The five most common reporting errors for trusts to avoid

HM Revenue & Custom’s (HMRC) compliance team has identified the five most common errors made by UK administered trusts which are Financial Institutions (FIs) when fulfilling their obligations under the International Tax Compliance Regulations 2015.

These obligations relate to Automatic Exchange of Information (AEOI) which includes the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). Any errors should be rectified by submitting amendments using an online HMRC AEOI account, or if relating to the FATCA FFI list, an IRS FATCA online account.

1.Trusts wrongly classified for AEOI purposes

A trust can be either a FI or a non-financial entity. A trust will be classified as an FI where more than 50 per cent of its income is from investing, reinvesting, or trading in financial assets, and another FI has discretionary authority to manage these assets wholly or in part. A trust or settlement is regarded as being managed by an FI where either one or more of the trustees is an FI or the trustees have appointed an FI, such as a discretionary fund manager, to manage the trust’s assets or the trust itself. Trusts that are FIs have to register and submit AEOI returns to HMRC if they have reportable accounts. More information.

2.Due diligence requirements incorrectly carried out

Trusts that are FIs must carry out due diligence on their financial accounts to determine whether any are reportable accounts.  For trusts, financial accounts are the debt or equity interests in the trust. The equity interests are deemed to be held by any person treated as a settlor or beneficiary of all or a portion of the trust, or any other person exercising ultimate effective control, including trustees and protectors.

The debt and equity interests of the trust are reportable accounts if they are held by a reportable person. For example, if a settlor or beneficiary is resident in a reportable jurisdiction (outside of the UK), their equity interest is a reportable account.

The trust that is an FI must apply the due diligence rules in order to determine the identity and residence of its debt and equity interest holders. Please see the due diligence rules.

A trust that has reportable accounts must report the account information and the financial activity for the year in respect of each reportable account. The account information includes the identifying information for each reportable person (such as name, address, jurisdiction of residence, taxpayer identification number, date of birth and account number), and the identifying information of the trust (name and identifying number).

3.Mistakes when reporting discretionary beneficiaries and trustees.

A discretionary beneficiary will only be treated as an account holder in the years in which it receives a distribution from the trust. Other reportable accounts are reportable regardless of whether a distribution is made in the calendar year. More information (para 253).

4.Reporting entities as controlling persons.

Where an equity interest (such as the interest held by a settlor, beneficiary or any other natural person exercising ultimate effective control over the trust) is held by an entity, the equity interest holder will instead be its controlling persons. As such, the trust will be required to look through a settlor, trustee, protector or beneficiary that is an entity to locate the relevant controlling persons. (This obligation corresponds to the obligation to identify the beneficial owners of a trust under anti money-laundering rules). More information (para 253).

5.Errors relating to the IRS FATCA Foreign Financial Institution (FFI) list.

A trust that registers on the IRS FATCA registration website as being a FFI, will receive a Global Intermediary Identification Number (GIIN) from the IRS, upon approval. Some UK administered trusts are incorrectly registered on the FFI list, including trusts that do not meet the definition of being an FFI, or that have already been terminated.

Where FFI registration has been approved but is no longer appropriate, the trust should cancel the agreement. Cancelling a registration agreement that is in approved status will mean it will no longer be published on the FFI List and the GIIN will no longer be valid. The FATCA registration user guide contains guidance on deregistration and cancelling the agreement.


Emily Deane TEP, STEP Technical Counsel

Top 10 FATCA/CRS reporting issues

Top 10 issuesWith reporting now underway in the UK for both FATCA (the US Foreign Account Tax Compliance Act) and the Common Reporting Standard (CRS), STEP has been liaising with HMRC on some of the more common reporting issues:

1. The financial institution (FI) has to re-register and is not able to view previous returns on the portal, because login details are unknown following staff changes.

Automatic Exchange of Information (AEOI) portal login details should be held securely and known only by those who need them. The FI should ensure that there is an appropriate procedure to maintain access to their portal. A pseudo email account might be an appropriate solution, providing the FI has robust security and data protection safeguards in place.

2. The FI misunderstands what constitutes an undocumented account.

HMRC has advised that FIs are wrongly reporting accounts as ‘undocumented’ when a self-certification requested from an account holder has not been completed. This has led to numerous accounts being erroneously reported with a GB resident country code. The definition of an undocumented account can be found at IEIM403100.

3. The FI makes a submission using the XML schema which is rejected due to inappropriate re-use of MessageRef, FIReturnRef and AccountRef.

The schema guidance gives comprehensive advice on use of references and can be found here.

4. The FI reports accounts where the account holder is not resident in a reportable jurisdiction.

Individuals who are not resident in a reportable jurisdiction (see IEIM402340) should not be reported. Some jurisdictions which have signed up to CRS are non-reciprocal, and some which have signed up are not yet ready to receive exchanges.

5. The FI reports accounts as being NPFFIs but resident country code is not US.

The term non-participating foreign financial institution (NPFFI) is for FATCA only, in respect of years up to 2016, and not applicable for CRS purposes. If used, the resident country code should be US.

6. The FI reports accounts that are excluded accounts and therefore non-reportable, such as registered pension schemes.

A full list of excluded accounts can be found at IEIM 401720.

7. The FI reports persons who are not reportable.

Under CRS, corporations with regularly traded stock and related entities are not reportable account holders, nor are governmental entities, international organisations, central banks or financial institutions. A list of exemptions to the term ‘specified US person’ under FATCA can be found in Article 1 (gg) of the UK-US Inter-Governmental Agreement (IGA).

8. The FI reports joint individual accounts as entity accounts.

A jointly-held individual account is not an entity account and the account information to be exchanged can be found at IEIM402140. However, partnerships, including general partnerships, are treated as entities, irrespective of their legal form (see IEIM400860).

9. The AEOI enquiry helpline is for financial institutions only.

HMRC requests that you don’t share details of the AEOI enquiry helpline with your account holders. This inundates its AEOI filing team and prevents it from being able to assist FIs with their reporting obligations.

10. The FI leaves filing to the last minute.

Filing submissions sufficiently in advance of the 31 May 2018 deadline allows FIs extra time to deal with any unexpected issues such as missing information, or inaccurate XML schema, that might lead to the submission being rejected.

STEP will continue to consult with HMRC on ongoing technical issues.

Emily Deane TEP is STEP Technical Counsel

CRS and charities continued…

Emily DeaneOn 18 August, I attended the latest Charities CRS Working Group meeting, hosted by HMRC. The main issues discussed were as follows:

  • HMRC confirmed that CIOs (charitable incorporated organisations) will be treated in the same way under CRS as other corporate bodies and this will be incorporated into the new guidance.
  • HMRC confirmed that collection of Taxpayer Identification Number (TIN) and date of birth information is on a best-efforts basis if the charity does not already hold the information. A charity should also make best efforts to get a self-certification prior to issuing a grant, however they are not compelled to refuse to give a grant without a self-certification.
  • Charities have an obligation to tell their beneficiaries that their data may be shared, as per Regulation 6. There is no requirement under Data Protection to seek consent from the beneficiaries, since the data is being shared under a legal requirement.
  • HMRC are still reviewing the anti-avoidance measures and they will provide an update when compliance colleagues have been consulted further.
  • HMRC will add further examples to the guidance regarding the definition of ‘indirect beneficiaries’ to help illustrate cases around identifying who is the beneficiary of a grant.

Potential human rights abuses are still a major concern among the charity sector. HMRC are taking into consideration some instances where the exchange of data may not be warranted and could be tantamount to a breach of human rights. HMRC have been collecting examples from the working group in order to increase transparency around this issue and to take on board potential activities of jurisdictions where there are existing concerns around human rights.

The new guidance manual has been published on HMRC’s website and can be viewed via this link:

HMRC also published this Guidance Note for charities in relation to automatic exchange of information.

HMRC intend to host some CRS charity-specific seminars around the country and STEP will flag these events as they arise.

On a broader CRS basis, the HMRC AEOI team is running an educational event aimed at businesses and agents in the small and medium sectors who are affected by AEOI and would like more information. The event will include speakers from agents, industry and HMRC as well as the opportunity for 1‐2‐1 ‘surgeries’ plus small group discussions on due diligence best practice. The event will take place on 7 October 2016 in London. To register an interest in the event please email [email protected]

STEP will continue to attend the periodic working group to discuss ongoing technical issues with HMRC in this connection.

Emily Deane TEP, STEP Technical Counsel

CRS and Charities continued…

donating to charity - giving money - piggybankHMRC has posted its international automatic exchange guidance on the government website, following another meeting held with STEP and charity advisors: International Exchange of Information Manual. The charity guidance will be posted within a week, the HMRC working group promises.

Attendees at the meeting discussed the mechanics of the due diligence process of charities in more detail; in particular, self-certification and tax residency. All beneficiaries and the gifts that they have received must be reported by a charity that is a Financial Institution (FI). Their name, payment and residency must also be reported, and there will be a tick box for UK residency.

In some scenarios, where charities are donating to the homeless and/or destitute, HMRC confirms that it will be difficult to obtain a self-certification of the beneficiary. In these circumstances, if the gift is being made in a reportable jurisdiction, the self-certification can be verified on a verbal basis. It can also be assumed that an apparently homeless person is tax resident in the country that they are present in at the time of the gift. No supporting documentation is required by HMRC if the question of residency appears acceptable, and adheres to a common sense ‘reasonableness’ test. Generally, no follow up of the beneficiary is necessary on this basis.

It is only necessary to acquire the beneficiary’s Taxpayer Identification Number (TIN) when they are resident in a country that provides them (Reportable Information: Tax Identification Number), and when it is reasonable to be able to acquire it. The tick box on the form for the TIN will be optional.

Gifts under approximately £100 (to be confirmed) are not reportable in non-reportable jurisdictions. Food and supplies that are donated are not reportable, and vouchers, whether cash or otherwise, are currently being considered.

HMRC confirmed that there will be a £300 fine for not submitting a report on time and a higher fine for delayed failure for a reporting entity. However, the £300 figure is currently under review and may be increased. There will be a £3,000 fine for an inaccurate report as a result of ‘deliberate behaviour’.

STEP’s meetings with HMRC are conducted on a monthly basis, however HMRC is to run more events with financial entities that will be affected by CRS (the OECD Common Reporting Standard) in order to provide further training.

In the meantime, we welcome any specific queries or input from practitioners which we will pass on to the working group for clarification. Please contact us at [email protected].


Emily Deane TEP is Technical Counsel at STEP

OECD: ‘Public release of taxpayer information is not consistent with the international standards for tax transparency’

George_Hodgson-2016STEP yesterday (14 April) received a letter from Mr Kosie Louw, Chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which was sent to all members of the Global Forum.


The letter contains the following statement:

‘I want to state that the public release of taxpayer information is not consistent with the international standards for tax transparency. Indeed, a key aspect of our work has been concerned with ensuring that when such information is held by governmental authorities it is shared only with persons authorised in accordance with the standard and the applicable international agreements that give effect to both EOIR and AEOI.’

STEP welcomes this statement, which reinforces our message that while we support international initiatives on transparency and anti-money laundering, families have a right to legitimate confidentiality in their financial affairs and there must be effective safeguards to protect their information from risk of abuse.

We look forward to working with the OECD in the weeks and months ahead to support and inform their efforts in combatting tax evasion and any actions that support criminal activity such as money laundering and terrorist financing, and to rebuild public confidence in the international finance system.


George Hodgson, Deputy Chief Executive, STEP

Are all countries ready for automatic information exchange?

Philip MarcoviciSTEP’s Global Congress, coming up in Amsterdam this summer, will be looking into a number of important and controversial issues, not least in the panel session I’m chairing on the second day.

Joining me will be the Rt Hon Clare Short, Chair of the Extractive Industries Transparency Initiative, Jeremy Carver CBE of Transparency International and Philip Kerfs, the Head of the International Co-operation Unit of the OECD.

We’ll be discussing whether all countries are ready for automatic information exchange – and many fear they are not. Corruption, misuse of tax information and many more issues are rife in more countries than any governmental organisation is able to admit.

Will automatic information exchange through the CRS (Common Reporting Standard) and other initiatives actually disadvantage those developing countries most in need of tax revenues? Will we see entrepreneurs making a rush for the exit in some countries, even though they are the ones most needed for their domestic economies? Have developed countries pushed their own tax enforcement agendas, without properly considering the economic consequences to those countries most in need?

We’ll be asking if the wealth management industry and legacy financial centres have themselves to blame for where we are. We will though, also be looking for solutions, and it may not be too late to consider and implement alternative approaches to tax compliance.

Should STEP and its members be more concerned about inequality of income and wealth and the consequences of backward-looking attempts to maintain secrecy in and around opaque trust and other structures?

Is the US, as a non-participant in CRS, the only country that is positioned to help – even though it may benefit its own financial services industry in the process? Have wealthy individuals and entities served by STEP members been too silent and self-absorbed, ignoring the needs of those in their communities?

Are professional services firms profiting from the complexity of FATCA and CRS more than the countries that need tax revenues to address urgent needs of those living in poverty? Is it true that tax compliance can overcome global poverty, and if that is true, how can we ensure that this is achieved?

We’ll be discussing real problems and identifying possible solutions. Do join us – it’s not a session to be missed.


Philip Marcovici TEP, Offices of Philip Marcovici, Hong Kong