains an expiry date may be valid until the expiration date.

The above validity terms are subject to a change in circumstances which would invalidate the earlier documentation.

However, the following documentary evidence remains valid indefinitely:

• Documentary evidence provided by non-US individuals (when no current US residence or mailing address or one or more current US telephone numbers provided);

• Documentary evidence that is not generally amended or renewed (such as certificate of incorporation);

• Documentary evidence provided by certain types of payees with respect to offshore obligations

Generally, documentary evidence that contains an expiry date may be valid on the later of such date or the day of the calendar year following the year in which such Documentary Evidence is provided to the RFI, subject to a change in circumstances.

However, the following documentary evidence remains valid indefinitely:

• documentary evidence furnished by an authorised government body (e.g. passport);

• Documentary evidence that is not generally amended or renewed (such as certificate of incorporation);

• documentary evidence provide by a Non-Resident FI or a Reportable Jurisdiction Person that is not a Reportable Person

All other documentary evidence is valid until the last day of the fifth calendar year following the year in which such documentary evidence is provided to the RFI.

The requirements for validity of documentary evidence are broadly similar. The exception is where documentary evidence is not valid indefinitely. In this case, the documentary evidence will be valid for 3 years for FATCA and for 5 years for CRS.

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2. Due diligence process Aggregation


2.9 Aggregation – FATCA CRS Trustee Implications

Aggregated Balance/Value

FIs must aggregate all accounts held by it or related entities, but only to the extent that the computerised systems link the Financial Accounts by reference to a data element such as client number or taxpayer identification number, and allow account balances or values to be aggregated.

• Where joint accounts are held, each holder shall be attributed the entire balance or value of the jointly held account for the purposes of aggregation.

• Related entities are those under common control, control meaning direct or indirect ownership of more than 50% of the vote OR value in an entity.

• In IGA jurisdictions, aggregation is generally required across sponsored FIs with the same sponsoring entity but only where the accounts are linked by a computerised system.

• FIs must aggregate all accounts held by it or related entities, but only to the extent that the Reporting FI's computerised systems allow such aggregation by reference to a data element such as client number or TIN.

• Where joint accounts are held, each holder shall be attributed the entire balance or value of the jointly held account for the purposes of aggregation.

• Related entities are those under common control, control meaning direct or indirect ownership of more than 50% of the vote AND value in an entity

• Aggregation is required across related entities.

• Administered entities will not qualify as related entities under CRS if there is no common ownership. Aggregation will therefore not be required across entities that are not related entities. Therefore not applicable for Trustee administered entities.

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3. ReportingReporting requirements

Area FATCA requirement CRS requirementKey differences / Impact

3.1 Reporting Accounts – FATCA CRS Trustee Implications Reportable Accounts of Investment Entities

Financial accounts held by:

• Specified US Persons (see section 3.4) • Passive NFFEs with Substantial US

owners, or in IGA countries, with Controlling Persons that are Specified US Persons

• Nonparticipating FFIs (aggregate reporting for payments made for 2015 and 2016 years only)

• Recalcitrant account holders (aggregate reporting)

• Reportable accounts of owner-documented FFIs

Financial accounts held by:

• Specified Persons (see section 3.4)

• Passive NFEs with Controlling Persons that are Specified Persons

For FATCA, accounts held by certain US entities would be reportable (e.g., a Delaware feeder) even if a US entity is a financial institution. For CRS, no reporting of accounts held by CRS-resident FIs is required. No transitional reporting for NPFIs, owner-documented FFIs and recalcitrant account holders applies for CRS.

3.2 Reportable Information

Information Required with respect to NPFFIs

Information required to be reported on NPFIs for 2015 and 2016:

• Name of each NPFI (only to which payments were made); and

• Total amount of payments made to each NPFI.

Concept of NPFFI does not exist under CRS. No reporting requirements

No CRS NPFFI reporting requirements

Information Required with respect to Recalcitrant Account Holders

• In Non-IGA jurisdictions, the aggregate number and aggregate balance or value of accounts held by:

• Passive NFFEs that are recalcitrant account holders

• U.S. persons that are recalcitrant account holders

• Account holders that have U.S. indicia

• Account holders that do not have U.S. indicia.

• Account holders that are dormant

The concept of recalcitrant account holder does not exist under CRS

No CRS reporting requirements for recalcitrant account holders

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Area FATCA requirement CRS requirement Key differences / Impact3.2 Reportable Information – FATCA CRS Trustee Implications Information Required with respect to Reportable Accounts of Investment Entities

• Name of the account holder• Address of the account holder• US TIN (where applicable)• Account number or functional

equivalent• Name and the identifying number of

RFI (i.e., a GIIN) • The account balance or value as of the

end of the calendar year or other appropriate reporting period or, if the account was closed during the year, immediately before closure

• The total gross amount paid or credited to the account holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the RFI is the obligor or debtor, including the aggregate amount of any redemption payments made to the account holder during the calendar year or other appropriate reporting period.

• Name of the account holder• Address of the account holder• TIN or functional equivalent (unless

a TIN is not issued by the relevant reportable jurisdiction or the domestic law of the relevant reportable jurisdiction does not require the collection of TINs)

• Date and place of birth (if an individual and if required under local law)

• Account number or functional equivalent

• Name and identifying number of RFI• Jurisdiction(s) of residence of

Reportable Person or Entity• The account balance or value as of

the end of the relevant calendar year or other appropriate reporting period, or if the account was closed during such year or period, the closure of the account

• The total gross amount paid or credited to the account holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the RFI is the obligor or debtor, including the aggregate amount of any redemption payments made to the account holder during the calendar year or other appropriate reporting period.

Under CRS, reportable information includes the jurisdiction of the reportable person or entity, and in case of individuals, also the date and place of birth.

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Area FATCA requirement CRS requirement Key differences / Impact3.3 Reporting mechanism and format – FATCA CRS Trustee Implications Reporting deadline

• 31 March of each subsequent year with respect to prior year accounts (automatic 90-day extension is provided)

• In IGA jurisdictions, FATCA Partner local tax authorities must report to the IRS by 30 September after the end of the calendar year to which the information relates. Date to report to FATCA Partner local tax authorities to be determined by local law (see slide 42).

Date to report to local tax authorities to be determined by local law but the minimum standard is 9 months following the reportable year.

Trustees will need to ensure it has a process in place to meet reporting deadlines in each jurisdiction. Consider the need for a strategic reporting solution given the higher reporting levels.

Format of reports

The FATCA return must be filed in accordance with the process and format defined by the local competent authority. Manual entry and XML options are generally available.

The Competent Authorities will use the CRS schema for the purposes of exchanging the information to be reported.

Local authorities may require submission by CRS schema or local version.

Reporting schemas may vary. It is likely that in many Model 1 IGA countries, a single schema will be used for both FATCA and CRS.

It is currently unclear if any local authorities will accept manual submissions

Nil reports Each local jurisdiction tax authority (in IGA countries) will specify whether nil returns will need to be submitted.

Currently unclear. The requirement to file will depend on local interpretations.

Trustees will need to monitor local CRS guidance as issued to determine nil reporting requirements, although it is assumed most entities will have reportable persons.

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3. ReportingIdentifying specified persons

Area FATCA requirement CRS requirementKey differences /Impact

3.4 Specified Persons - FATCA CRS Trustee Implications Specified persons

Any US Person other than: a) a corporation the stock of which is regularly traded on one or more established securities markets; b) any corporation that is a member of the same expanded affiliated group, as defined in Section 1471(e)(2) of the US Internal Revenue Code, as a corporation described in clause (a); c) the United States or any wholly owned agency or instrumentality thereof; d) any State of the United States, any US Territory, any political subdivision of any of the foregoing, or any wholly owned agency or instrumentality of any one or more of the foregoing; e) any organization exempt from taxation under Section 501(a) of the US Internal Revenue Code or an individual retirement plan as defined in Section 7701(a)(37) of the US Internal Revenue Code; (f) any bank as defined in Section 581 of the US Internal Revenue Code; (g) any real estate investment trust as defined in Section 856 of the US Internal Revenue Code; (h) any regulated investment company as defined in Section 851 of the US Internal Revenue Code or any entity registered with the US Securities and Exchange Commission under the Investment Company Act of 1940 (15 USC. 80a-64);(i) any common trust fund as defined in Section 584(a) of the US Internal Revenue Code; (x) any trust that is exempt from tax under Section 664(c) of the US Internal Revenue Code or that is described in Section 4947(a)(1) of the US Internal Revenue Code;(j) a dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards, and options) that is registered as such under the laws of the United States or any State;(k) a broker as defined in Section 6045(c) of the US Internal Revenue Code; or (xiii) any tax-exempt trust under a plan that is described in Section 403(b) or Section 457(g) of the US Internal Revenue Code.

A Reportable Jurisdiction Person other than:

a) a corporation the stock of which is regularly traded on one or more established securities markets and any Related Entity of such a corporation;b) a Governmental Entity;c) an international Organization;d) a Central Bank; ore) an FI.

Different criteria to determine if an investor is reportable

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