HMRC has identified the most common errors made by financial institutions (FIs) when filing their Automatic Exchange of Information (AEOI) returns, which include Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) reportable information.
1. The FI misunderstands what constitutes an undocumented account
FIs are wrongly reporting accounts as ‘undocumented’ on the basis that a self-certification requested from an account holder has not been completed.
Accounts should only be reported as undocumented where they meet specific criteria, which include that the account has either a hold-mail instruction or a ‘care-of’ address. The full criteria can be found in CRS, Section III: Due Diligence for Preexisting Individual Accounts, subparagraphs B(5) and C(5). HMRC guidance is available at IEIM402850 and IEIM403040.
Any accounts that are correctly reported as ‘undocumented’ must show Great Britain as the residential country code.
2. The FI misunderstands what information is required to be reported
Some FIs only complete the mandatory fields in the schema or portal, even though they hold additional information which is legally required to be reported. In addition, some FIs fill in mandatory fields with ‘n/a’ or similar.
CRS and the UK-US FATCA Intergovernmental Agreement (IGA) state which information is required to be reported. Where a schema or portal field is not mandatory, there can still be a legal requirement to provide this information. For example, where a Taxpayer Identification Number (TIN) or date of birth is held or obtained by the FI, it is required to be reported even though it is not down as a mandatory field within the portal or schema. Where an address is held, the full address must be provided, even though the only mandatory field is for ‘city’ in the schema or portal.
3. The FI reports accounts held by persons who are not reportable persons
FIs are reporting publicly traded corporations, as well as related entities, governmental entities, international organisations, central banks, and financial institutions. In most cases, such accounts are not reportable. HMRC guidance at IEIM402010 outlines which accounts are not reportable.
4. The FI misreports joint accounts and/or partnership account
Some FIs confuse the treatment of joint individual accounts and partnership accounts.
Joint individual accounts must be reported as individual accounts with the entire balance or value of the account, as well as the entire amounts paid or credited, attributed to each holder of the account.
A partnership is defined as an entity for reporting purposes, and accounts held by partnerships should be reported as entity accounts, with the respective due diligence and reporting requirements applied.
5. The FI reports entities as controlling persons
Some FIs report entities as the controlling persons of entity accounts, resulting in trusts and companies being reported as controlling persons. However, entities cannot be controlling persons; under CRS and FATCA, ‘controlling persons’ means‘natural persons who exercise control over an entity. In the case of a trust, such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. The term ‘Controlling Persons’ shall be interpreted in a manner consistent with the Recommendations of the Financial Action Task Force.’
Full HMRC guidance on AEOI reporting can be found at: International Exchange of Information Manual.
Please email Emily.Deane@step.org with any further queries.