The reason the classification is significant is because if an account is held by a PNFE entity the FI provider must then get a self-certification for each of the controlling persons (for example, trustees, directors).
If a controlling person is tax resident in a reportable jurisdiction, the FI must report details of the account to HMRC for onward transmission to the jurisdiction in question.
In practice, a large amount of trusts will fall into this classification.
For pre-existing individual accounts, FIs had to do a one-off sweep of their files for specific clues or indicators that the account holder was resident for tax purposes in a reportable jurisdiction.
For pre-existing entity accounts, it was a similar process, albeit it included checking the entity classifications as well.
Furthermore, any pre-existing account that has subsequently increased in value to more than $1m as at 31 December in any year may be subject to additional checks.
Implications
In terms of implications for clients, an important point to be aware of is that HMRC-registered pension schemes and Isas are exempt from FATCA and CRS. Providers will not need to conduct due diligence on these accounts or report them to HMRC.
General investment accounts, cash deposit accounts and some insurance products, however, are in scope for the rules.
Clients opening those accounts (and therefore advisers) will find they are asked for information about their countries of residence for tax purposes. Given that FATCA and CRS are part of UK law, providers are required to ask for it, and they may refuse to open an account without it.
An individual’s country of residence is determined in accordance with each jurisdiction’s own rules – there is no central definition in FATCA or CRS – and it is virtually impossible not to have a country of tax residence.
Clients will also be asked to provide a TIN for each country in which they are deemed a tax resident. Again, this is just whatever identifier is used in that country for tax purposes. Very helpfully, the OECD has published a guide to TINs that covers most of the reportable jurisdictions, which you can access here.
Some jurisdictions do not use TINs – the United Arab Emirates, for example – and there may also be valid reasons why an individual does not have one, perhaps if they moved to a country and never worked there. In which case, a provider should accept the fact there is no available TIN.
If you are advising trustees who are opening a new bank account or investment account, it is worth being aware that some trusts may be considered an FI in their own right if they are ‘managed’.
