Article:

New Reporting Obligations for Trustees - August 2017 Update

08 September 2017

André Trebert , Executive Director |

A key component of international efforts to crackdown on tax evasion is increased information sharing between jurisdictions worldwide. This is leading to the responsibilities of a trustee, which were already significant, becoming steadily more onerous.

BACKGROUND

This began with the USA's FATCA programme which compelled overseas deposit takers
(for example banks) to report details to the USA's Internal Revenue Service (IRS) of foreign accounts held by US persons.

Most jurisdictions in the rest of the developed world then followed suit by agreeing to be bound by the OECD’s Common Reporting Standard (CRS) which facilitates annual information exchange from banks, trust companies and other financial intermediaries, via their local fiscal authorities, to the jurisdictions in which their account holders are based.

A Statutory Instrument (SI) implementing the EU's Fourth Anti-Money Laundering Directive  in the UK came into force in June 2017. This brings another significant change in reporting requirements for trustees.

REGISTER OF BENEFICIAL OWNERSHIP OF TAXABLE TRUSTS

As part of the implementation of the EU’s “4th Anti-Money Laundering Directive”, which took effect on 26 June 2017 were provisions regarding a national “register of trusts”. Despite the UK leaving the EU in the next two years it is anticipated that this measure will continue to be enshrined in UK domestic law.

The Regulations are intended to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. For the time being, at least, the register is therefore not a public one but may be inspected by any law enforcement authority.

Who needs to report?

  • UK resident trusts and non-UK trusts with a liability to UK income tax, CGT, IHT, Stamp Duty Land Tax, Land and Buildings Transaction Tax (Scotland) or Stamp Duty Reserve Tax.

What is reported?

  • Extensive information on the Trust, assets and ‘beneficial owners’; including the settlor, trustees, beneficiaries and individuals who have ‘control’ over the trust
  • Name, date of creation, country of tax residence and place of administration of the trust and trustees’ contact details
  • Details of the trust assets, including addresses of any real estate and value of each category of assets
  • Names of advisers who are paid to provide legal, financial or tax advice to the trustees in connection with the trust
  • Details of the trust’s beneficial owners, including full name, date of birth, role in relation to the trust, UK national insurance number or UTR or, if none, usual residential address, if that address is outside the UK then the individual’s passport or ID card details or equivalent.

How and when?

  • To HMRC via the trustees’ or agents online account
  • By 31 January 2018 for existing trusts
  • For new trusts - by 31 January following the end of the tax year in which the Trustees first incurred UK tax liability.

Consequences of non-compliance

  • Failure to comply with UK money laundering requirements is a criminal offence
  • UK accountants, lawyers, investment managers and letting agents are unlikely to wish to engage with non-compliant trustees after January 2018.

FATCA

FATCA is an anti-avoidance measure introduced by the US which requires Financial Institutions (FIs) outside the US to supply to the US authorities information about financial accounts held by US persons or by foreign entities (including trusts) in which US persons have an interest.

Who needs to report?

All FIs in “model I” jurisdictions, which include the UK and Crown Dependencies, must report to their local tax authority unless they qualify for one of the exemptions
A trust is deemed to be an FI, and more specifically an ‘investment entity’, if:
More than 50% of the trust’s income is attributable to investing, reinvesting or trading in financial assets, AND
Either the trust or its assets are professionally managed by an FI, for example a professional trust company or discretionary investment manager
A trust which is not an investment entity may fall within another FI category depending on its structure and activities.
 

What is reported?

  • ‘Equity interests’ of US Specified Persons who are beneficial owners
  • For the settlor in year of settlement or with any continuing interest or control, this includes all assets
  • For mandatory beneficiaries (ie life tenants) it is the ‘net present value’ of payments
  • For discretionary beneficiaries it is based on actual payments in the year
  • The information to be reported includes the name, address and US taxpayer identification number as well as certain details of the account
  • A de minimis value applies to the accounts which need to be reported
  • There is no requirement to file nil returns.

How and when?

  • Submission of an Automatic Exchange Of Information (AEOI) Return online to HMRC, or relevant local fiscal authority.
  • By 30 June (in Guernsey) in respect of the preceding calendar year. The first filing deadline was 30 June 2015 for Guernsey reporting.

Consequences of non-compliance

  • 30% withholding tax imposed by IRS on transactions with a US connection
  • Other FIs, (eg banks, investment advisers) may refuse to act for non-compliant FIs.


COMMON REPORTING STANDARD

The CRS, approved by the OECD Council on 15 July 2014, calls on participating jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Despite the fact that CRS was broadly based on the Model 1 Intergovernmental Agreement for FATCA , there are key differences. CRS is broader than FATCA, covers more jurisdictions and has no de minimis reporting thresholds.

Although the intention was to apply a uniform reporting requirement across the adopting jurisdictions, implementation was under the individual jurisdictional law and therefore there are variations to CRS regulations in each jurisdiction.

Who needs to report?

  • All participating jurisdiction FIs have a reporting obligation to their local tax office, the definition of FI being closely aligned to the FATCA definition
  • The exemption for charitable trusts available under FATCA does not apply for CRS. Trustees of Charitable Trusts which are FIs therefore have a CRS reporting obligation.

What is reported?

  • ‘Reportable Accounts’, ie any ‘Account’ that is held by a ‘Reportable Person’. An account holder is anyone who has an equity or debt interest in the trust. A person is reportable if they are tax resident in a participating jurisdiction.
  • 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 person who is a beneficiary as well as a settlor will be treated as having two accounts that will need to be assessed and reported separately.
  • The information to be reported includes the name, address, jurisdiction of residence, tax reference and date of birth of each reportable person as well as certain details of the account.
  • There is no requirement to file nil returns.

How and when?

  • Submission of a Return online with the local tax office
  • By 30 June (in Guernsey) in respect of the preceding calendar year. The first filing deadline was 30 June 2017 for Guernsey reporting.

Consequences of non-compliance

  • Up to £300 penalty for late reports plus further daily penalties and criminal sanctions for incorrect reports in Guernsey
  • Other FIs may refuse to act for non-compliant FIs.

Contacts

For further advice or information please contact our Guernsey tax specialists.