International Tax Compliance (Client Notification) Regulations

Emily DeaneThe UK’s International Tax Compliance (Client Notification) Regulations have been amended and will come into force on 30 September 2016.

The regulations create an obligation on financial institutions (banks, building societies, insurers, fund managers, wealth managers and professionals that offer tax or financial advice or services) to notify their clients about the tax information that HMRC will receive about their offshore affairs under international agreements.

Financial institutions are defined in the same way as in the Common Reporting Standard (CRS) and capture trusts that are financial institutions, however all charities are specifically excluded and will not have to notify their grant recipients.

Clients must be notified that:

  • Tax information must be shared with HMRC regarding their overseas assets under the Common Reporting Standard (CRS),
  • There are opportunities for clients to voluntarily disclose information about their overseas tax affairs if they need to; and
  • There are likely to be sanctions for those who do not come forward.

The notifications are targeted at practitioners who provide advice about offshore assets or income which is not disclosed in their clients’ tax returns. The affected clients are UK tax residents for whom the practitioner has provided offshore advice or services for a period of up to one year, or up to three years ending on 6 April 2016 (depending on the nature of the advice given).

While the wording of HMRC’s notifications has not been finalised yet, the notifications must be sent to clients by 31 August 2017 with a covering letter from the practitioner using set wording provided by HMRC.

HMRC has no objection to notifications being sent out to every client in the firm’s database if identifying individuals is too time-consuming or onerous. Failure to do so by 31 August 2017 may result in a £3,000 fine.

STEP will provide an update once further guidance from HMRC is available.

 

Emily Deane TEP, STEP Technical Counsel

CRS and charities: watch out for reporting obligations

George HodgsonThe OECD Common Reporting Standard (CRS) is probably going to impact directly every STEP member outside of the US – the only major international financial centre not so far committed to joining the CRS. Even STEP members in the US, however, are likely to have to consider CRS’ implications for any clients they have with widely spread financial interests.

Fortunately, CRS is very closely based on FATCA, so most of the work practitioners have done on FATCA implementation over the past couple of years should serve them well when it comes to CRS implementation over the next year or two. There are, even so, a couple of wrinkles in CRS which might trap the unwary.

One difference is that some of the reporting options available to trusts which are considered Financial Institutions (FIs) under FATCA, specifically ‘owner documented’ status and ‘sponsored investment entity’ status, are not available under CRS. Basically, under CRS, trusts that are FIs can either be trustee-documented trusts or must report directly, although they can come to third party service agreements with others to complete their reporting for them if they wish.

Another potential trap is that while all regulated charities were essentially exempt from FATCA reporting, some charitable trusts will need to file reports under CRS.

Charitable trusts that are Non-Financial Entities (NFEs) are regarded as Active NFEs under both FATCA and CRS and are therefore not reportable. Under FATCA, charities that are FIs were also carved out as ‘Deemed Compliant Financial Institutions’ and thus did not need to register or report. Under CRS, however, such charitable trusts do not have ‘Deemed Compliant’ status. Thus, under CRS, charitable trusts that are FIs – typically because they have a discretionary fund manager – will need to perform due diligence, establishing the tax residence of all Controlling Persons (including beneficiaries) and report any reportable accounts.

STEP recently arranged a meeting between some charity advisors and HMRC on this issue and HMRC are now looking to draft some additional guidance for the charity sector in the issues raised by CRS. In drafting this guidance HMRC would welcome further input from practitioners. Therefore, if you have encountered any specific difficulties or have any particular questions, please contact STEP and we will undertake to pass them on to HMRC as they are drafting their guidance.

George Hodgson, Deputy Chief Executive, STEP