• Foreign Account Tax Compliance Act – detailed guidance material

    The Foreign Account Tax Compliance Act (FATCA) was enacted by the United States (U.S.) Congress in March 2010 as part of its efforts to improve compliance with U.S. tax laws.

    FATCA imposes certain due diligence and reporting obligations on foreign (that is, non-U.S.) Financial Institutions, notably the obligation to report U.S. citizen or U.S. tax-resident Account Holders to the U.S. Internal Revenue Service (IRS). Failure to comply with FATCA's requirements will expose such Financial Institutions to a 30 per cent U.S. withholding tax on payments to them from U.S. sources.

    On 28 April 2014, Australia and the U.S. signed an intergovernmental agreement to implement FATCA (the FATCA Agreement). A key objective of the FATCA Agreement is to facilitate Australia's compliance with FATCA to reduce its overall burden on the Australian financial industry and the broader community. On 16 September 2015, the Competent Authorities of Australia and the U.S. signed a Competent Authority Arrangement to help implement the provisions of FATCA.

    Under the FATCA Agreement, Australian Financial Institutions (AFIs) do not report information directly to the IRS. Instead, they report to the Australian Taxation Office (ATO) and the information is made available to the IRS, in compliance with Australian privacy laws, under existing rules and safeguards in the Australia-U.S. Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income (the Convention).

    The FATCA Agreement provides significant relief for AFIs including the exemption of certain Australian institutions (for example, superannuation funds) and accounts from the FATCA requirements and the removal of the 30 per cent withholding tax on AFIs (unless there is significant non-compliance by an AFI with its FATCA Agreement obligations).

    The FATCA Agreement also improves existing reciprocal tax information-sharing arrangements between the ATO and the IRS. This helps ensure Australian tax laws are effectively enforced so Australian businesses and individuals who pay the correct amount of tax are not disadvantaged by those who seek to evade their tax obligations.

    Under the FATCA Agreement, AFIs that are not exempted need to register with the IRS and report to the ATO each year regarding certain Financial Accounts held with them by U.S. citizens or U.S. tax residents, or by specified U.S. entities established in the U.S. or controlled by U.S. persons. This information is then made available to the IRS.

    See also:

    A broad range of AFIs, including banks, some building societies, some credit unions, specified life insurance companies, private equity funds, managed funds, exchange traded funds and some brokers are subject to FATCA.

    FATCA started on 1 July 2014. From that date, AFIs need to review new and existing accounts held by U.S. citizens or U.S. tax residents or U.S.-controlled entities that are Reportable Accounts under the FATCA Agreement. AFIs are required to first report to the ATO in the 2015 calendar year with respect to account information for the 2014 calendar year. AFIs will need to lodge their data with the ATO by the 31 July following the end of the year to which the information relates. In the 2015 calendar year, the lodgment facility will be available from 1 July 2015. Lodgments cannot be accepted before this date. AFIs will be able to lodge from 1 January in later years.

    Next steps:

    The legislation to give effect to Australia's obligations under the FATCA Agreement was passed by Parliament on 30 June 2014: the Tax Laws Amendment (Implementation of the FATCA Agreement) Act 2014External Link. The Act amends the Taxation Administration Act 1953External Link to insert Division 396 – FATCA.

    Status of this guidance material

    This information has been prepared based on the negotiated position reached by the parties to the FATCA Agreement and the implementing legislation. It is provided to help you understand your obligations under FATCA, provides general assistance and does not cover all possibilities.

    If you follow our information in this guidance and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law and FATCA Agreement correctly. If that means you have not complied with your FATCA obligations, we must ask you to comply according to the law and the FATCA Agreement but we will not charge you a penalty.

    This guidance material will be updated, from time to time, following developments in the application of the FATCA Agreement in Australia and overseas.

    Regulations

    The FATCA Agreement permits Australia to allow AFIs to elect to apply alternative definitions as well as alternative procedures to those specified in the Agreement. The implementing legislation permits AFIs to make any of the elections allowed, or contemplated, by the FATCA Agreement.

    In particular, an AFI may elect to use the definitions in the U.S. FATCA RegulationsExternal Link (the Regulations) where a term is defined in the FATCA Agreement and the use of the definition from the Regulations would not frustrate the purposes of the FATCA Agreement. (See Article 4.7 of the FATCA Agreement).

    This guidance material has been prepared, however, largely on the basis of the text and definitions provided for in the FATCA Agreement or definitions that have their meaning under existing Australian taxation laws for terms not defined in the FATCA Agreement. (See Article 1.2 of the FATCA Agreement).

    Note: Reporting AFIs should familiarise themselves with the due dates and process for registration with the IRS IRS FATCA Registration Resources & Support InformationExternal Link

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    1 Financial Institutions

    1.1 In what circumstances will a trust be a Financial Institution?

    For a trust to be a Financial Institution it must fall under one of the categories listed in Article 1.1(g) of the FATCA Agreement:

    • a Custodial Institution
    • a Depository Institution
    • an Investment Entity
    • a Specified Insurance Company.

    It is possible that an entity may, as a professional or commercial trustee, carry on a business falling within the definition of Custodial Institution in the FATCA Agreement. However, in that case it will be the entity itself that is the Custodial Institution, not the trust.

    The category which may potentially apply to trusts is 'Investment Entity'. Under Article 1.1(j), an Investment Entity includes any entity (an entity includes a legal arrangement such as a trust) that conducts as a business certain activities or operations for or on behalf of a customer, including 'trading in money market instruments' and other relevant instruments, 'individual and collective portfolio management', and 'investing, administering, or managing funds or money on behalf of other persons'. An entity is also an Investment Entity if it is managed by another entity that is an Investment Entity. (Refer to section 1.7 of this guidance).

    The term 'Investment Entity', defined in Article 1.1(j) of the FATCA Agreement, has the requirement that the trading, investing, administering or managing of financial assets on behalf of other persons is done as a business. Taxation Ruling TR 97/11External Link discusses the indicators of carrying on a business.

    Determining whether a trust is an Investment Entity requires consideration of the status of any entity managing the trust. The trustee is an entity that manages the trust. A trustee could carry on activities so that the trustee is an Investment Entity itself, for example, a corporate trustee which is in the business of trading, administering or managing financial assets on behalf of other persons.

    A trustee may appoint or engage a professional manager to manage the trust. In that case the status of both the trustee and the professional manager must be considered. If either (or both) is an Investment Entity then that status would also cause the trust to be an Investment Entity.

    Individuals are not entities as defined in the FATCA Agreement. Therefore a trust that is not otherwise an Investment Entity cannot become an Investment Entity if the manager of the trust is an individual or individuals.

    A trust that is not a Financial Institution will be, in the absence of other exemptions, a Non-Financial Foreign Entity (NFFE).

    Example 1 – trust that is not a Financial Institution

    Ms C is one of three individual trustees of her discretionary family trust. The beneficiaries include Ms C’s four children. Ms C opens up an account (a Financial Account) with a Reporting AFI and it is noted in the account opening documentation that Ms C and the other trustees hold the account in their capacity as trustees for Ms C’s family trust. The trustees of the trust invest and administer the funds on behalf of the beneficiaries.

    The trust is not an Investment Entity by reason of its activities because it is not “carrying on a business”. Nor is the trust an Investment Entity by reason of it being managed by an entity that conducts the requisite activities or operations listed in Article 1.1(j) of the FATCA Agreement as a business because the trustees, being individuals, are excluded from the definition of 'entity'. Further the trustees are not carrying on such a business under the FATCA Agreement. The trust will therefore not be an Investment Entity and is not a Financial Institution.

    Where the trust holds a Financial Account in a Reporting AFI, the Account Holder is the trust and not Ms C or the other trustees or any of the beneficiaries.

    The Reporting AFI will need to apply the new Entity Account due diligence procedures in relation to the trust’s account to determine the trust’s status. Presuming it is a passive NFFE, the Reporting AFI will need to determine whether the individuals who exercise control over the trust are Specified U.S. Persons. Potential Controlling Persons may include Ms C, the other trustees and Ms C's four children.

    Example 2 – professionally managed trust that is not a Financial Institution

    The Smith Family Trust has Mr Jones, an accountant with Jones & Jones, as its trustee. Even though the trust is professionally managed by Mr Jones, as Mr Jones is an individual, the trust will not be classified as a Financial Institution.

    Example 3 – professionally managed trust that is a Financial Institution

    The trustee of Smith Family Trust is Jones & Jones, a partnership in the business of advising and administering financial investments. A partnership falls within the definition of an entity under the FATCA Agreement. The trust is an Investment Entity because it is managed by an entity that conducts a requisite business under the definition of Investment Entity in the FATCA Agreement. Any Reporting AFI maintaining the trust's Financial Account will, on establishing the facts, treat the trust as a Financial Institution.

    Note that Jones & Jones would consider whether it is a Deemed-Compliant FFI under the 'Investment Advisors and Investment Managers' exemption provided by paragraph D of section IV of Annex II of the FACTA Agreement (refer to section 1.11 of this Guidance). Whether the Smith Family Trust also has an exception under Annex II will separately depend on the circumstances related to the trust.

    As both the trustee and the trust are Financial Institutions, a Reporting AFI would need to establish that neither the trustee nor the trust is a Non-Participating Financial Institution.

    End of example

    Reliance on the U.S. Treasury Regulations

    Under Article 4.7 of the FATCA Agreement, Australia may permit AFIs to choose to use a definition in relevant U.S. Treasury Regulations in lieu of a corresponding definition in the FATCA Agreement. Section 396-20 of the Taxation Administration Act 1953 (TAA 1953) has provided that permission. The definition of Investment Entity in the Regulations is similar but not identical to the FATCA Agreement definition.

    Under the Regulations the definition of Investment Entity is generally only capable of including a trust if the trust's gross income is primarily attributable to investing, reinvesting, or trading in financial assets and the trust is managed by an entity that is a Financial Institution in its own right or otherwise is primarily conducting a business of trading, investing, managing or administering financial assets on behalf of other persons.

    The definition of financial assets in the Regulations does not include direct interests in real property. A property trust would therefore consider whether its gross income is not primarily from financial assets.

    Exceptions for certain types of trusts

    Even if a trust is a Financial Institution, it will not necessarily be required to report.

    A trust that is a 'Trustee-Documented Trust' under paragraph A of section IV of Annex II to the FATCA Agreement will be a Non-Reporting AFI and will not be required to report to the ATO under the FATCA Agreement. A trust is a Trustee-Documented Trust to the extent that the trustee of the trust is a reporting U.S. Financial Institution; or a reporting Model 1 FFI (for example, a Reporting AFI); or a Participating FFI, and the trustee reports all information that is required to be reported under the FATCA Agreement, with respect to all U.S. Reportable Accounts of the trust.

    1.2 Would a property investment unit trust be considered a Reporting AFI where the investments are not offered to U.S. citizens or residents?

    A property trust may, depending on the circumstances, be an Investment Entity and therefore a Financial Institution – see section 1.1 for related guidance. However, an entity that is a Financial Institution under the FATCA Agreement may consider exceptions and reduced obligations in certain circumstances. Most relevantly the following categories of entity are Non-Reporting AFIs:

    1. A Financial Institution with a Local Client Base – see paragraph A of section III of Annex II of the FATCA Agreement. There are multiple requirements listed in the Annex, all of which must be satisfied. Included in those requirements are  
      1. the Financial Institution does not solicit customers outside Australia
      2. the Financial Institution must be required under Australian tax law to report or withhold in relation to accounts held by residents of Australia
      3. at least 98% of the value of Financial Accounts maintained by the Financial Institution must be held by Australian or New Zealand residents
      4. on or before 1 July 2014 the Financial Institution must enact certain due diligence policies and procedures to prevent the opening or maintenance of accounts by certain entities (such as U.S. persons who are not Australian residents)
      5. if certain Specified U.S. Persons are subsequently identified as holding an account, the Financial Institution must report in relation to the account or close the account.
       
    2. A restricted fund. An Investment Entity may be eligible for restricted fund status under the Regulations. The fund will be a Non-Reporting AFI if it imposes prohibitions on the sale or other transfer of units in the fund to U.S. persons, Non-Participating Financial Institutions and passive non-financial entities with controlling U.S. persons and the fund meets certain requirements including the following  
      1. The Financial Institution is a Financial Institution solely because it is an Investment Entity, and it is regulated as an investment fund in Australia and in any other country in which it operates. A fund will be considered to be regulated as an investment fund for these purposes if its manager is regulated with respect to the fund
      2. Interests issued directly by the fund are redeemed by or transferred by the fund rather than sold by investors on any secondary market
      3. Interests that are not issued directly by the investment fund are sold only through certain distributors specified in the Regulations
      4. The Financial Institution complies with other requirements in the Regulations related to distributors, distribution agreements and accounts including pre-existing accounts.
       

    1.3 If a property fund predominantly consists of direct property assets, with incidental cash balances and some interest rate swaps for hedging purposes, do the FATCA requirements apply?

    Refer to section 1.1 for guidance on trusts and possible reliance on the definition of Investment Entity in the Regulations. Under the Regulations, a gross income test is applied to an entity trading, investing, managing or administering certain assets on behalf of other persons. A similar test also applies to an entity that is investing, reinvesting or trading in financial assets. Either test is met if an entity's gross income is 'primarily attributable' to the specified activities. In either case, income from directly held real property is not relevant income.

    For the purpose of the Regulations income is primarily attributable to the relevant activities if it equals or exceeds 50 per cent of the entity's gross income during the shorter of either:

    • the three year period ending on the preceding 31 December
    • the period during which the entity has been in existence.

    A start-up entity with no operating history must make a reasonable assessment of whether it expects to meet the above tests.

    A property fund predominantly deriving income from direct real property assets over the period mentioned above will not be an Investment Entity under the Regulations and will not be required to register or report under the FATCA Agreement.

    1.4 Stapled group – Is a trustee company in a stapled company/property trust arrangement a Financial Institution?

    The status of an entity in a group depends on the circumstances of that entity – refer to section 1.13 of this Guidance. The stapling of the securities of two entities does not alter the necessity to consider the status of each of those separate entities in accordance with the FATCA Agreement.

    In the case of a head company of a stapled group which is directly managing the head trust and the head company is conducting this activity as a business, that company will be an Investment Entity as defined in the FATCA Agreement. The customer is the entity for whom the services are performed – the trust. The activities of the company can still constitute carrying on a business even if the services are performed for only one trust.

    The same principles will apply to a subsidiary company acting as trustee of an intermediate or sub-trust in the group. Note that an entity in these circumstances may consider its eligibility to be a Sponsored Investment Entity under paragraph B of section IV of Annex II of the FATCA Agreement, or an owner-documented FFI under the Regulations.

    Where the head company is merely a holding company with subsidiaries performing various functions in relation to the stapled group (for example, Responsible entity, finance company, trustee company or service company), the head company will not be a Financial Institution under the FATCA Agreement. The head company's investments in subsidiary companies are for the benefit of the head company shareholders and those shareholders are not customers in terms of the definition of Investment Entity.

    1.5 If a company acts as the responsible entity for the head trust in a stapled property group, but is not the trustee of that trust, does that company maintain the head trust's unit holder accounts as contemplated by Division 396 of Schedule 1 of the Taxation Administration Act?

    As discussed at section 1.1 of this Guidance, the head trust may be an Investment Entity and if so, it will be a Reporting AFI under the FATCA Agreement, subject to the possible exceptions provided in Annex II of the FATCA Agreement. Nominally it is the trust that has the FATCA obligations, however in practice it is the trustee who has the duty to the trust to ensure it complies with all laws. If the trustee entity fulfils the FATCA obligations on behalf of the trust, the trust will be a Trustee-Documented Trust in terms of paragraph A of section IV of Annex II of the FATCA Agreement.

    There may be arrangements that provide for another entity, such as a Responsible entity, to fulfil the FATCA obligations of the trust. If the trustee meets the requirements of paragraph A of section IV of Annex II of the FATCA Agreement it may arrange for the Responsible entity to carry out the FATCA obligations of the trust on its behalf. The trust will continue to be considered a Trustee-Documented Trust provided that the due diligence and reporting obligations of the trust are met. The Responsible entity is not the entity maintaining the unitholder accounts as contemplated by section 396-5 of Schedule 1 of the TAA 1953. However the Responsible entity (or indeed any other service provider such as a registry service business) may carry out the FATCA obligations of the trust on its behalf.

    Alternatively, paragraph B of section IV of Annex II of the FATCA Agreement allows for another entity to perform all of the FATCA obligations, by agreement, on behalf of the trust. Agreement may be reached with the trustee or, in the case of a managed investment scheme, under the terms of the constitution or by resolution of the members of the scheme.

    1.6 How does the FATCA Agreement apply to an intermediate trust in a property trust group with multiple trusts?

    A common arrangement in the property investment sector involves a head trust that holds all of the units in one or more intermediate trusts. The intermediate trust holds interests in property directly or indirectly, or a combination of both. Indirect interests may be held through further sub-trusts. The principles outlined in sections 1.1 and 1.7 of this guidance should be considered in determining whether an intermediate trust is an Investment Entity under the FATCA Agreement. Further guidance may be obtained from the following examples.

    Example 1 – intermediate trust that is not an Investment Entity

    H Trust is the head trust in a property group. H Trust holds all of the units in I Trust, which holds units, for long term investment, in various property trusts. T Co is the trustee of I Trust and does not perform this role for any other trust or engage in any other activities. T Co receives no fees for performing its duties as trustee, other than reimbursement of any expenses incurred. T Co is not an Investment Entity under the FATCA Agreement as it is not conducting the requisite activities as a business. As trustee, T Co is an entity that manages I Trust. The trust will also not be an Investment Entity because it is not managed by an entity conducting the requisite activities as a business.

    Example 2 – intermediate trust that is an Investment Entity

    Varying the previous example, T Co engages another entity to manage the trust – M Co. M Co is an Investment Entity under the FATCA Agreement and may be a company within the group or an external service provider. M Co provides investment advice, manages I Trust’s portfolio of investments and administer distributions of income and reports. The trust will be an Investment Entity under the FATCA Agreement because it is managed by an entity conducting the requisite activities as a business.

    However, if the trust chooses to apply the definition of Financial Institution under the Regulations it may be eligible for exclusion from that definition as an excepted inter-affiliate FFI (the Regulations provide that the mere holding of an external bank account for operational purposes does not cause this exclusion to be failed). Alternatively, depending on the circumstances, I Trust may be able to qualify for relief from FATCA obligations under either Annex II of the FATCA Agreement or the Regulations. In particular, I Trust might consider relief as a Sponsored Investment Entity or a Sponsored Closely Held Investment Vehicle as detailed in section IV of Annex II of the FACTA Agreement, or as a non-reporting member of a participating FFI group or an owner-documented FFI under the Regulations

    End of example

    1.7 When is an entity 'managed' by another entity for the purposes of the definition of 'Investment Entity'?

    A distinction should be made between managing an entity on the one hand and administering or providing services to an entity on the other hand. Managing an entity involves one entity having a significant degree of discretionary decision-making and responsibility in respect of the other entity's business.

    If an entity that manages a trust is an Investment Entity, the trust will also be an Investment Entity.

    Ordinarily, a trust is managed by the trustee. If the trustee is a legal person (not being a natural person) and the trustee's management of the trust is in conducting as a business the activities or operations described in the definition of 'Investment Entity', the trust will be an Investment Entity.

    A trustee may appoint or engage another entity to professionally manage the activities or operations of the trust. If that other entity's management of the trust's activities or operations is in conducting a business as described in the definition of 'Investment Entity', the trust will be an Investment Entity.

    Typically a professional trustee and/or a discretionary fund manager would be treated as managing a trust in the context of determining whether the trust is an Investment Entity.

    The FATCA status of the entity managing the trust, including whether the managing entity could benefit from paragraph D of section IV of Annex II to the FATCA Agreement, is discussed at section 1.11 of this Guidance. The status of a trust under the definition of Investment Entity in Article 1.1(j) and the status of an entity managing the trust under paragraph D of section IV of Annex II are separate considerations.

    Example

    1 – trustee and Responsible entity as manager

    R1 Co is the trustee and Responsible entity (RE) of a managed investment scheme (H Trust) which manages and invests in a range of financial assets for H Trust. R1 Co is carrying on these activities as a business. As H Trust is managed by R1 Co, the latter entity’s activities in relation to the trust causes H Trust to be an Investment Entity under the FATCA Agreement. R1 Co itself is also an Investment Entity as defined by the FATCA Agreement.

    Example 2 – non-trustee Investment Entity managing the trust

    Following from Example 1, H Trust’s portfolio of investments includes holding all of the units in another trust, B Trust, which has investments in a range of financial assets. R1 Co is not the trustee of B trust, but is appointed by the trustee to provide investment advice, manage B Trust’s portfolio of investments and administer distributions of income and reports. The trustee of B Trust does not carry on any business.

    R1 Co does not hold legal title to the assets of B Trust. R1 Co is carrying on these activities as a business. R1 Co’s activities in relation to B Trust cause B Trust to be an Investment Entity. Those activities would also cause R1 Co to be an Investment Entity if it had not already gained that status from the activities in Example 1.

    Example 3 – external investment manager

    In the previous example, if R2 Co is substituted for R1 Co and R2 Co is solely in the business of providing these services for B Trust and other clients, R2 Co’s activities in relation to B Trust cause B Trust to be an Investment Entity under the FATCA Agreement, and therefore a Reporting AFI. R2 Co will be an Investment Entity in its own right under the FATCA Agreement; however it may qualify as a Non-Reporting AFI and Deemed-Compliant FFI under paragraph D of section IV of Annex II to the FATCA Agreement. The availability of an exemption for R2 Co in respect of its own affairs has no bearing on the FATCA status of B Trust.

    Example 4 – Non-Financial Institution investment manager

    Continuing the previous example, R3 Co is substituted for R2 Co. R3 Co is engaged in a range of business activities such that its gross income from trading, investing, managing or administering financial assets on behalf of other persons has always been less than half of its total gross income. The outcome for both B Trust and R3 Co under the FATCA Agreement is the same as in the previous example. However, both B Trust and R3 Co can choose to determine their FATCA status under the definition of Investment Entity in the Regulations. If R3 Co so chooses, it will not be an Investment Entity because it is not primarily conducting the required business activities. If B Trust chooses, it will not be an Investment Entity under the Regulations if neither R3 Co nor B Trust’s trustee is a Financial Institution under those Regulations.

    End of example

    1.8 Are deceased estates and testamentary trusts Financial Institutions?

    Deceased estates are not Financial Institutions.

    Further, paragraph C of section V of Annex II to the FATCA Agreement provides that an account held solely by an estate is excluded from the definition of 'Financial Account' and therefore is not treated as a U.S. reportable account if the documentation for the account includes a copy of the deceased’s will or death certificate.

    However, testamentary trusts are not excluded from the definition of 'Financial Institution' in the FATCA Agreement. Whilst deceased estates are temporary in nature, and used for the purposes of distributing the assets and managing the affairs of the deceased person, a testamentary trust can be created before or after probate, and remain in effect for an extensive number of years. During its existence a testamentary trust works as any other trust would, and can be used for various purposes. As such, a testamentary trust can be a Financial Institution subject to the guidance provided at section 1.1.

    1.9 When will a Financial Institution be considered to be an AFI?

    Article 1.1(l) of the FATCA Agreement defines 'Australian Financial Institution' as any Financial Institution resident in Australia, but excluding any branch of such Financial Institution that is located outside Australia, and any branch of a Financial Institution not resident in Australia, if such branch is located in Australia. As such, the FATCA Agreement can apply to each member of a group of entities and to each branch of such member.

    For the purposes of the FATCA Agreement, Article 1.2 has the effect that a Financial Institution will be a resident of Australia if it is a resident under Australia’s tax laws.

    If a Financial Institution is a resident of Australia and a resident of another country under the tax law of that country, and is treated as a resident solely of the other country under a tax treaty, it will still be a resident of Australia for the purposes of the FATCA Agreement.

    Article 1.1(l) also has a focus on the location of Financial Institutions, and the Australian operations of the Financial Institution, regardless of their residency status. A Financial Institution will be an AFI if it has a branch operating in Australia. Article 1.1(d) provides a definition of Australia.

    For example, for the purposes of the FATCA Agreement, a branch of a non-resident Financial Institution will be located in Australia if the branch satisfies the definition of 'permanent establishment' for Australian tax law purposes.

    1.10 Which AFIs are required to register with the IRS?

    AFIs that are Reporting AFIs under the FATCA Agreement should register with the IRS, irrespective of whether they receive payments directly from U.S. sources. The following types of entity are not required to register:

    • entities that are Non-Reporting AFIs as described in Annex II of the FATCA Agreement
    • certified Deemed-Compliant FFIs pursuant to the Regulations
    • active and passive NFFEs (excluding Direct reporting NFFEs pursuant to the Regulations).

    An AFI not otherwise qualifying as a Non-Reporting AFI as described in Annex II of the FATCA Agreement, that seeks to qualify as a registered Deemed-Compliant FFI under the Regulations must, as one of the conditions of obtaining that status, register with the IRS.

    Once registered, a Financial Institution will be issued a Global Intermediary Identification Number (GIIN) and will be included on a published list available on the IRS website. The GIIN may be used by a Financial Institution to identify itself to withholding agents and to tax administrations for FATCA purposes.

    Where a Financial Institution with a Local Client Base has a reporting obligation because it has U.S. Reportable Accounts, it should register with the IRS (see subparagraph A(7) of section III of Annex II of the FATCA Agreement).

    Entities that are Reporting AFIs and also acting as a sponsoring entity for other entities will need to register separately for each of these roles.

    It is noted that AFIs are not required to provide a GIIN to establish their FATCA status prior to 1 January 2015.

    The IRS has developed a registration portal and details of the registration process are set out at IRS FATCA Registration Resources & Support Information.External Link

    1.11 What is the status of investment advisers and investment managers?

    Paragraph D of section IV of Annex II to the FATCA Agreement deems certain investment advisors and managers to be Non-Reporting AFIs (Deemed-Compliant FFIs).

    Such entities could be construed as falling within the definition of 'Investment Entity' because they perform one or more of the following activities for or on behalf of customers: trading in financial assets, individual or collective portfolio management, or otherwise investing, administering, or managing funds, money or financial assets on behalf of other persons or entities.

    Investment advisors or managers, however, will not constitute Reporting AFIs if their activities are solely limited to rendering investment advice or managing portfolios, investment schemes or funds, and they do not hold legal title to the relevant assets, offer any custodial services or offer any Financial Accounts. To qualify for this deemed-compliant category, the investment advisor or manager must not be performing the relevant advisory or management activities in relation to investments held by the advisor or manager's customer(s) in a Non-Participating Financial Institution.

    It is expected that due diligence and reporting obligations will fall with other entities within the investment relationship such as an investment fund that issues Financial Accounts (for example, debt or equity interests) to investors, or entities acting as Custodial Institutions.

    As Non-Reporting AFIs, qualifying investment advisors or managers do not need to register with the IRS. In the context of the FATCA Regulations, these Non-Reporting AFIs are considered to be 'certified Deemed-Compliant FFIs'.

    In Australia, financial planners or advisors are examples of entities that will be considered Non-Reporting AFIs under this category provided that they meet the above conditions.

    Managers of investment funds in Australia (for example, discretionary fund managers of an Investment Entity) are also considered to fall within this category of Non-Reporting AFI provided that they do not hold legal title to assets or have a custodial role or offer Financial Accounts. This is consistent with the expectation that within collective or managed investment schemes only the interests in the collective investment scheme or managed fund would be treated as the relevant Financial Accounts and only the scheme or fund itself would be treated as the Reporting AFI (Investment Entity).

    In the case of Separately Managed Portfolios (SMP) or Individually managed accounts (IMA), where an investment manager is appointed directly by the legal owner of assets to provide investment management services as SMPs or IMAs, then these accounts are not Financial Accounts of the investment manager, but instead they will be Custodial Accounts of a Custodial Institution (who will need to treat the investors as their Account Holders as there is no interposing fund). As above, where a discretionary investment manager also holds assets on behalf of clients (acting as custodian), reporting will be required by the manager on those accounts by virtue of the investment manager falling within the definition of a Custodial Institution.

    Debt or equity interests in investment advisors, managers and similar entities (for example, professional management companies) could prima facie be understood to fall within the definition of Financial Account, since those entities can be construed as Financial Institutions which are solely Investment Entities. However, an advisor or manager that is a Non-Reporting AFI as outlined above will not be required to perform reporting in relation to the equity or debt interests it issues, that is, such interests in the investment manager or advisor are not Financial Accounts.

    Investment advisors and managers may be engaged by Reporting AFIs (for example, Investment Entities or Custodial Institutions) to provide assistance in documenting Account Holders. For example, financial advisors may have a direct relationship with investors and readier access to their information. However, it is envisaged that non-reporting advisors and managers will only have FATCA-related obligations pursuant to contractual arrangements with Reporting AFIs, for instance where they undertake to act as third party service providers in relation to the customer due diligence (for which the Reporting AFI is responsible under the FATCA Agreement). It is up to AFIs to make appropriate third party arrangements as necessary and as they see fit to assist with meeting their FATCA Agreement obligations.

    1.12 Are providers of asset based finance services Depository Institutions?

    An entity will not be considered a Depository Institution if the entity does not accept deposits in the ordinary course of a banking or similar business (refer to section 1.18 of this Guidance).

    Therefore an entity will not be a Depository Institution if its business is solely to provide asset based finance services, such as:

    • equipment finance or other asset leasing services
    • real property leasing services
    • acceptance of deposits solely as collateral or security pursuant to a sale or lease of property
    • provision of loans secured by property, such as mortgage providers, car finance companies or similar financing arrangements.

    If such an entity does not meet the definition of a Financial Institution, it may be an active NFFE. The entity should consider whether the definition of active NFFE in subparagraph B(4) of section VI of Annex I of the FATCA Agreement applies to their circumstances. In particular an entity will be an active NFFE if less than 50% of its gross income in a relevant period is passive income and less than 50% of the assets held during that period were for the production of passive income.

    1.13 Does the FATCA Agreement apply to all members of a group of entities?

    Yes, the FATCA Agreement applies to each member of a group of entities, and the activities of each branch of such a member, that fall within the FATCA Agreement's relevant definitions. The characterisation of each member or branch under those definitions will determine whether or not the entity or branch has FATCA Agreement obligations. For example, there may be entities or branches (within a group comprised of one or more Financial Institutions) that qualify as active NFFEs, Exempt Beneficial Owners, or other categories in the FATCA Agreement that do not entail any obligations for the respective entity or branch. Those entities within the group that are Reporting AFIs under the definitions will have due diligence and reporting obligations.

    1.14 How does the FATCA Agreement apply to a Sponsored Investment Entity and its sponsor?

    A Sponsored Investment Entity is an Investment Entity established in Australia which is not a qualified intermediary, a withholding foreign partnership or a withholding foreign trust under the regulations, where another entity has agreed with the Investment Entity to act as a sponsoring entity of the Investment Entity. Examples of entities who might agree to be a sponsoring entity include a trustee or a fund manager.

    It is not necessary for a sponsoring entity to be a Financial Institution or to be located in Australia (although it may be). The sponsoring entity does not need to be otherwise registered with the IRS as a Reporting Financial Institution but will need to register with the IRS as a sponsoring entity. A sponsoring entity may sponsor multiple Sponsored Entities provided that it registers in respect of each Sponsored Entity.

    A sponsoring entity must undertake all FATCA compliance on behalf of the Sponsored Entity such as due diligence account identification, documentation and reporting. It may outsource compliance activities to third party service providers. If the sponsoring entity meets all of its obligations outlined in paragraph B of section IV of Annex II to the FATCA Agreement in respect of the Sponsored Entity and its status has not been revoked, the Sponsored Entity will be a Deemed Compliant FFI.

    1.15 What is the meaning of 'related financial services' in the definition of 'Custodial Institution'?

    Related financial services are any ancillary services directly related to the holding of assets by the institution on behalf of others and include:

    • custody, account maintenance and transfer fees
    • execution and pricing commissions and fees from securities transactions
    • income earned from extending credit to customers
    • income earned from contracts for difference and on the bid-ask spread of financial assets
    • fees for providing financial advice, clearance and settlement services.

    1.16 Are holding companies and treasury centres Financial Institutions?

    Holding companies and treasury centres may fall within the definition of 'Financial Institution' in the FATCA Agreement. However, as noted at section 1.1 of this Guidance, AFIs may choose to use a definition in the Regulations in lieu of a corresponding definition in the FATCA Agreement. The definition of Financial Institution in the Regulations provides exclusions for holding companies, treasury centres and captive finance companies in a non-financial group provided certain conditions are met including that substantially all of the activities of the entity are in performing those specified functions (as a holding company, treasury centre or captive finance company).

    A further exception provided under the Regulations that may be considered is for inter-affiliate FFIs. In simple terms an excepted inter-affiliate FFI is an entity that is a member of a participating FFI group and does not generally have accounts or transactions outside the group – but see Regulation 1471-5(e)(5)(iv) for details.

    However, a holding company of an insurance company is a Financial Institution and not subject to exclusion under the FATCA Agreement or the Regulations if it issues or is obligated to make payments with respect to a cash value insurance contract or an Annuity Contract.

    1.17 What is the status of investment entities that solely provide Financial Accounts or services, including custodial services, to exempt beneficial owners such as Australian retirement funds?

    Paragraph B of section II of Annex II to the FATCA Agreement deems Investment Entities that are wholly owned by Exempt Beneficial Owners to be Non-Reporting AFIs. This applies to Investment Entities where:

    • each direct holder of equity interests in the Investment Entity is an exempt beneficial owner
    • each direct holder of debt interests in the Investment Entity is either a Depository Institution (with respect to loans made to the entity) or an exempt beneficial owner.

    Investment entities that solely provide services, including custodial and trustee services, or Financial Accounts to exempt beneficial owners as identified in Annex II will be considered to be Non-Reporting AFIs.

    These entities are not subject to the reporting requirements under the FATCA Agreement.

    1.18 What is meant by the expression 'banking or similar business'?

    An entity will be considered to be carrying on a 'banking or similar business' for the purposes of the FATCA Agreement if and only if it is, or is required to be, authorised by the Australian Prudential Regulation Authority as an authorised deposit-taking institution.

    The meaning of 'banking or similar business' is relevant to the definition of Depository Institution in Article 1.1(j) of the FATCA Agreement. An entity will be a Depository Institution if it accepts deposits in the ordinary course of carrying on a 'banking or similar business'. The meaning of the term is also relevant to the definition of Depository Account in Article 1.1(t) of the FATCA Agreement.

    An entity solely engaged in carrying on a money transfer business (completing money transfers by instructing agents to transmit funds) is not considered to be accepting deposits and is therefore not conducting a 'banking or similar business'. Such an entity is not, and is not required to be, an authorised deposit-taking institution.

    1.19 What is the meaning of the term 'FFI' as it is not defined in the FATCA Agreement?

    Regulation 1.1471-5(d) defines an 'FFI' as:

    The term FFI means, with respect to any entity that is not resident in a country that has in effect a Model 1 IGA or Model 2 IGA, any Financial Institution (as defined in paragraph (e) of this section) that is a foreign entity. With respect to any entity that is resident in a country that has in effect a Model 1 IGA or Model 2 IGA, an FFI is any entity that is treated as a Financial Institution pursuant to such Model 1 IGA or Model 2 IGA. A territory Financial Institution is not an FFI under this paragraph (d).

    For further details please refer to the Regulations.

    1.20 Is an AFI holding a credit licence issued by ASIC 'licensed and regulated as a Financial Institution under the laws of Australia' by reason of holding that licence?

    No.

    Paragraph A of section III of Annex II specifies the requirements for a Financial Institution to be a Financial Institution with a Local Client Base, which includes at subparagraph A(1) the requirement to be licensed and regulated as a Financial Institution under the laws of Australia.

    The terms used in that paragraph should be understood in the context of the FATCA Agreement as a whole and the use of those terms throughout the Agreement. Financial Institution is defined in Article 1.1(j) to mean a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company. Those terms are further defined in Article 1.1(h)(i)(j) and (k) respectively.

    A credit licence issued by ASIC is issued under the provisions of the National Consumer Credit Act 2009. That Act principally regulates various credit activities. Notwithstanding that an entity that is a Financial Institution under the FATCA Agreement could be engaged in credit activities as part of its business, it would generally not be those activities which cause it to be a Financial Institution for the purposes of the FATCA Agreement. It is therefore considered that the licensing and regulatory regime associated with credit licences issued by ASIC is not a relevant licensing and regulatory regime for the purposes of subparagraph A(1) of section III of Annex II.

    1.21 Does an unregistered Managed Investment Scheme (MIS) satisfy the condition to be 'licensed and regulated' in subparagraph A(1) of section III of Annex II (Financial Institution with a Local Client Base exception) where the manager, responsible entity, trustee or custodian of the MIS holds an Australian Financial Services Licence?

    No.

    The ATO considers that in order for an MIS to satisfy the ‘licensed and regulated’ in subparagraph A(1) of section III of Annex II it would need to be a registered MIS.

    1.22 For the purposes of paragraph A of section III of Annex II, when is a Financial Institution considered to be required to report information or withhold tax with respect to accounts under the laws of Australia?

    Paragraph A of section III of Annex II specifies the requirements for a Financial Institution to be a Financial Institution with a Local Client Base, which includes at subparagraph (4) the requirement that the Financial Institution must be required, under the tax laws of Australia, to perform either information reporting or withholding of tax with respect to accounts held by residents of Australia.

    Banks and other Financial Institutions required to provide the ATO with an Annual investment income report (AIIR) will meet the reporting requirement. A Financial Institution required to withhold tax from income derived in relation to accounts where a TFN (or in some cases, an ABN) has not been quoted for the account will satisfy the withholding requirement.

    1.23 Where interests (meeting the definition of 'Financial Account') are held by a nominee company in respect of a bare trust or WRAP account, who is the relevant Account Holder for the purposes of the 98% of Financial Accounts by value threshold in subparagraph A(5) of section III of Annex II?

    The 98 per cent threshold test requires consideration of who are the relevant holders of the Financial Accounts. In this instance, the ‘holder’ of each Financial Account should be considered in the light of the definition of ‘Account Holder’ in Article 1.1(dd) of the FATCA Agreement.

    If the nominee company holding the Financial Account is a Financial Institution, no look through is required by Article 1.1(dd) in determining the Account Holder. The Financial Institution will be the holder for the purposes of testing the 98 per cent threshold for Financial Accounts by value in subparagraph A(5) of section III of Annex II to the FATCA Agreement.

    On the other hand, look through is required for holders in the circumstances specified in the definition of 'Account Holder'. For example, where a person who is not a Financial Institution holds a Financial Account for the benefit of another person in the capacity of nominee or custodian, the other person (the beneficial owner) is treated as holding the account for the purposes of the FATCA Agreement – including subparagraph A(5) of section III of Annex II.

    See question 2.3 of this Guidance for further explanation of the meaning of 'Account Holder'.

    1.24 For the purposes of measuring whether 98% of Financial Accounts by value are held by residents of Australia or New Zealand, what is the relevant date of measurement?

    Paragraph A of section III of Annex II specifies the requirements for a Financial Institution to be a Financial Institution with a Local Client Base, which includes at subparagraph (5) the requirement that at least 98 per cent of the Financial Accounts by value maintained by the Financial Institution are held by residents of Australia or New Zealand.

    The measurement can be taken on any day of the preceding calendar year for it to apply to the following year, as long as the measurement date remains the same from year to year.

    2 Financial Accounts

    2.1 In what circumstances will credit card accounts and other credit or loan facilities become accounts which are not required to be reviewed, identified, or reported?

    A credit or loan facility becomes a Depository Account when a customer makes a payment in excess of a balance due.

    However, the credit card account or loan facility will be an account which is not required to be reviewed, identified or reported under the FATCA Agreement where the issuer of the credit card or loan facility implements policies and procedures (on or before 1 July 2014, or the date the entity registers as a Financial Institution) to either prevent a customer deposit in excess of $50,000, or to ensure that any customer deposit in excess of $50,000 (applying the rules set forth in Annex I for account aggregation and currency translation) is refunded to the customer within 60 days. For this purpose, a customer deposit does not refer to credit balances to the extent of disputed charges but does include credit balances resulting from merchandise returns.

    This applies to facilities including credit cards, overdrafts, loans, and revolving lines of credit regardless of whether interest is payable on any credit balance related to that account. The meaning of 'deposit' in this context is the amount of a payment in excess of the balance due, that excess amount becomes the deposit. When an account becomes a Depository Account, normal due diligence and reporting rules may apply.

    Where an AFI is a Qualified Credit Card Issuer it is a Non-Reporting AFI that is treated as a Deemed-Compliant FFI, and is not required to perform due diligence and reporting for FATCA Agreement purposes.

    In order to be a Qualified Credit Card Issuer, an entity must satisfy the following conditions set out in paragraph D of section III Annex II to the FATCA Agreement:

    • It is a Financial Institution solely because it is an issuer of credit cards that accepts deposits only when a customer makes a payment in excess of a balance due with respect to the card and the overpayment is not immediately returned to the customer.
    • Beginning on or before July 1, 2014 (or the date the entity registers as a Financial Institution), it implements policies and procedures to either prevent a customer deposit in excess of $50,000, or to ensure that any customer deposit in excess of $50,000 (applying the rules set forth in Annex I for account aggregation and currency translation) is refunded to the customer within 60 days. A customer deposit does not refer to credit balances to the extent of disputed charges but does include credit balances resulting from merchandise returns.

    An entity issuing credit cards will not satisfy the conditions to be a Qualified Credit Card Issuer if there is another reason why it is a Financial Institution, for example if it also offers Depository Accounts other than credit card accounts. Where this is the case the AFI has to perform due diligence and report on credit balances on credit card accounts that it maintains.

    2.2 Does the FATCA Agreement apply to payment cards (pre-loaded cards)?

    For the FATCA Agreement to apply the account must fall under the definition of a 'Depository Account'. To be a Depository Account the account must be maintained by a Financial Institution in the ordinary course of banking or similar business. A pre-loaded payment card, which may include travel cards, gift cards and pre-loaded payment cards used for online payments, is included in the definition of 'Depository Account' where the entity which issues and maintains it is a Financial Institution in the ordinary course of banking or similar business.

    The FATCA Agreement will apply to payment cards issued and maintained in these circumstances. However, a pre-loaded payment card issued by a Financial Institution will be an account that is not required to be reviewed, identified, or reported where the balance does not exceed $50,000 at the end of the reporting period.

    Alternatively, where an entity which is not a Financial Institution (for example a retailer) issues a pre-loaded payment card (for example a store gift card) the account will not be considered a Depository Account because it is not issued and maintained by a Financial Institution in the ordinary course of banking or similar business.

    The FATCA Agreement will not apply to pre-loaded payment cards in these circumstances.

    2.3 Who is the Account Holder for the purposes of the FATCA Agreement?

    In most cases, identifying the holder of a Financial Account will be straightforward and the Account Holder will be the person listed or identified by the AFI that maintains the account as the holder of the account.

    AFIs should consider, however, the type of account and the capacity in which it is held. Article 1.1(dd) of the FATCA Agreement defines 'Account Holder' such that where a person, other than a Financial Institution, holds a Financial Account for the benefit or account of another person as an agent, custodian, nominee, signatory, investment advisor or intermediary, then that other person will be the Account Holder for FATCA Agreement purposes.

    A Reporting AFI may rely on information in its possession (including information collected pursuant to AML/CDD procedures), based on which it can reasonably determine whether a person is acting for the benefit or account of another person.

    Accounts held by trusts, estates and partnerships treated as Entity Accounts not as intermediaries

    If a trust, estate or partnership is listed or identified as the holder of a Financial Account, the trust, estate or partnership will be treated as the Account Holder, rather than any owner, beneficiary, partner or otherwise. This does not remove the requirement to identify the Controlling Persons of the trust, estate or partnership where the entity is a Passive NFFE under the FATCA Agreement.

    A trust that is identified by a Reporting AFI as holding a Financial Account is treated for FATCA purposes as the Account Holder even if, as a matter of practice, it is the trust's trustee that appears listed or recorded as the holder of the Financial Account in the AFI's systems.

    In the following examples, accounts are recorded on the register of members of an Investment Entity – which meets the 'regularly traded on an established securities market' test in Article 1.1(s) of the FATCA Agreement (see discussion at section 2.6 of this Guidance) – as:

    Example 1 – trust, not trustee, is the Account Holder

    "Trustee XYZ Ltd (John & Mary Smith Superannuation Fund A/C)". The interest in the Investment Entity is treated as a Financial Account since the holder of the interest (other than a Financial Institution acting as an intermediary) is registered on the books of the Investment Entity (Article 1.1(s)). It is intended that the Smith Superannuation Fund, not the corporate trustee, is identified as the Account Holder (refer also to the discussion in section 3.4 of this Guidance).

    Example 2 – account held by trust is not a Financial Account

    "Custodian Nominees XYZ Ltd (John & Mary Smith Family Trust)". In this case the interest in the Investment Entity is not a Financial Account because a Financial Institution acting as an intermediary (custodian) is registered on the books of the Investment Entity as holding the interest (Article 1.1(s)). The requirement to identify an Account Holder only applies to an account that is a Financial Account under the FATCA Agreement.

    End of example

    Accounts held for the benefit of others

    A person, other than a Financial Institution, that holds a Financial Account for the benefit of another person as an agent, custodian, nominee, signatory, investment advisor, or intermediary, is not treated as holding the account. Rather the other person is treated as the Account Holder.

    Joint accounts

    Where an account is jointly held, each of the joint holders is an Account Holder. The balance or value of the account is to be attributed in full to each Account Holder and this applies for both aggregation and reporting purposes. Where an account is jointly held by an individual and an entity, AFIs will need to apply both the individual and entity due diligence requirements in relation to the account.

    Children's accounts

    Where a parent holds an account for their child in the child's name, the child will be the Account Holder, even if there is no trust deed or other formal arrangement.

    AFIs may rely on information collected on children's accounts (i.e. collected from the parent(s)) pursuant to current AML/CDD procedures for the purpose of applying the FATCA Agreement's due diligence procedures to assess whether the child is a U.S. person or to confirm the reasonableness of a self-certification. An AFI does not have reason to know that a child is the Account Holder if, in applying the FATCA Agreement and AML/CDD due diligence procedures, there is no indication to that effect.

    2.4 Are Escrow Accounts and other similar accounts held by non-financial intermediaries Financial Accounts?

    Accounts that satisfy the definition of 'Escrow Account' in paragraph D of section V of Annex II to the FATCA Agreement are excluded from the definition of 'Financial Account'.

    Where a Financial Account similar to an Escrow Account is not covered by an exclusion in paragraph D of section V of Annex II and the account is held by a non-financial intermediary (such as a solicitor or insurance broker trust bank account), where:

    • the funds of underlying clients of the non-financial intermediary are held on a pooled basis
    • the only person identified in relation to the account with the Financial Institution is the non-financial intermediary
    • the non-financial intermediary is not required to disclose or pass their underlying client or clients' information to the Financial Institution for the purposes of AML/KYC or other regulatory requirements

    the Financial Institution is only required to undertake the due diligence procedures in respect of the non-financial intermediary.

    2.5 Do collateral arrangements fall within the definition of 'Custodial Account'?

    Transactions which include the collection of collateral on behalf of a counter-party may fall within the definition of Custodial Account. The exact terms of the contractual arrangements will be relevant in applying this interpretation. However, any obligations to return equivalent collateral at conclusion of the contract, and potentially make interim payments (such as interest) to counterparties during the contract term will constitute a Custodial Account for FATCA purposes.

    The ATO intends to provide further explanation of collateral arrangements in a future update.

    2.6 Equity or debt interests regularly traded on an established securities market

    Any equity or debt interest in an entity that is a Financial Institution solely because it is an Investment Entity will constitute a Financial Account under Article 1.1(s)(1) of the FATCA Agreement. Such entities are referred to in this section as Investment Entities.

    As an anti-avoidance rule, under Article 1.1(s)(2) equity or debt interests, other than a Financial Institution described in Article 1.1(s)(1), may also constitute Financial Accounts where the value of such interests is determined primarily by reference to assets that give rise to U.S. Source Withholdable Payments and the class of interests was established with a purpose of avoiding FATCA Agreement reporting.

    An interest that is 'regularly traded on an established securities market', however, will not constitute a Financial Account provided that certain conditions are met (described below). A relevant Financial Institution that issues such interests will not be required to undertake Annex I due diligence and reporting in relation to an interest that meets these conditions.

    The exclusion does not affect the obligation of a Custodial Institution to report on Custodial Accounts in which interests that qualify for the exclusion may be held.

    The term 'regularly traded on an established securities market' is also relevant for a Reporting AFI in respect of determining the status of some of its Entity Account Holders. An Entity Account Holder that is a U.S. corporation whose stock is 'regularly traded on one or more established securities markets' is excluded from the definition of specified U.S. person in Article 1.1(ff) (that is, Financial Accounts held by such corporations are not reportable). In addition, a non-U.S. Entity Account Holder whose stock is 'regularly traded on an established securities market' will be considered an active NFFE under subparagraph B(4)(b) of section VI of Annex I and accordingly Financial Accounts held by such an active NFFE are not reportable.

    A Reporting AFI can rely on a self-certification provided by the Account Holder, or information in its possession or that is publicly available, to determine whether stock in the corporation is regularly traded for the purpose of whether the Account Holder comes within the definition of specified U.S. person or an active NFFE.

    'Regularly traded on an established securities market'

    Article 1.1(s) provides that for the purposes of the FATCA Agreement, an interest is 'regularly traded' if there is a meaningful volume of trading on a continuous basis (but see the exception explained under Investor registered on the books of the Investment Entity below). Article 1.1(s) further provides that an 'established securities market' means an exchange that is officially recognized and supervised by a governmental authority in which the market is located and that has a meaningful annual value of shares traded on the exchange. AFIs may reasonably determine that there is a 'meaningful volume of trading on a continuous basis' of an interest or that an exchange has a 'meaningful annual value of shares traded' based on historical trading volumes.

    Alternatively, an AFI can rely on the following: an equity or debt interest will be considered to be 'regularly traded on an established securities market' if the interest:

    • has been admitted to quotation for trading on a licensed Australian financial market (within the meaning of the Corporations Act 2001) or an approved stock exchange (within the meaning of the Income Tax Assessment Act 1997 (ITAA 1997)
    • is widely held.

    An interest is considered to be widely held if the entity either:

    • satisfies the conditions of paragraph (b) of the definition of 'widely held company' in section 995-1 of the ITAA 1997 (if the entity is a company)
    • is not closely held within the meaning of paragraphs 272-105(2)(a) and 272-105(2A)(a) of Schedule 2F to the Income Tax Assessment Act 1936 (if the entity is a trust).

    A qualifying Financial Institution must meet any ongoing requirements prescribed by the operator of the financial market on which the relevant interests are listed and by the Australian Securities and Investments Commission (ASIC) or other relevant government regulator.

    Licensed Australian financial markets include the Australian Securities Exchange, the National Stock Exchange of Australia, Chi-X Australia as well as other exchanges licensed by ASIC on which equity or debt interests in relevant Financial Institutions are able to be traded.

    Alternatively, AFIs may also apply the provisions of the Regulations in determining whether an interest is 'regularly traded on an established securities market'.

    Despite the above, an equity or debt interest will be treated as a Financial Account where there is evidence of deliberate practices to avoid reporting under the FATCA Agreement or facilitate tax evasion. For instance, if it becomes apparent that the issuance of a particular interest or class of interests was set up to avoid reporting under the FATCA Agreement, then the interests will be reportable Financial Accounts from the moment of their issuance.

    Investor registered on the books of the Investment Entity

    Notwithstanding the exclusion of interests that are 'regularly traded on an established securities market' from the definition of 'Financial Account', such interests will be treated as Financial Accounts and subject to due diligence and reporting where the holder of the interest in the relevant Financial Institution (other than a Financial Institution acting as an intermediary) is registered on the books of that Financial Institution (in accordance with the last sentence of Article 1.1(s)).

    This safeguard is intended to ensure that reporting still occurs where persons who hold interests that are 'regularly traded on an established securities market' hold such interests directly on the books of the Financial Institution rather than through a Reporting Financial Institution such as a custodian or nominee arrangement. In Australia, investors often hold investments in their own name. In the absence of this safeguard, investors could, contrary to the intent of the FATCA Agreement, avoid reporting on their Financial Account if the relevant interests were not acquired or held through a Reporting Financial Institution. For instance, interests could be acquired with the assistance of a non-reporting execution-only broker and be held directly by the investor.

    It is recognised that this safeguard poses practical compliance issues for a number of Australian Investment Entities. In Australia, although a substantial portion of listed and regularly traded interests in Investment Entities is recorded on such entities’ registers, many entities do not maintain a direct relationship with investors and therefore may not have ready access to the customer information and interface that would enable them to identify and report investors as holders of U.S. Reportable Accounts.

    In recognition of these issues, the FATCA Agreement provides relief and a transitional period to allow the relevant affected financial industry sectors (for example, Investment Entities, share registries, brokers) to make arrangements that will enable Investment Entities to meet their reporting obligations with respect to interests the holder of which (other than an intermediary Financial Institution) is registered on the Financial Institution’s books.

    In accordance with the last sentence of Article 1.1(s), directly held (non-intermediary) interests that were first registered on the books of the Financial Institution before 1 July 2014 will not be Financial Accounts and therefore will not be subject to the due diligence and reporting requirements under Annex I. Directly held (non-intermediary) interests registered on or after 1 July 2014 and held by the person on or after 1 January 2016 will not be Financial Accounts until 1 January 2016 and therefore are not subject to the due diligence and reporting requirements under Annex I until 1 January 2016 (in respect of the 2016 (and possibly subsequent) calendar year(s)). However, the entity would be well advised to use this transitional period to ensure it can meet its obligations related to these accounts from 1 January 2016. All directly held (non-intermediary) interests that become registered on the books on or after 1 January 2016 will be subject to due diligence and reporting requirements under Annex I.

    Summary of treatment of equity or debt interests in relevant Financial Institutions under Article 1.1(s)

    Equity or debt interests in relevant Financial Institutions that are not 'regularly traded on an established securities market' are treated as Financial Accounts and are subject to due diligence and reporting requirements under the general FATCA Agreement rules.

    Equity or debt interests in relevant Financial Institutions that are 'regularly traded on an established securities market' and the holders of which (other than a Financial Institution acting as an intermediary) appear registered on the books of the Financial Institution are treated as Financial Accounts only if the interest is first registered on the books on or after 1 July 2014. In relation to such interests first registered during the transitional period 1 July 2014 to 31 December 2015 that are still held by the holder on 1 January 2016, these will be Financial Accounts and subject to FATCA obligations from 1 January 2016.

    Equity or debt interest in relevant Financial Institutions that are 'regularly traded on an established securities market' and the holders of which are not registered on the books of the Financial Institution are not treated as Financial Accounts and are not subject to due diligence and reporting by the AFI under Annex I.

    2.7 Pure risk insurance products

    Article 1.1(y) of the FATCA Agreement treats an insurance contract that has a Cash Value, as defined in Article 1.1(z), as a cash value insurance contract (which will constitute a Financial Account maintained by a Specified Insurance Company that issues or is obligated to make payments with respect to such contract).

    Certain Term Life Insurance Contracts, as described in paragraph B of section V Annex II of the FATCA Agreement, are specifically excluded from the definition of 'Financial Account' and are therefore not reportable.

    The definition of 'Cash Value' also specifically excludes certain amounts payable under an insurance contract.

    Pure risk life insurance products (and other pure risk insurance products) will not be treated as having a Cash Value and therefore do not constitute Cash Value Insurance Contracts for the purposes of the FATCA Agreement. This is irrespective of whether the terms of the definition of 'Certain Term Life Insurance Contracts' (in the case of life insurance products) are satisfied (for example, that the insurance product does not run past age 90).

    In Australia, pure risk life (and other) insurance products will generally display the following features, which are listed to illustrate the notion of 'pure risk':

    • benefits are paid only on death, terminal illness, disablement or trauma (specified illness or injury)
    • there are no policy loans
    • there are no policyholder dividends (including termination dividends) or other payments
    • there are no surrender charges
    • these products require regular payment of premiums on a 'pay as you go' basis
    • premiums are usually either age based stepped premiums (low becoming high) or level for the contract duration (no increases) – there are also some instances where level premiums switch to being stepped from a certain age
    • they do not have a surrender value, an investment element value or any characteristic resembling a cash value (this is also the case for level premiums)
    • advance payments of premiums may be permitted, but interest is not paid on them
    • the policy expires if the next premium due is not paid or if cancelled by the policyholder
    • if the policyholder cancels policy, the premium refund relates only to the unexpired period of future cover that has been paid for (for example, cancellation part way through a period for which a premium was paid – other than for 'cooling off' periods, where the full premium is refunded)
    • if policyholder reduces cover, premium refund relates only to the amount of the reduction to cover for the unexpired period of future cover that has been paid for (for example, reduction to sum insured part way through a period for which a premium was paid)
    • death benefits may not be age limited – the cover may run until a contractually specified expiry age (for example, age 99) or indefinitely as long as premiums continue to be paid
    • disability and trauma benefits are not age limited (other than after age 99, although narrower coverage can apply from earlier ages, such as age 75 or 65): the cover runs until the contractually specified expiry age of 99 years.

    2.8 What is a dormant account, and when must an AFI report on such accounts?

    A dormant account is an account (other than a cash value insurance contract or an Annuity Contract) that is a dormant or an inactive account under applicable laws or regulations or the normal operating procedures of the Reporting AFI that are consistently applied for all accounts maintained by that Reporting AFI in Australia.

    The Banking Act 1959 may therefore be relevant in determining whether an account is a dormant or inactive account.

    An AFI may identify an account as a dormant account (for FATCA purposes) using the documentation on the Account Holder in its possession. Where the application of the relevant due diligence procedure indicates the account is a U.S. reportable account, the Reporting AFI must report the account notwithstanding that there was no contact with the Account Holder.

    An account stops being dormant if the Account Holder contacts the Financial Institution, or initiates a transaction, with respect to the dormant account or other account held by the Account Holder with that Financial Institution. The Financial Institution may, at this point in time, consider obtaining sufficient information or documents from the Account Holder to review whether the account is a U.S. reportable account.

    2.9 How do the aggregation procedures apply to dormant accounts and accounts held by Recalcitrant Account Holders?

    The aggregation procedures in paragraph C of section VI of Annex I to the FATCA Agreement apply to all U.S. Reportable Accounts, including dormant accounts and accounts held by Recalcitrant Account Holders.

    As an alternative to the procedures in paragraph C of section VI of Annex I to the FATCA Agreement, the Reporting AFI may elect to rely on procedures described in the relevant U.S. Treasury regulations relating to accounts held by Recalcitrant Account Holders.

    2.10 Are debentures, secured or unsecured notes Financial Accounts for the purposes of the FATCA Agreement?

    For FATCA purposes, an account will generally only be a Financial Account if it is a Depository Account, a Custodial Account, a cash value insurance contract, an Annuity Contract or one of certain specified equity or debt interests.

    Debentures, secured or unsecured notes can only be Depository Accounts if issued by a Financial Institution in the ordinary course of a banking or similar business (refer to section 1.18 of this Guidance for the meaning of 'banking or similar business').

    These financial instruments are not Custodial Accounts as such, but could be financial instruments held in a Custodial Account that is maintained by a Financial Institution on behalf of another person.

    These financial instruments will be Financial Accounts if they constitute a debt interest in an entity where that entity is a Financial Institution solely because it is an Investment Entity, subject to the exception for interests that are regularly traded on an established securities market. In some circumstances a debt interest may also be a Financial Account if it was designed in a way that sought to avoid reporting under the FACTA Agreement.

    3 Documentation

    3.1 Collecting a self-certification

    The FATCA Agreement requires a Reporting AFI to obtain self-certifications, which may be part of the AFI's account opening documentation, that allow the AFI to determine whether Account Holders are U.S. residents for tax purposes.

    The method and form by which self-certifications are obtained by an AFI are not prescribed. Accordingly, self-certifications may be obtained by any means such as online, by telephone or through other existing account opening mechanisms. However, the information obtained through the self-certification document must include the required information specified in Annex I of the FATCA Agreement and AFIs must comply with the specific due diligence procedures set out in Annex I to the FATCA Agreement relating to each type of account.

    As an alternative, AFIs may elect to apply the due diligence procedures in the Regulations. That election does not need to be provided to the ATO but the AFI must keep necessary records of elections made. These records must be kept for five years.

    3.2 For how long must self-certifications be retained?

    Due diligence documentation obtained in complying with the requirements in Annex I to the FATCA Agreement must be retained for 5 years after the filing with the ATO a statement to which those documents relate. Where the documentation purports to show that no statement to the ATO was required in respect of an account or entity, the documentation should be retained for 5 years from the time when any such statement would have been due.

    3.3 Can an AFI use the same documentation for more than one Financial Account?

    Documentation is required to support the status of each account held. Subject to adherence with the applicable requirements outlined in sections II, III, IV and V of Annex I to the FATCA Agreement, an AFI may use the same documentation for more than one Financial Account in the circumstances described below.

    Single branch system

    Where an existing customer opens a new Financial Account with the same AFI and both accounts are treated as a single account or obligation for due diligence and reporting purposes, the AFI may rely on the same documentation.

    Universal account systems

    An AFI may rely on documentation furnished by a customer for an account held at another branch location of the same AFI or at a branch location of a related entity of the AFI if:

    • the AFI treats all accounts that share documentation as a single account for due diligence and reporting purposes
    • the AFI and the other branch location or related entity are part of a universal account system that uses a customer identifier that can be used to retrieve systematically all other accounts of the customer.

    Shared account systems

    An AFI may rely on documentation provided by a customer for an account held at another branch location of the same AFI, or at a branch location of a member of the related entity group of the AFI, if:

    • the AFI treats all accounts that share documentation as consolidated accounts
    • the AFI and the other branch location or related entity group member share an information system, electronic or otherwise.

    The shared account system must allow the AFI to readily access data about the nature of the documentation, the information contained in the documentation (including a copy of the documentation itself), and the validity status of the documentation. If the AFI becomes aware of any fact that may affect the reliability of the documentation, the shared account system must allow the AFI to easily record this data in the system. Additionally the AFI must be able to show how and when it transmitted data regarding such facts into the system and demonstrate that it has been processed and subjected to appropriate due diligence.

    3.4 Classification of certain Entity Account Holders under Annex I of the FATCA Agreement

    The following guidance is in respect of the due diligence procedures described in the FATCA Agreement and is without prejudice of AFIs' ability to rely on the procedures described in the Regulations.

    Pre-existing Entity Accounts

    Section IV of Annex I sets out when a Pre-existing Entity Account is to be reviewed, identified and reported and the applicable due diligence procedures. Subject to the account balance or value thresholds mentioned in paragraph B of that section, the procedures set forth in paragraph D should be followed.

    Subparagraph D(1) contains the procedure to be followed to determine whether an entity holding a Pre-existing Entity Account is a specified U.S. person.

    If the entity is not a U.S. entity, subparagraph D(2) states that a Reporting AFI should review information maintained for regulatory or customer relationship purposes (including information collected as part of any AML/CDD procedure) to determine whether the information indicates that the Account Holder is a Financial Institution. A Reporting AFI may alternatively verify the Account Holder's GIIN on the published IRS FFI list. If the information indicates that the entity is a Financial Institution, or alternatively has a valid GIIN, that account is not a reportable account.

    If the Account Holder is a Financial Institution, subparagraph D(3) should be considered to determine whether the Financial Institution is a Non-Participating Financial Institution and subject to aggregate reporting under paragraph (b) of Article 4.1. Under subparagraph D(3), a Reporting AFI may determine that the Account Holder is an Australian Financial Institution, including a Non-Reporting Australian Financial Institution described in Annex II of the FATCA Agreement, or a Partner Jurisdiction Financial Institution if the Reporting AFI reasonably determines such status on the basis of a GIIN on the published IRS FFI list or other information that is publicly available or in the possession of the Reporting AFI. If the Account Holder is not one of the foregoing, the Account Holder must be treated as a Non-Participating Financial Institution under subparagraph D(3)(c) unless a self-certification is obtained from the Account Holder or their GIIN is verified.

    A Reporting AFI may rely on information that is publicly available or in its possession, including information maintained for regulatory or customer relationship purposes or collected as part of any AML/CDD procedure, to reasonably determine that an Account Holder is an entity described in Annex II. For example, a Reporting AFI may be able to reasonably verify that an Australian Retirement Fund described in section II of Annex II has such status by consulting the ATO's public register of superannuation funds (Super Fund Look Up), or on the basis of information collected and verified pursuant to any AML/CDD procedure. The Reporting AFI may then readily determine that the Australian Retirement Fund is not a specified U.S. person under subparagraph D(1), but is a Financial Institution (including a Non-Reporting AFI under Annex II) under subparagraph D(2) and an Australian Financial Institution under subparagraph D(3). Provided that the Account Holder has not been treated by the IRS as a Non-Participating Financial Institution, no further review, identification or reporting is required with respect to the account.

    If, in the circumstances described in the preceding paragraph, a Reporting AFI is unable to reasonably determine on the basis of information that is publicly available or in its possession that the Account Holder is an entity described in Annex II, the Reporting AFI should apply the procedures in paragraph D, which may involve collecting a self-certification from the Account Holder. An account held by an entity described in Annex II is not a U.S. reportable account.

    Finally, a Reporting AFI should follow the procedure in subparagraph D(4) with respect to an entity that is not classified pursuant to subparagraphs D(1) to D(3) (refer to discussion in section 3.5 of this Guidance).

    New Entity Accounts

    Section V of Annex I sets out procedures in respect of new Entity Accounts. Similar to section IV, a Reporting AFI may determine that an Account Holder is an active NFFE, an Australian Financial Institution (including a Non-Reporting AFI described in Annex II), or a Partner Jurisdiction Financial Institution if the Reporting AFI reasonably determines such status on the basis of a GIIN on the published IRS FFI list or other information that is publicly available or in the possession of the Reporting AFI (subparagraph B(1) of section V).

    If the Account Holder is an Australian Financial Institution or other Partner Jurisdiction Financial Institution treated by the IRS as a Non-Participating Financial Institution, aggregate payment reporting will apply pursuant to subparagraph (b) of Article 4.1 (paragraph B(2) of section V).

    In all other cases a Reporting AFI must obtain a self-certification from the Account Holder to establish their status and apply the rules in subparagraphs B(3)(a) to (c).

    Identification of passive non-financial foreign entities (NFFE) and their Controlling Persons who are Specified U.S. Persons

    The following guidance is in respect of the due diligence procedures described in the FATCA Agreement and is without prejudice of AFIs' ability to rely on the procedures described in the Regulations.

    The FATCA Agreement requires Reporting AFIs to look through certain Entity Account Holders and determine whether such entities have any Controlling Persons who are Specified U.S. Persons. 'Controlling Persons' is a defined term in Article 1.1(ll). Such Entity Account Holders are known as passive NFFEs. This requirement is to prevent U.S. residents from avoiding reporting by using interposed entities to hold Financial Accounts.

    An NFFE is any non-U.S. entity that is not a Financial Institution. An NFFE will either be an active NFFE or a passive NFFE. A passive NFFE is an NFFE that is not an active NFFE. Subparagraph B(4) of section VI of Annex I lists the situations in which a NFFE will be an active NFFE.

    Example 1

    The ABC family trust and the XYZ family trust trade in partnership as Sell it Newsagency. The partnership opens a Depository Account with a Reporting AFI. The Reporting AFI identifies the partnership as a trading partnership and classifies it as an active NFFE. It does not therefore need to look through to determine whether there are any Controlling Persons that are Specified U.S. Persons.

    Where a Financial Account is held by a passive NFFE, Reporting AFIs will need to determine whether the passive NFFE has any Controlling Persons and whether any of the Controlling Persons are Specified U.S. Persons. If this is the case, the passive NFFE's Financial Account is a U.S. reportable account and the Financial Institution that maintains the account must report the name, address, and U.S. TIN (if any) of the passive NFFE and of each specified U.S. person in addition to the other information about the Financial Account in question that is required by Article 2.2 of the FATCA Agreement.

    Reporting AFIs are expected to determine whether an Account Holder is a passive NFFE, and whether there are any Controlling Persons that are Specified U.S. Persons, by applying the due diligence procedures set out in Annex I of the FATCA Agreement.

    The due diligence procedures vary depending on whether the Entity Account is a Pre-existing Entity Account or a new Entity Account.

    End of example

    Pre-existing Entity Accounts

    The procedures are set out in subparagraph D(4) of section IV of Annex I of the FATCA Agreement. The order in which Reporting AFIs follow the guidance in subparagraphs D(4)(a) to D(4)(d) is entirely up to the AFI to determine. (It is noted, for the avoidance of doubt, that account balance or value review thresholds are applicable to Pre-existing Entity Accounts as outlined in paragraphs A and B of section IV of Annex I).

    To determine whether the entity is a passive NFFE, the AFI must obtain a self-certification from the Account Holder establishing its status, unless it has information in its possession or that is publicly available based on which the AFI can reasonably determine whether or not the entity is an active NFFE.

    To ascertain the Controlling Persons of an entity, an AFI may rely on its AML/CDD procedures and the information thereby collected or maintained.

    To determine whether such Controlling Persons of a passive NFFE are citizens or residents of the U.S. for tax purposes, AFIs may rely on either:

    • the information collected and maintained pursuant to AML/CDD procedures if the account held by the passive NFFE(s) has a balance or value that does not exceed $1,000,000
    • a self-certification from the Account Holder or controlling person if the account held by the passive NFFE(s) has a balance or value that exceeds $1,000,000.

    If they are a citizen or resident of the U.S., the account shall be treated as a U.S. reportable account.

    It is recommended that the self-certification(s) collected in this context enable the provision of the name, address and U.S. TIN (if any) of the controlling person(s), which is information required to be collected under Article 2.2(a)(1) of the FATCA Agreement (in addition to the other required information on the entity itself and the Financial Account).

    An AFI can be accepting of a self-certification in this context unless it knows or has reason to know it is unreliable or incorrect.

    Under paragraph E of section IV of Annex I, if there is a change of circumstances with respect to a Pre-existing Entity Account that causes the Reporting AFI to know, or have reason to know, that the self-certification or other documentation associated with an account is incorrect or unreliable, the Reporting AFI must re-determine the status of the account in accordance with the procedures in paragraph D of section IV.

    New Entity Accounts

    The procedures are set out in section V of Annex I. As is the case with Pre-existing Entity Accounts, AFIs may reasonably determine that an Entity Account Holder is an active NFFE (or otherwise an AFI or FI of a Partner Jurisdiction) on the basis of information that is publicly available, or in the AFI's possession.

    Otherwise, an AFI must obtain a self-certification from the Account Holder to ascertain whether the Account Holder is a passive NFFE. If the Account Holder is established as a passive NFFE, the AFI must ascertain the Controlling Persons of the entity relying on AML/CDD procedures and the information thereby collected or maintained.

    To determine whether the Controlling Persons of the passive NFFE are citizens or residents of the U.S. for tax purposes, a self-certification from the Account Holder or the controlling person(s) is required. This may be the same self-certification as that used to ascertain whether the Account Holder is a passive NFFE. It is recommended that the self-certification(s) collected in this context enable the provision of the name, address and U.S. TIN (if any) of the controlling person(s), which is information required to be collected under Article 2.2(a)(1) of the FATCA Agreement (in addition to the other required information on the entity itself and the Financial Account).

    If they are a citizen or resident of the U.S., the account shall be treated as a U.S. reportable account.

    An AFI can be accepting of a self-certification in this context unless it knows or has reason to know it is unreliable or incorrect.

    3.5 If an Account Holder advises they are no longer a U.S. citizen or resident what evidence needs to be obtained?

    Evidence that needs to be obtained depends on the circumstances of the Account Holder:

    Natural persons where the account-holder information unambiguously indicated a U.S. place of birth

    The AFI will no longer need to treat the account as a U.S. reportable account if they obtain the following records:

    • a self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes
    • a non-U.S. passport or other government-issued identification evidencing the Account Holder’s citizenship or nationality in a country other than the U.S.; and
    • a copy of the Account Holder’s Certificate of Loss of Nationality of the U.S. or a reasonable explanation of either      
      • the reason the Account Holder does not have such a certificate despite relinquishing U.S. citizenship
      • the reason the Account Holder did not obtain U.S. citizenship at birth.
       

    Natural persons where the account-holder information contained a current U.S. mailing or residence address, or one or more U.S. telephone numbers that are the only telephone numbers associated with the account

    The AFI will no longer need to treat the account as a U.S. reportable account if they obtain the following records:

    • a self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes
    • documentary evidence as defined in Annex I to the FATCA Agreement, establishing the Account Holder's non-U.S. status.

    Natural persons where the account-holder information contained standing instructions to transfer funds to an account maintained in the U.S.

    The AFI will no longer need to treat the account as a U.S. reportable account if they obtain the following records:

    • a self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes
    • documentary evidence as defined in Annex I, establishing the Account Holder's non-U.S. status.

    Natural persons where the account-holder information contained a power of attorney or signatory authority granted to a person with a U.S. address, had an 'in-care-of' address or 'hold mail' address that is the sole address identified for the Account Holder, or had one or more U.S. telephone numbers (if a non-U.S. telephone number was also associated with the account)

    The AFI will no longer need to treat the account as a U.S. reportable account if they obtain the following records:

    • a self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes
    • documentary evidence as defined in Annex I, establishing the Account Holder's non-U.S. status.

    Entities (other than natural persons)

    The AFI will no longer need to treat the account as a U.S. reportable account if they obtain the following records:

    • a self-certification that the Account Holder is not a U.S. person
    • reasonably determines based on information in its possession or that is publicly available, that the Account Holder is not a specified U.S. person.

    Documentary evidence

    Annex I to the FATCA Agreement provides acceptable documentary evidence includes any of the following:

    • A certificate of residence issued by an authorised government body (for example, a government or agency thereof, or a municipality) of the jurisdiction in which the payee claims to be a resident.
    • With respect to a natural person, any valid identification issued by an authorised government body (for example, a government agency thereof, or a municipality), that includes the individual's name and is typically used for identification purposes. For example a drivers licence.
    • With respect to an entity (other than a natural person), any official documentation issued by an authorised government body (for example, a government or agency thereof, or a municipality) that includes the name of the entity and either the address of its principal office in the jurisdiction (or U.S. Territory) in which it claims to be a resident or the jurisdiction (or U.S. Territory) in which the entity was incorporated or organised.
    • With respect to a Financial Account maintained in a jurisdiction with anti-money laundering rules that have been approved by the IRS in connection with a QI agreement (as described in the Regulations), any of the documents, other than a Form W-8 or W-9, referenced in the jurisdiction's attachment to the QI agreement for identifying individuals or Entities.
    • Any financial statement, third-party credit report, bankruptcy filing, or U.S. Securities and Exchange Commission report.

    3.6 What are the FATCA Agreement’s due diligence requirements in respect of new accounts and what are the requirements where a person has not responded to a request for a self-certification or other information?

    New Individual Accounts

    With respect to New Individual Accounts (that is, accounts opened on or after 1 July 2014 and held by individuals), paragraph B of section III of Annex I of the FATCA Agreement establishes the general requirement for a Reporting AFI to:

    • obtain a self-certification upon account opening that allows the AFI to determine whether the Account Holder is a resident in the U.S. for tax purposes; and
    • confirm the reasonableness of such self-certification.

    If the self-certification establishes that the Account Holder is resident in the U.S. for tax purposes, the Reporting AFI must treat the account as a U.S. Reportable Account and obtain the Account Holder’s U.S. TIN. The TIN may be sought as part of the self-certification that is required to open the account (e.g. this may simplify the process for an AFI).

    The self-certification may be part of the account opening documentation and the reasonableness check can be done on the basis of other information obtained by the AFI in connection with the account opening, including any documentation collected pursuant to AML/KYC Procedures.

    An example of a self-certification upon account opening that allows the AFI to determine whether the individual is a resident in the U.S. for tax purposes would be to ask the individual through account opening forms or documentation: “Are you a U.S. citizen or resident for tax purposes?” As discussed above, the self-certification upon account opening could also include a field for the individual to provide their U.S. TIN.

    If a Reporting AFI does not obtain the self-certification upon account opening with respect to a New Individual Account, the AFI should not open the account. If the AFI opens the account in such circumstances, the AFI will not be compliant with the FATCA Agreement’s due diligence requirements.

    Exceptions to the requirement to obtain a self-certification upon account opening

    It is noted, however, that Reporting AFIs are not required to obtain a self-certification upon account opening in all cases. For clarity, self-certification of a New Individual Account is not required under paragraph B of section III of Annex I of the FATCA Agreement if the account is covered by the exclusions in paragraph A of that section. The exclusions in paragraph A are available to an AFI unless the AFI elects not to apply paragraph A (either to all New Individual Accounts or any clearly identified group of accounts).

    Paragraph A of section III of Annex I of the FATCA Agreement excludes Depository Accounts and Cash Value Insurance Contracts from having to be reviewed, identified or reported for so long as the account balance or value (including, where necessary, the aggregated balance or value of other accounts held with the AFI and Related Entities) does not exceed $50,000 on the last day of the calendar year or other appropriate reporting period. If, at the last day of the calendar year or other appropriate reporting period, the $50,000 threshold in respect of these types of accounts is exceeded, an AFI has 90 days within which to obtain a self-certification (that is, a requirement to obtain a self-certification is triggered after the account has already been opened).

    An AFI is therefore not required to obtain a self-certification upon opening for an account that is a Depository Account or a Cash Value Insurance Contract held by an individual where the account balance or Cash Value threshold tests are being applied. This is because the threshold test is not applicable until after the account is opened (after the end of the calendar year).

    Subject to the exclusions and choices mentioned above, and the possibility of using the due diligence procedures in the US FATCA Regulations (see below), a Reporting AFI with an application to open an individual account where a self-certification is required upon account opening should ensure that its procedures and account terms defer the conclusion of the account opening process until the self-certification is obtained. Deferring the conclusion of the account opening process does not preclude the Reporting AFI from engaging in specific transactions with the account applicant, so long as those transactions fall short of an account relationship.

    New Entity Accounts

    In the case of an Entity applying to open a new account on or after 1 July 2014, due diligence procedures in the FATCA Agreement are not required to be completed before opening the account. However, an AFI required to carry out the due diligence procedures specified in paragraph B of section V of Annex I of the FATCA Agreement would be expected to seek any self-certification or other information at account opening or soon afterwards.

    Reliance on US FATCA Regulations for New Individual Account due diligence

    The above guidance on New Individual Accounts refers to the due diligence procedures in section III of Annex I of the FATCA Agreement. Australia’s FATCA Agreement with the U.S. also provides at paragraph C of section I of Annex I that Australia may permit Reporting AFIs to rely on the procedures described in the Regulations (paragraph 1.1471-4(c)(4), Identification and documentation procedure for individual accounts other than pre-existing accounts). Australia has provided this permission (which applies to all accounts regardless of whether they are held by individuals or entities) in section 396-20 of Schedule 1 of the TAA 1953. It is noted that permission has not necessarily been provided by other Model 1 IGA jurisdictions.

    Therefore, Reporting AFIs who open - or have opened - New Individual Accounts on or after 1 July 2014 and where self-certification would be required if the AFI was applying paragraph B of section III of Annex I may, as an alternative, consider choosing the due diligence procedures in the Regulations referenced above. An election may be made for all relevant Financial Accounts or separately with respect to any clearly identified group of such accounts, and may be made up until the time the AFI lodges the relevant statement on the relevant New Individual Account(s) with the ATO. As indicated in the Explanatory Memorandum to the Bill implementing the FATCA Agreement in Australia, a Reporting AFI must have made any relevant elections by the time it gives the annual statement(s) to the Commissioner. The way the AFI has prepared the statement (or, if no statement is required, the way the AFI has concluded that no statement is required), provides sufficient evidence of any elections it may have made. There is no need to provide the Commissioner with an additional, specific notification of any elections made.

    A further and separate variation is provided by the Regulations in respect of the definition of Pre-existing Account. Reporting AFIs may, under Article 4.7 of the FATCA Agreement, use a definition in the Regulations. Under the Regulations a new account can be treated as a pre-existing account if the account holder or payee also holds an earlier pre-existing account (an account actually held prior to 1 July 2014). Refer to the Regulations for further details (paragraphs 1.1471-1(b)(101) and (104)).

    Finally, it is noted that this guidance does not purport to cover all of the Regulations’ possible variations in available due diligence procedures.

    Recalcitrant account holders

    In the case of:

    • a New Individual Account that has been opened in spite of the requirement to obtain a self-certification upon account opening;
    • a New or Pre-existing Individual Account that has been appropriately opened but it has subsequently become necessary to obtain a self-certification or other information; or
    • an Entity account that has been opened and self-certification or other information needs to be obtained,

    an account holder that is uncooperative in providing the necessary self-certification or other information may become a “recalcitrant account holder” under the FATCA Agreement if the self-certification or other information is necessary to determine whether the account is a U.S. Reportable Account.

    A recalcitrant account holder, as defined in section 1471(d)(6) of the U.S. Internal Revenue Code, includes an account holder who fails to comply with reasonable requests to provide information that is necessary to determine whether the account is a U.S. Reportable Account.

    An account held by a recalcitrant account holder will be a recalcitrant account as described in Article 4.2 of the FATCA Agreement. The Reporting AFI will not be required by the U.S. to withhold tax from or to close the account if the U.S. Internal Revenue Service receives from the AFI (through the ATO) the information on the account as set forth in subparagraph (a) of Article 2.2 of the FATCA Agreement.

    It is noted, however, with respect to a New Individual Account that has been opened in spite of a requirement to obtain a self-certification upon account opening, the reporting of the account under Article 4.2 will not remediate the earlier failure by the Reporting AFI to comply with the due diligence obligations under section III of Annex I of the FATCA Agreement.

    Pooled reporting

    Pooled reporting of recalcitrant account holders does not apply under the Australia-U.S. FATCA Agreement (as it is a Model 1 FATCA Intergovernmental Agreement).

    3.7 Do original IRS forms have to be obtained or can faxed or scanned copies be accepted?

    Under the FATCA Agreement, AFIs are, under certain circumstances, required to obtain self-certifications to establish whether an Account Holder is a specified U.S. person or to clarify the status of particular entities. As explained at section 3.1 of this Guidance, while forms issued by the IRS may be used in connection with establishing an Account Holder’s status, there is no requirement to use the official forms. If an AFI chooses to use a relevant IRS form for the purposes of the FATCA Agreement, it may use a facsimile or scanned copy.

    4 Reporting

    4.1 Which entities are required to report in collective investment arrangements or managed investment arrangements that involve more than one AFI?

    There are various types of collective investment schemes (CIS), including:

    • managed investment schemes as defined in the Corporations Act 2001
    • investor Directed Portfolio Services (IDPS) and IDPS-like schemes regulated by ASIC (known as ‘platforms’)
    • arrangements under which an investor receives equity interests in one or more managed investment schemes and the investor's contributions and investment proceeds across all managed investment schemes are consolidated for reporting and customer management purposes by an operator or manager.

    The definition of 'Investment Entity' is drafted widely. It encompasses a CIS as the provider of an investment service, product or interests issued to investors. It also encompasses a range of entities that assist in running a CIS and could also fall within the definition of ‘Investment Entity’, including fund managers, investment managers or advisors, fund administrators, transfer agents, and trustees of unit trusts. Such entities could be performing advisory, management or administrative roles in relation to a CIS.

    While these entities that assist in running a CIS might have a relationship with investors in the CIS by virtue of their business relationship with the CIS, the only Financial Accounts that are relevant to the FATCA Agreement are the interests in the CIS. The CIS (or the entity responsible for the management and operation of the CIS, such as a trustee) would be responsible for the due diligence and reporting with respect to such accounts.

    An Investment Entity other than a CIS itself will generally not have obligations in relation to the interests in the CIS. So long as such Investment Entities do not otherwise maintain Financial Accounts, they will not be required to identify or report on the interests in a CIS by virtue only of their advisory, management or administrative role in relation to such interests. The Special Rules in subparagraph F(3) of section IV of Annex I to the FATCA Agreement is intended to avoid the potential for duplicative reporting in these circumstances.

    Accordingly, it is expected that only one entity within a CIS arrangement (involving multiple Investment Entities that assist in running the CIS) would perform reporting on interests in the CIS, and each interest only needs to be reported once.

    AFIs should be mindful of the various provisions in section IV of Annex II of the FATCA Agreement, which seek to simplify and consolidate FATCA Agreement obligations (including registration with the IRS) in the context of Investment Entities.

    AFIs may also rely on the categories of Deemed-Compliant Foreign Financial Institutions (FFIs) set out in the Regulations.

    Responsibilities of a CIS and entities that assist in running a CIS

    Entities that provide services related to a CIS will generally act either as intermediaries in the chain of ownership, or in an advisory or agency-only capacity.

    Intermediaries in the chain of ownership may qualify as Custodial Institutions because they hold assets on behalf of others. This can be the case with platforms (for example, IDPS) that hold legal title to investments (for example, in an underlying CIS) on behalf of their customers. The customers access the platform in order to buy and sell investments and to manage their investment portfolio. The platform will back customers’ orders with holdings in underlying CIS, or other investments, on behalf of investors. The platform will appear on the register of the underlying CIS (or other issuer of financial assets) that it invests in. Where this is the case, the platform (through its manager/operator) will be responsible for reporting on its investors as holders of Custodial Accounts that the platform maintains for such investors. The platform could nevertheless still be within the definition of ‘Investment Entity’.

    On the other hand, certain entities may act in an advisory or agency-only capacity, for example advising investors (or CIS themselves) on investment strategies. For instance, a financial advisor or planner that: intermediates between a customer and a CIS, advising the customer on their selection of investment options offered by the CIS; and does not hold legal title to assets (and is therefore not in the chain of ownership). The advisor would not be regarded as a Reporting AFI in respect of any Financial Accounts (interests in a CIS) that it provides advice on (see also discussion in section 1.11).

    Nevertheless, advisory or agency-only entities may be engaged by Reporting AFIs to provide assistance in fulfilling FATCA Agreement obligations as they may have readier access to investor information. However, such entities would not be regarded as Reporting AFIs as they would only have obligations pursuant to contractual agreements with the responsible AFIs where they act as a service provider in relation to the relevant Financial Accounts.

    The following examples may assist AFIs in determining their responsibilities in the case of CIS arrangements. AFIs should nevertheless consider their specific circumstances and how the FATCA provisions may apply to them.

    Example1 – registered Managed Investment Scheme (MIS)

    A MIS with a responsible entity (RE) that is also the trustee accepts investments from the public. The MIS, via the RE, invests funds into underlying assets (for example, shares in a company or interests in another MIS). The RE holds legal title to the MIS’s underlying investments. The MIS issues units, and distributes income, to investors.

    The MIS is an Investment Entity and would prima facie be the Reporting AFI in respect of the Financial Accounts (units issued by the MIS) that it maintains for investors. However, the RE can cause the MIS to have the status of Non-Reporting AFI using the provisions in section IV of Annex II to the FATCA Agreement or similar provisions in the Regulations. In practice an RE that is the trustee of the MIS would commonly use such provisions, effectively taking on the FATCA obligations of the MIS thus giving the MIS the status of Trustee-Documented Trust.

    The RE would register with the IRS and fulfil the FATCA obligations on behalf of the MIS. Entities offering the underlying investments would identify the MIS as the Account Holder for FATCA purposes (refer to section 2.3 of this Guidance) and treat the MIS as a Financial Institution and would therefore not be required to identify the investors in the MIS.

    The RE could fulfil such obligations by outsourcing activities to a service provider.

    Example 2 – registered MIS with external custodian

    The same facts as Example 1, but an external custodian (a Custodial Institution) is appointed by the RE. The outcomes are the same as in Example 1, but entities offering the underlying investments identify the custodian as the Financial Institution holding the investments and the custodian identifies the RE (acting on behalf of the MIS) as a Financial Institution holding a Custodial Account. Neither the entities offering the underlying investments, nor the external custodian have an obligation to identify the investors in the MIS. Such obligation would lie with the MIS, and could be fulfilled by the MIS's RE or a service provider.

    Example 3 – Investor Directed Portfolio Service (IDPS), also known as ‘platform’, ‘wrap’ or ‘master trust’

    An IDPS operator (not a registered scheme) facilitates investments by investors in underlying assets (for example, shares in a company or interests in another MIS). The service offers investors the chance to participate in pooled investments and to access investments they might otherwise not be able to access if they were investing directly.

    The IDPS operator offers a selection of fund managers and underlying investments. The IDPS operator invests, at investors' discretion, in a selection of investments. Investors are provided with safe custody, settlement and reporting services by the IDPS operator. Investors do not hold legal title to the underlying investments: legal title is held by the IDPS operator as custodian on behalf of investors (although it is noted that IDPS custodial functions are sometimes sub-contracted to service providers).

    A financial planner provides investment advice to investors and then provides instructions to the IDPS operator to invest in underlying investments as per investors’ instructions.

    In this scenario, the IDPS operator could meet the definitions of 'Investment Entity' and 'Custodial Institution'. The IDPS operator is responsible for fulfilling FATCA Agreement obligations in relation to the Financial Accounts it maintains for the investors, which consist of the holding of assets by the IDPS operator on investors’ behalf. The IDPS operator’s obligations (for example, customer due diligence) may be outsourced to a service provider (for example, the financial planner).

    The financial planner could meet the definition of 'Investment Entity', however does not offer any Financial Accounts and is acting in an advisory-only capacity with no participation in the chain of ownership of investments. The financial planner has no FATCA Agreement obligations in respect of the investments held through the IDPS, unless pursuant to contractual arrangements with the IDPS operator if it is engaged as a service provider.

    Entities offering the underlying investments will identify the IDPS operator as a Financial Institution holding the relevant Financial Accounts in those entities.

    The IDPS operator should register with the IRS. The financial planner does not need to be registered with the IRS (unless it otherwise offers Financial Accounts to investors in its own right).

    Depending on the circumstances, it may be possible to discern a trust relationship between the IDPS operator and investors in relation to assets held by the IDPS operator. Such a trust would be an entity under the FATCA Agreement and may also be an Investment Entity. However, having regard to paragraph A and subparagraph F(3) of section IV of Annex II which prevent duplicated reporting, and that the IDPS operator fulfilling its own FATCA obligations would have the same practical effect as for a Trustee-Documented Trust or a Sponsored Investment Entity, no separate registration or reporting is required in respect of such a trust.

    Example 4 – IDPS-like (or non-IDPS)

    The same facts as Example 3, but the IDPS operator works in conjunction with a MIS. The IDPS-like scheme operates similarly to IDPS in that investment decisions are generally made in accordance with specific member instructions, but it is a registered MIS. Investors acquire interests in the MIS and interests in the underlying investments are held by the RE/trustee and/or custodian on behalf of the MIS, not the investors.

    In this scenario, both the IDPS operator and the MIS with RE/trustee could meet the definition of 'Investment Entity'. However, the relevant Financial Accounts are the interests in the MIS that are issued to investors. The MIS is therefore the Reporting AFI responsible for fulfilling FATCA Agreement obligations in relation to such Financial Accounts. These obligations would be fulfilled by the RE/trustee of the MIS on behalf of the MIS or may be outsourced to a service provider. In this scenario the IDPS operator is offering an investment service only and is not the Reporting AFI in relation to the Financial Accounts maintained by the MIS.

    Entities offering the underlying investments would identify the MIS as the Account Holder for FATCA purposes (refer to section 2.3 of this Guidance) and treat the MIS as a Financial Institution and would therefore not be required to identify the investors in the MIS.

    The MIS would prima facie have an obligation to register with the IRS. However, the RE of the MIS may consider the alternative arrangements discussed in Example 1 above. The IDPS operator would not register with the IRS, unless it carries on business activities separate to the investment service provided through the MIS which would make it responsible under the FATCA Agreement for identifying and reporting on Financial Accounts offered to investors.

    End of example

    4.2 Are Reporting AFIs required to report all payments to Non-Participating Financial Institutions?

    Under Article 4.1(b) of the FATCA Agreement, with respect to the 2015 and 2016 calendar years, a Reporting AFI is required to report to the ATO the name of each Non-Participating Financial Institution to which it has made payments during those years and the aggregate amount of such payments. A payment is considered to be made when an amount is paid or credited to a Non-Participating Financial Institution.

    This reporting requirement applies to payments in respect of a Financial Account (as defined in the FATCA Agreement) that is maintained by a Reporting AFI for a Non-Participating Financial Institution, such as interest earned from a Depository Account or distributions received in respect of equity interests in an Investment Entity that constitute Financial Accounts. The reporting requirement does not apply to payments not associated with a Financial Account, such as payments for the provision of services, use of property, office and equipment leases, software licenses, amongst other payment types.

    In determining what payments are reportable, AFIs may follow relevant U.S. guidance and/or the Regulations.

    Pooled reporting in respect of Non-Participating Financial Institutions does not apply under the Australia-U.S. FATCA Agreement (a Model 1 FATCA Intergovernmental Agreement).

    4.3 Can AFIs elect not to apply thresholds for due diligence and reporting?

    AFIs may choose to apply the elections envisaged in paragraph A respectively in each of sections II, III, IV, and V of Annex I to the FATCA Agreement as long as the exercise of these elections does not frustrate the purposes of the FATCA Agreement.

    Paragraph C of section I of Annex I to the FATCA Agreement, and enabling legislation, allows AFIs to substitute the procedures specified in any section of Annex I to the agreement with corresponding procedures in the Regulations.

    An AFI does not need to provide the election to the ATO but must keep necessary records of elections made. These records must be kept for five years.

    4.4 What will constitute significant non-compliance for the purposes of the FATCA Agreement?

    The FATCA Agreement provides for collaboration between the ATO and the IRS on compliance and enforcement of FATCA obligations. Article 5 makes a distinction between minor and administrative errors, dealt with in Article 5.1, and significant non-compliance, covered by Article 5.2. Any non-compliance other than minor or administrative errors may be considered 'significant non-compliance'. Minor errors include isolated instances of having incomplete or missing data fields, lodging corrupted data, use of an incompatible format and other similar issues.

    The following would be regarded as significant non-compliance:

    • ongoing failure to lodge a report or repeated late lodgment
    • failure to register
    • ongoing or repeated failure to supply accurate information or establish appropriate governance or due diligence processes
    • intentional or negligent provision of incorrect information or omission of required information.

    Significant numbers of minor errors in the same statement, continually making the same minor error in multiple reports, and not fixing the error when requested may also amount to significant non-compliance.

    Under Article 5.2, significant non-compliance by a Reporting AFI is a matter for determination by the IRS. If the IRS detects significant non-compliance by a Reporting AFI, the IRS will notify the ATO. The IRS is required, under the FATCA Agreement, to defer any action or sanctions for 18 months while the ATO seeks to resolve the non-compliance using domestic law (including consideration of applicable penalties under domestic law).

    The ATO will contact the AFI to discuss the areas of non-compliance including the reasonableness of a particular position adopted. The ATO will work with the AFI to discuss solutions to remedy future non-compliance and resolve the existing non-compliance issues. The AFI will have 18 months from the time that the ATO has been notified by the IRS of the significant non-compliance to resolve that non-compliance. If the issue is not resolved within that time, the AFI will be treated by the U.S. as a Non-Participating Financial Institution.

    FATCA obligations are imposed upon AFIs by the Taxation Administration Act 1953 (TAA 1953). Compliance with these obligations is supported by penalties under the same Act. A failure by an AFI to lodge a statement in relation to a US reportable account may attract a penalty under section 286-75 of Schedule 1 of the TAA 1953 for each statement not lodged on time.

    A statement that is lodged, but which is false or misleading in a material particular, may be liable to a penalty under section 284-75 of Schedule 1 of the TAA 1953. Whether the AFI or the Account Holder would be liable to this penalty would depend on whose actions were responsible for the statement being false or misleading.

    Relevant non-compliance may be identified by the ATO of its own motion or as a consequence of a notification from the IRS.

    The usual increase, reduction or remission of penalties applicable under the TAA 1953 and ATO policies will apply. The ATO will consider the overall circumstances including genuine misunderstandings during initial implementation of FATCA, the AFI’s level of good faith efforts to comply or remediate error and the relative seriousness of the non-compliance.

    An AFI is required to keep records which correctly record the procedures by which the entity determines the information to be contained in statements required under the FATCA Agreement. A failure to keep and retain these records for five years from the time of providing the statement to the Commissioner may be liable to a penalty under section 288 25 of Schedule 1 of the TAA 1953. More information on this subject can be found in Practice Statement PS LA 2005/2.

    4.5 Are AFIs required to report Australian tax file numbers for FATCA Agreement reporting?

    No. AFIs are not required to report Australian tax file numbers under the FATCA Agreement.

    The FATCA XML Schema v1.1 developed by the IRS provides details about mandatory fields for completion as part of FATCA reporting. The FATCA XML v1.1 user guideThis link will download a file (PDF 1.6MB) provides additional explanation.

    4.6 What is the 'approved form' for reporting to the ATO?

    AFIs will need to lodge their data with the ATO using the IRS FATCA XML Schema by 31 July of the following year to which the information relates.

    In the 2015 calendar year, the lodgment facility will be available from 1 July 2015. AFIs will be able to lodge from 1 January in subsequent years.

    At this stage system design will entail lodgment via an existing ATO Portal utilising the bulk data exchange facility (BDE).

    For details about reporting FATCA data to the ATO, refer to our software developers' homepageExternal Link.

    4.7 Why do AFIs report to the ATO but register with the IRS?

    FATCA was enacted by the U.S. Congress in March 2010 as part of its efforts to improve compliance with U.S. tax laws. A key objective of the FATCA Agreement is to facilitate Australia's compliance with FATCA in a way that reduces its overall burden on the Australian financial industry and the broader community.

    Under the FATCA Agreement, AFIs will not report information directly to the IRS. Instead they will report to the ATO with access to this information being given to the IRS.

    The existence of the FATCA Agreement does not change the registration requirements with the IRS and the IRS being responsible for issuing the GIIN and publishing it to their website.

    4.8 Currency conversion

    The threshold limits in Annex I to the FATCA Agreement are in U.S. dollars. Where a Reporting AFI has accounts in a currency that is not U.S. dollars and the AFI is applying thresholds from Annex I to those accounts, the threshold limits will need to be converted to the appropriate account currency denomination to establish how the thresholds apply. The conversion must be at a spot rate determined as of the last day of the calendar year preceding the year in which the Reporting AFI is determining the balance or value.

    Example 1 – account with a balance of AUD $60,000 on 30 June 2014

    A Reporting AFI maintains a pre-existing individual depository account for Amy. The account has a balance of Australian $60,000 as of 30 June 2014. The Reporting AFI has chosen to apply the exclusion in subparagraph A(1) of section II of Annex I to the FATCA Agreement, so must determine whether Amy’s account balance exceeded the threshold (U.S. $50,000).

    The Reporting AFI must apply a spot rate at 31 December 2013 and, using this spot rate, determines that the threshold as of 30 June 2014 was Australian $56,004. The balance of Amy’s account on 30 June 2014 was Australian $60,000, and, therefore, exceeded the threshold amount (of Australian $56,004). Therefore, the account is subject to the due diligence requirements in section II of Annex I to the FATCA Agreement.

    Example 2 – whether an account has become a High Value Account

    The Reporting AFI in Example 1 carried out the review of Amy’s account in accordance with paragraphs B and C of section II of Annex I to the FATCA Agreement and found no indicia for it being a U.S. Reportable Account. Subsequently the account balance increased and reached Australian $1,300,000 on 31 December 2015. The AFI must determine whether the account is now subject to the enhanced review procedures imposed by paragraph D of section II of Annex I to the FATCA Agreement – accounts that exceed U.S. $1,000,000.

    The Reporting AFI must apply a spot rate at 31 December 2014 and, using this spot rate, determines that the threshold as of 31 December 2015 was Australian $1,222,309. The balance of Amy’s account on 30 June 2014 was Australian $1,300,000, and, therefore, exceeded the threshold amount. Therefore, the account is subject to the enhanced review procedures in paragraph D of section II of Annex I to the FATCA Agreement. This review must be completed by 30 June 2016.

    End of example

    Annex I of the FATCA Agreement does not specify rules for currency conversion of amounts for reporting purposes. If an account is found to be a U.S. Reportable Account and is denominated in a currency other than U.S. dollars (for example, Australian dollars), the monetary amount may be reported in that other currency. The IRS’s FATCA XML schema version 1.1 includes a field that allows the reporting financial institution to specify the relevant currency code if it chooses not to report in U.S. dollars.

    If the Reporting AFI chooses to convert and report amounts (including the account balance) in U.S. dollars, this should be on a reasonable basis. A reasonable basis for such conversion would to use a spot rate for 31 December of the year being reported or, in the case of an insurance contract or annuity contract, the date of the most recent contract valuation. For accounts closed during the reporting year, it would be reasonable to use the spot rate on the date that is as close as practicable to the date that the account was closed.

    4.9 IRS Notice 2014-33 – deferring the start date for new Entity Accounts by six months

    IRS Notice 2014-33 (the Notice) provides the option for Financial Institutions to treat an Entity Account opened on or after 1 July 2014 and before 1 January 2015 as a Pre-existing Entity Account for the purposes of applying the due diligence procedures described in the FATCA Agreement. The Notice foreshadowed that the U.S. intended to update FATCA Model Intergovernmental Agreements (IGA) to reflect this option in Annex I of the IGAs, but without permitting application to such accounts of the $250,000 exception mentioned in Annex I of the IGAs. The Notice also noted that the Model IGAs contain a provision that allows a partner jurisdiction that has entered into an IGA to receive the benefit of certain more favourable terms set forth in a later IGA (the “most-favoured nation” provision). Such a partner jurisdiction would be permitted to adopt the revision once an IGA with the revision had been signed with another partner jurisdiction.

    Article 7 of Australia’s FATCA Agreement with the U.S. contains the most-favoured nation provision. The change mentioned in the Notice was subsequently included in IGAs that were signed prior to 1 July 2014. Reporting AFIs are therefore permitted to adopt the revised due diligence procedures for relevant accounts. The effect of the revision is as follows:

    For new Entity Accounts opened on or after 1 July 2014, and before 1 January 2015, either with respect to all new Entity Accounts or, separately, with respect to any clearly identified group of such accounts, Reporting AFIs may:

    • Treat such accounts as Pre-existing Entity Accounts and apply the due diligence procedures related to Pre-existing Entity Accounts specified in section IV of Annex I of the FATCA Agreement in lieu of the due diligence procedures relating to new Entity Accounts specified in section V of the Annex. In this case, the due diligence procedures of section IV of the Annex must be applied without regard to the account balance or value threshold specified in paragraph A of section IV of the Annex.
    • Alternatively, Reporting AFIs can continue to apply the due diligence procedures for new Entity Accounts prescribed in section V of Annex I at the date of signature of the FATCA Agreement.

    As a further alternative, Reporting AFIs may elect to rely on the procedures described in relevant Regulations (as explained in paragraph C of section I of Annex I of the FATCA Agreement), taking into account the change to those Regulations announced by the Notice.

    An AFI does not need to provide the election to the ATO but must keep necessary records of elections made. These records must be kept for five years.

    Interaction of IRS Notice 2014-33 with the transitional period in Article 1.1(s)

    As explained in section 2.6 of this Guidance, equity or debt interests in relevant Financial Institutions that are 'regularly traded on an established securities market' and the holders of which (other than a Financial Institution acting as an intermediary) appear registered on the books of the Financial Institution are treated as Financial Accounts only if the interest is first registered on the books on or after 1 July 2014.

    If the holder continues to hold the account from 1 January 2016, such account will be a Financial Account and a Reporting AFI maintaining the account will have FATCA obligations from that time. The due diligence procedure applicable to the Reporting AFI will depend on when the account is opened:

    • If the Financial Account is opened between 1 July 2014 and 31 December 2014 (inclusive), the three due diligence procedures identified above are available to the Reporting AFI in complying with its FATCA obligations in respect of that Financial Account from 1 January 2016.
    • If the Financial Account is opened from 1 January 2015, only the due diligence procedures explained in (ii) and (iii) above are available to the Reporting AFI in complying with its FATCA obligations in respect of that Financial Account from 1 January 2016.

    Notice 2014-33 only applies to interests held by entities, which excludes individuals. The transitional period in Article 1.1(s) only applies to holders who are not Financial Institutions acting as an intermediary. Therefore the interests that may be affected by both the Notice and the transitional period are only those interests where the holder is not an individual and not a Financial Institution or, if a Financial Institution, the holder is not acting as an intermediary in relation to that interest.

    4.10 Account balance or value and 'other appropriate reporting period'

    Generally the balance or value of a Financial Account is the balance or value that is calculated by the AFI for the purposes of reporting to the Account Holder. The balance to be reported is the balance or value of the account at the end of the reporting period (as a general rule, 31 December of a calendar year) except in the case of closed accounts (refer to discussion in section 4.12 of this Guidance).

    Subject to the guidance below, 31 December of a calendar year (or the date otherwise specified in the FATCA Agreement for the purpose of applying the account balance or value review thresholds) is expected to be the most relevant date for determining an account balance or value.

    Where it is not possible (or usual business practice) to value an account at 31 December, an AFI should use the normal valuation point for the account that is nearest to 31 December (or other date specified in the FATCA Agreement for the abovementioned purposes). The provisions' reference to 'other appropriate reporting period' makes allowance for such exceptional cases (it is not to substitute the general calendar year reporting period with discretionary reporting periods). Whether there is an end date to an 'appropriate reporting period' that does not coincide with the calendar year, and is more appropriate to use as the account valuation point, is to be determined by AFIs based on the nature of the account in question and usual business practices.

    The balance or value in the case of Depository Accounts will be the amount in the account on 31 December (unless the account is closed prior to that date). It is anticipated that a bank, for instance, would be able to determine the account balance or value of a cash or savings account as at 31 December of a calendar year.

    In the case of a cash value insurance contract, the period between the most recent contract anniversary date and the previous contract anniversary date would be an 'appropriate reporting period' and a Specified Insurance Company may report the cash value or surrender value of the account as at the most recent contract anniversary date that falls within the relevant calendar year of reporting (if the company chooses to use the anniversary date of a policy for valuation purposes).

    The balance or value of an equity interest is the value calculated by the AFI for the purpose that requires the most frequent determination of value, and the balance or value of a debt interest is its principal amount.

    The date to be used where the 31 December falls on a weekend or non-working day is the last working day before the 31 December.

    The balance or value of the account is not to be reduced by any liabilities or obligations incurred by an Account Holder with respect to the account or any of the assets held in the account and is not to be reduced by any fees, penalties or other charges for which the Account Holder may be liable upon terminating, transferring, surrendering, liquidating or withdrawing cash from the account.

    4.11 What is the account balance or value for closed accounts?

    The FATCA Agreement provides that the closing balance is the amount immediately before closure.

    The account balance or value should be captured as close as practicable to the date procedures are commenced to close the account. An example of procedures to commence closure is when instructions are received to close the account.

    Amounts withdrawn in connection with the account closure should be captured.

    4.12 If an AFI does not have any Reportable Accounts or any investments in the U.S. does it have any obligations under the FATCA Agreement?

    Yes. If the AFI is a Reporting AFI it has obligations under the FATCA Agreement to apply the due diligence procedures contained in Annex I of the FATCA Agreement.

    The AFI should also register with the IRS.

    An AFI that is a Reporting AFI under the FATCA Agreement or that is otherwise registered with the IRS (for example, as a registered deemed-compliant entity under the Regulations) that does not maintain any U.S. Reportable Accounts or make payments to a Non-Participating Financial Institution in a particular year is not required to give a statement to the ATO for that year or notify the ATO of that fact.

    4.13 Account balance or value aggregation

    Unless otherwise indicated, the amounts used in these examples are denominated in U.S. Dollars.

    In determining whether Financial Accounts are U.S. Reportable Accounts, Reporting AFIs will need to consider the aggregate balance or value of Financial Accounts held by an individual or an entity. Aggregation is required for testing against thresholds provided in Annex I. The relevant accounts for aggregation (type of account and the time of opening of the account) vary according to the context of the various threshold tests in Annex I. For example, Depository Accounts are aggregated for the purposes of paragraph A(4) of section II and subparagraph A(1) of section III.

    The rules for determining the aggregate balance or value of Financial Accounts are found in paragraph C of section VI of Annex I to the FATCA Agreement.

    A Reporting AFI is required to aggregate all Financial Accounts of an Account Holder that are maintained by the Reporting AFI or by a related entity, but only to the extent that the Reporting AFI's current computerised systems can link the Financial Accounts by reference to a data element (for example, a customer or taxpayer identification number) and allow the account balances or values of such accounts to be aggregated.

    If the systems can link the accounts by reference to a data element, but do not provide details of the balance or value of the accounts, then a Reporting AFI is not required to aggregate the Financial Accounts to determine the aggregate balance or value of those accounts.

    Where the system can link the accounts and details of the balance or value are provided (for example, the system is able to display all balances of multiple accounts held by an individual), the Financial Accounts must be aggregated if the system allows such balances or values to be electronically aggregated (even if the system does not automatically show a combined balance or value for the accounts).

    An Account Holder's ability to manage multiple accounts in a single place, such as a secure online environment, does not automatically lead to the aggregation rules applying. The Reporting AFI's core systems must allow the account balances or values to be aggregated, as explained above, for the rules to apply.

    Relationship Managers

    Where a customer has a relationship manager appointed by a Reporting AFI, the Reporting AFI must also aggregate any Financial Accounts that the relationship manager knows, or has reason to know, are directly or indirectly owned, controlled, or established (other than in a fiduciary capacity) by the same customer, for the purpose of determining whether a Financial Account held by that customer is a High Value account (see subparagraph C(3) of section VI of Annex I).

    Example 1 – Pre-existing individual account that is a Lower Value account

    Bank A, a Reporting AFI, maintains a number of Financial Accounts for an individual and has assigned a relationship manager to the individual. The aggregate balance of all Financial Accounts held by the individual after using a common data element in Bank A's computerised systems to aggregate the accounts exceeds $50,000 but does not exceed the $1,000,000 threshold for High Value accounts. The relationship manager does not know or have reason to know of other Financial Accounts held by the individual in Bank A or a related entity. Bank A should apply due diligence procedures relevant to Lower Value accounts.

    Example 2 – pre-existing individual account that is a High Value account

    The facts are the same as in Example 1 except the relationship manager knows that the individual holds a Financial Account other than the accounts that can be linked by reference to the common data element in Bank A's computerised systems. The aggregate balance of all Financial Accounts held by the individual (including the account the relationship manager has knowledge of) exceeds $1,000,000. Bank A should apply due diligence procedures relevant to High Value accounts. This includes the relationship manager inquiry described in subparagraph D(4) of section II of Annex I in addition to the electronic and paper record searches described in subparagraphs D(1) and (2) of section II.

    End of example

    Exempt Financial Accounts

    The rules in paragraph C of section VI of Annex I to the FATCA Agreement (about aggregating balances or values) apply only to Financial Accounts. Accordingly, if a product is exempt from being treated as a Financial Account (for example, it is listed as an excluded account in Annex II of the FATCA Agreement), it does not need to be included for the purposes of determining the aggregate balance of Financial Accounts.

    For example, where an individual holds an FHSA (first home saver account) as defined in the Income Tax Assessment Act 1997 with a bank as well as several Depository Accounts with the same bank, and the bank's systems allow all these accounts to be linked, the bank must aggregate the Depository Accounts but is not required to include the FHSA in the aggregation.

    Related Entities

    If a Reporting AFI's computerised systems link Financial Accounts maintained for a customer across Related Entities, wherever they are located, the Reporting AFI will need to aggregate the Financial Accounts in determining whether any of the reporting thresholds apply. However, once a Reporting AFI has considered the thresholds, it will only be responsible for reporting on the U.S. Reportable Accounts that it maintains (not the accounts maintained by such Related Entities for the customer in question).

    Example 1

    Bank A is a Reporting AFI and has a related entity (Bank B) which is also a Reporting AFI. Banks A and B can link a Depository Account that Bank A maintains for individual X, a U.S. specified person, with a Custodial Account that Bank B maintains for Individual X, using a data element in their computerised systems. The account balances are as follows:

    • Depository Account with Bank A – $30,000
    • Custodial Account with Bank B – $30,000

    As the aggregated balance is $60,000, both Financial Accounts are prima facie U.S. Reportable Accounts.

    However, the Depository Account balance is below the $50,000 threshold and it is therefore not required to be reviewed, identified or reported as a U.S. reportable account (subparagraph A(4) of section II of Annex I to the FATCA Agreement). Individual X's Custodial Account in Bank B is not exempted because the aggregated balance of both Financial Accounts exceeds $50,000 and there is no specific exemption for Custodial Accounts that can apply.

    Further Examples

    The following examples are to illustrate the application of the aggregation rules in paragraph C of section VI of Annex I for the purpose of the thresholds. The outcomes provided herein are without prejudice of other rules in the FATCA Agreement and its Annexes that may be applicable.

    End of example

    Aggregation of pre-existing individual accounts

    The following examples illustrate the application of the aggregation rules in relation to the thresholds provided section II of Annex I.

    Example 1 – Application of the $50,000 thresholds

    Bank A, a Reporting AFI, can link the following accounts it maintains for Individual X, a specified U.S. person, through a customer identification number:

    • A Depository Account with a balance of $25,000
    • A Custodial Account with a balance of $20,000.

    The aggregated balance is below $50,000. Therefore, regardless of the types of account, neither of these pre-existing individual accounts will be reportable (subject to subparagraph E(2) of section II of Annex I).

    Example 2 – Application of the $50,000 thresholds

    Bank A, a Reporting AFI, can link the following accounts it maintains for Individual X, a specified U.S. person, through a customer identification number:

    • A Depository Account with a balance of $45,000
    • A Depository Account with a balance of $7,000

    The aggregated balance is above $50,000. Therefore neither account can benefit from the exemptions provided by paragraph A of section II. As both accounts are Depository Accounts, they must be aggregated and cannot benefit from the exemption in subparagraph A(4) of section II).

    Example 3 – Application of the $50,000 thresholds

    Bank A, a Reporting AFI, can link the following accounts it maintains for Individual X, a specified U.S. person through a customer identification number:

    • A Depository Account with a balance of $45,000
    • A Custodial Account with a balance of $7,000.

    As the aggregated balance of both Financial Accounts is $52,000, the accounts are prima facie U.S. Reportable Accounts.

    However, the Depository Account balance is below the $50,000 threshold for Depository Accounts (see subparagraph A(4) of section II of Annex I) and is therefore not required to be reviewed, identified or reported as a U.S. reportable account. The Custodial Account is not exempted because the aggregated balance of both Financial Accounts exceeds $50,000 and there is no specific exemption for Custodial Account that is similar to the aforementioned exemption for Depository Accounts that can apply.

    Example 4 – Application of the $50,000 Depository Account and $250,000 cash value insurance contract thresholds

    Company A, a Reporting AFI, can link the following accounts itn maintains for Individual X, a specified U.S. person through a customer identification number (account balances and value are at 30 June 2014):

    • Depository Account 1 with a balance of $10,000
    • Depository Account 2 with a balance of $10,000
    • cash value insurance contract with a value of $55,000

    While the aggregated balance of all accounts exceeds the $50,000 threshold for pre-existing individual accounts (see subparagraph A(1) of section II of Annex I), the aggregated balance of both Depository Accounts is below the $50,000 threshold for Depository Accounts (see subparagraph A(4) of section II) and the value of the cash value insurance contract is below the $250,000 threshold for Cash Value Insurance Contracts or Annuity Contracts (see subparagraph A(2) of section II). None of the accounts is required to be reviewed, identified or reported as a U.S. reportable account.

    Example 5 – Application of the $250,000 cash value insurance contract threshold

    Company A, a Reporting AFI, can link the following accounts it maintains for Individual X, a specified U.S. person, through a customer identification number (account balances and value are at 30 June 2014):

    • A cash value insurance contract with a value of $230,000
    • A Custodial Account with a balance of $30,000

    As the aggregated balance is above $50,000, the accounts are prima facie U.S. Reportable Accounts. However, as the cash value insurance contract is below the threshold that applies to that type of account, it is not required to be reported (see subparagraph A(2) of section II of Annex I). Company A must report the Custodial Account it maintains for Individual X because the aggregated balance of that account and the cash value insurance contract exceeds $50,000 and there is no Custodial Account exemption that can apply.

    Example 6 – Application of the $1 million threshold for high value accounts

    Bank A, a Reporting AFI, can link the following Financial Accounts it maintains for Individual X through a customer identification number (account balances and value are at 30 June 2014):

    • A Depository Account with a balance of $40,000
    • A Custodial Account with a balance of $980,000.

    As the aggregated balance of both Financial Accounts is $1.02 million, Individual X is identified as a holder of a High Value account so the due diligence procedure in paragraphs D and E of section II of Annex I should be applied to determine whether the account is a U.S. reportable account.

    As the Depository Account balance is below the $50,000 threshold for Depository Accounts, it is not required to be reported as a U.S. reportable account. The Custodial Account, on the other hand, could be reportable as a U.S. reportable account because the balance is above $50,000 and there is no Custodial Account exemption that can apply.

    Example 7 – Aggregation involving joint accounts

    Two individuals, both of whom are Specified U.S. Persons, hold three Financial Accounts between them – one Depository Account each and a jointly held Depository Account – all of which are maintained by a Reporting AFI and have the following balances (account balances and value are at 30 June 2014):

    • Individual X – $35,000
    • Individual Y – $25,000
    • joint account – $30,000

    A data element in the Reporting AFI’s computer system allows the joint account to be associated with both Individuals X and Y. The balance on the joint account is attributable in full to each of the Account Holders. In this example the aggregate balance for Individual X would be $65,000 and for Individual Y $55,000. As the aggregated balances are in excess of the $50,000 thresholds in subparagraphs A(1) and A(4) of section II of Annex I, all three Depository Accounts are prima facie U.S. Reportable Accounts.

    End of example

    Aggregation of new individual accounts

    The following example illustrates the application of the aggregation rules in relation to the thresholds provided in section III of Annex I.

    Example 1

    Company A, a Reporting AFI, can link the following accounts for Individual X, a specified U.S. person, opened on or after 1 July 2014 through a customer identification number (there are no other accounts maintained for Individual X and account balances and value are at 31 December 2014):

    • Depository Account 1 with a balance of $10,000
    • Depository Account 2 with a balance of $10,000
    • cash value insurance contract with a value of $55,000

    As the aggregated balance of the Depository Accounts is below the $50,000 threshold for new individual Depository Accounts (see subparagraph A(1) of section III of Annex I), these accounts are not required to be reviewed, identified or reported as U.S. Reportable Accounts until they cease to qualify for the threshold as tested on the last day of each subsequent year (see paragraph A of section III). The cash value insurance contract is subject to review, identification and reporting in accordance with paragraph B of section III as it exceeds the threshold in subparagraph A(2) of section III.

    End of example

    Aggregation of new individual Depository Accounts and pre-existing individual Depository Accounts

    The following example illustrates the application of the aggregation rules in relation to the thresholds provided in subparagraphs A(4) of section II and A(1) of section III of Annex I.

    Example 1

    Bank A, a Reporting AFI, maintains the following accounts for Individual X, a specified U.S. person, as at 30 June 2014 :

    • a pre-existing Depository Account with a balance of $28,000
    • a pre-existing Depository Account with a balance of $16,000.

    These accounts can be linked for the purposes of aggregation in Bank A’s computerised systems. The aggregated balance of both accounts is $44,000 and therefore Bank A is not required to review, identify or report these accounts as U.S. Reportable Accounts (see subparagraph A(4) of section II of Annex I).

    Individual X subsequently opens a new Depository Account. As of 31 December 2015, the balances of Individual X’s accounts held with Bank A are:

    • a pre-existing Depository Account with a balance of $33,000
    • a pre-existing Depository Account with a balance of $11,000
    • a new Depository Account with a balance of $24,000.

    The aggregated balance for the purposes of the new Depository Account threshold in subparagraph A(1) of section III of Annex I is $68,000 (aggregated balance of all Depository Accounts in existence). Bank A should apply the due diligence procedures in section III of Annex I to determine whether the new Depository Account is a U.S. reportable account since its aggregate balance exceeds $50,000 at the end of the calendar year. The pre-existing Depository Accounts would become reviewable and potentially reportable only when they exceed an aggregate balance of $1,000,000 as of the end of a calendar year because such accounts still benefit from the exclusion under subparagraph A(1) of section II of Annex I until such threshold of $1,000,000 is reached (in which case the review required in paragraph E.2 of section II would be triggered).

    End of example

    Aggregation of new and pre-existing individual Cash Value Insurance Contracts and Annuity Contracts

    The following example illustrates the application of the aggregation rules in relation to the thresholds provided in subparagraphs A(2) of section II and A(2) of section III of Annex I.

    Example 1

    Company A, a Reporting AFI, can link the following accounts it maintains for Individual X, a specified U.S. person, through its computerised system:

    • pre-existing cash value insurance contract 1 with a value of $100,000 as of 30 June 2014
    • pre-existing cash value insurance contract 2 with a value of $100,000 as of 30 June 2014
    • new cash value insurance contract with a value of $55,000 at 31 December 2014

    The new cash value insurance contract is subject to review and reporting as a U.S. reportable account in accordance with the rules in paragraph B of section III of Annex I as it does not qualify for the $50,000 threshold in subparagraph A(2) of section III. The pre-existing contracts, however, are not required to be reviewed, identified or reported as U.S. Reportable Accounts as the aggregated value of such contracts does not exceed $250,000 as of 30 June 2014, thus qualifying for the exclusion in subparagraph A(2) of section II (subject to subparagraph E(2) of section II of Annex I). The new cash value insurance contract is treated separately to the pre-existing contracts for these aggregation purposes.

    Example 2

    Company A, a Reporting AFI, can link the following accounts it maintains for Individual X, a specified U.S. person, through its computerised system (the pre-existing contract values are as of 30 June 2014 and the new contract values are at 31 December 2014):

    • pre-existing cash value insurance contract 1 with a value of $100,000
    • pre-existing cash value insurance contract 2 with a value of $100,000
    • pre-existing annuity contract with a value of $40,000
    • new cash value insurance contract with a value of $55,000
    • new annuity contract with a value of $40,000

    Only the new contracts are required to be reviewed, identified or reported as U.S. Reportable Accounts.

    The new cash value insurance contract is subject to review and reporting as a U.S. reportable account in accordance with the rules in paragraph B of section III of Annex I as it does not qualify for the $50,000 threshold in subparagraph A(2) of section III. The new annuity contract cannot benefit from any exclusion (note that the exclusion in subparagraph A(2) of section III only applies to Cash Value Insurance Contracts, not Annuity Contracts). The pre-existing contracts, however, are not required to be reviewed, identified or reported as U.S. Reportable Accounts as the aggregated value of such contracts does not exceed $250,000 as of 30 June 2014, thus qualifying for the exclusion in subparagraph A(2) of section II (subject to subparagraph E(2) of section II of Annex I). This exclusion, unlike that contained in subparagraph A(2) of section III, applies both to Cash Value Insurance Contracts and Annuity Contracts.

    End of example

    Reporting

    Once the Financial Account balances are aggregated and it is determined that the Financial Accounts are U.S. Reportable Accounts, the Financial Accounts should be reported individually. A Reporting AFI should not consolidate the account balances into one U.S. reportable account for reporting purposes.

    Example 1

    Individual X (a specified U.S. person) holds three Depository Accounts with Bank A, a Reporting AFI. The balances are as follows:

    • account 0001 – $3,000
    • account 0002 – $32,000
    • account 0003 – $25,000

    The aggregated balance of Financial Accounts held by Individual X that is maintained by Bank A total $60,000. All three Financial Accounts are prima facie U.S. Reportable Accounts because the threshold at paragraph A(4) of section II of Annex II has been exceeded. Bank A should report on the three accounts individually and should not consolidate the information into a single entry for reporting purposes.

    End of example

    Aggregation of Pre-existing Entity Accounts

    To determine the aggregate balance or value of Financial Accounts held by an entity, all accounts held by the entity should be aggregated if the AFI’s computerised systems can link the accounts by reference to a data element and allow the account balances or values to be aggregated.

    Example 1 – Aggregation of Pre-existing Entity Accounts

    Entity X, a specified U.S. person has two Depository Accounts with Bank A, a Reporting AFI. The balances are as follows:

    • Depository Account 1 – $150,000
    • Depository Account 2 – $110,000

    Bank A's computerised system allows the account balances to be aggregated and the aggregate balance is $260,000. The accounts should prima facie be reported as U.S. Reportable Accounts.

    Example 2 – Aggregation of Pre-existing Entity Accounts

    Individual X, a specified U.S. person, has a Depository Account with Bank A, a Reporting AFI. Individual X also controls 100% of Entity Y and 50% of Entity Z both of which also have a Depository Account with Bank A. The balances are as follows:

    • Individual X Depository Account – $35,000
    • Entity Y Depository Account – $130,000
    • Entity Z Depository Account – $110,000

    Bank A's computerised system allows the account balances to be aggregated. However, an account held by a person cannot be aggregated with another account unless that person holds both accounts. In this example, no account is reportable since the aggregation rules do not operate to cause any account to exceed the relevant thresholds that triggers review ($50,000 for pre-existing individual accounts and Individual Depository Accounts and $250,000 for Pre-existing Entity Accounts).

    Individual accounts are not aggregated with Entity Accounts. Entity Account aggregation occurs at the level of the entity or entities, not of the entities’ Controlling Persons.

    End of example

    Aggregation by service providers

    A Reporting AFI may use a service provider (for example, a share registrar or agent) to undertake its due diligence and reporting obligations. In some cases it may be such service provider, rather than the Reporting AFI, that has the computerised system on which data on Account Holders is held. Where this is the case, the aggregation of Financial Accounts is required at the level of the service provider to the extent that the service provider's computerised systems can link the Financial Accounts by reference to a data element (relating to the Account Holder) and allow for the relevant balances or values to be aggregated. The aggregation is as per the general rules in paragraph C of section VI of Annex I – accounts maintained by the Reporting AFI and any related entity. Notwithstanding the foregoing, responsibility to fulfil the obligations imposed remains with the Reporting AFI.

      Last modified: 15 Oct 2015QC 43069