• 7 Frequently asked questions

    Identification of settlor of trust in a self-certification

    Q1: If on account opening, the customer is asked to identify the settlor of the trust and any of the following apply:

    • the settlor's identity is unknown
    • the settlor is deceased
    • the settlor is known, but has no ongoing connection to the trust (other than the original settlement that created the trust) and the customer has no knowledge of foreign tax residency of the settlor
    • there is no settlor (for example, because it is an insolvent estate or it is a bare or informal trust

    can the RFI rely upon a certification from the customer?

    A1: Yes, provided the RFI possesses no information to indicate the response is unreasonable or unreliable.

    An RFI is free to choose how the customer affirms the circumstances in their self-certification. A tick-a-box format is acceptable.

    In addition, a customer making a false declaration may be subject to a penalty under taxation law. An RFI may advise the customer of this, but it is not required to do so.

    Reporting all foreign resident accounts

    Q2: Is it an obligation to report all financial accounts held by foreign tax residents to the ATO, whether or not the corresponding jurisdiction participates in AEOI or has an agreement with Australia?

    A2: Yes, you must report all foreign resident accounts you identify to the ATO.

    Financial Institution with a Local Client Base (Q3 to Q7 are FATCA specific)

    Q3: Is an AFI holding a credit licence issued by ASIC 'licensed and regulated as a Financial Institution under the laws of Australia' for FATCA purposes because it holds that licence?

    A3: 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 being licensed and regulated as a Financial Institution under the laws of Australia at subparagraph A(1).

    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. Even though 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 under the FATCA Agreement. Therefore 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.

    Q4: 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 of the FATCA Agreement where the manager, responsible entity, trustee or custodian of the MIS holds an Australian financial services licence?

    A4: No. 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.

    Q5: For the purposes of paragraph A of section III of Annex II of the FATCA Agreement, when is a Financial Institution required to report information or withhold tax on accounts under the laws of Australia?

    A5: 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 report information or withhold tax on accounts held by residents of Australia.

    Banks and other financial institutions providing the ATO with an annual investment income report (AIIR) will meet the reporting requirement. A financial institution required to withhold tax from income derived from accounts where a TFN (or in some cases, an ABN) has not been quoted for the account will satisfy the withholding requirement.

    Q6: 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 of the FATCA Agreement?

    A6: The 98% threshold test requires considering who the relevant holders of the Financial Accounts are. 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 is the holder for testing the 98% 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 to benefit 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.

    Q7: 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?

    A7: Paragraph A of section III of Annex II of the FATCA Agreement 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% 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.

    Standard industry codes- CRS and FATCA

    Q8: Can an RFI use standard industry codes assigned to accounts when determining from publicly available information if an entity account holder is a Financial Institution, a Non-Reporting Financial Institution or an Active or Passive NFE?

    A8: Yes. An RFI may use standard industry codes in its due diligence process of reasonably determining whether an Account Holder is a Financial Institution, a Non-Reporting Financial Institution or an Active or Passive NFE.

    In determining the status of the account holder, the RFI must reach a reasonable level of confidence based on information available. The weight to be given to a particular industry code will vary – some codes may more obviously relate to the status of the account holder than others. If the institution is unable to reach a reasonable level of confidence, a self-certification must be obtained.

    Financial Assets

    Q9: Is cash (or money) a Financial Asset for CRS purposes?

    A9: Yes. The term ‘Financial Asset’ is intended to encompass any assets that may be held in an account maintained by a Financial Institution, with the exception of a non-debt, direct interest in real property.

    Not for profit entities

    Q10: Is a not-for-profit entity that is exempt from Australian income tax under Division 50 of the Income Tax Assessment Act 1997 treated as an Active NFE for CRS purposes?

    A10: Yes. An MOU between Australia and the U.S. came to this understanding of the meaning of certain words in the definition of Active NFFE in the FATCA Agreement. Essentially the same words appear in subparagraph D.9(h) of section VIII of the CRS and should be given the same meaning.

    Related Entities - CRS

    Q11: When is an Entity a 'Related Entity' of another entity?

    A11: Australia's AEOI legislation has adopted the wider definition of Related Entity for CRS purposes, as described in the CRS Commentary. An entity is a 'Related Entity' of another entity if either entity controls the other or the two entities are under common control. An entity is also a 'Related Entity' of another entity in the special case where both entities are type B Investment Entities (see section 2.5), are under common management, and this management fulfils the due diligence obligations of the Investment Entities. For this purpose, control includes direct or indirect ownership of more than 50% of the vote and value in an entity.

    8 Transitional

    8.1 Arrangements for exchange traded product issuers

    This information is relevant if you are an exchange traded product issuer with due diligence and reporting obligations under the Australia-US Foreign Account Tax Compliance Act (FATCA) Agreement and its implementing legislation (Subdivision 396-A of Schedule 1 of the Taxation Administration Act 1953).

    Who is an exchange traded product issuer?

    An exchange traded product issuer refers to:

    • exchange traded funds (ETF)
    • Australian real estate investment trusts (A-REIT)
    • listed investment companies (LIC)
    • similar entities that issue equity or debt interests traded on a stock exchange.

    Equity or debt interests in these entities are referred to in a FATCA context as accounts.

    Transitional arrangements

    The U.S. Government has informed the Australian Government by letter dated 21 May 2016 that for relevant interests in exchange traded product issuers, it will recognise compliance with their FATCA due diligence obligations if they follow certain procedures to review their accounts before 1 July 2017.

    The U.S. letter applies to exchange traded product issuers that issue equity or debt interests to investors, the interests are regularly traded on an established securities market, and the holders of the interests are directly registered on the books of the issuer, rather than the interests being registered in the name of an intermediary.

    If you qualify and wish to make use of these transitional arrangements, the following arrangements are acceptable. If an interest:

    • was first registered on your books in the name of an investor on or after 1 July 2014 and closed before 1 January 2016, the US letter confirms that you do not need to review or report the investor
    • was first registered on your books in the name of an investor on or after 1 July 2014, and still held by the investor on 1 January 2016, you must electronically review the data you possess on the investor (or possessed at the time the interest was held by the investor) for any relevant U.S. indicia (even if the account was subsequently closed) – if any indicia arise, you must treat the interest as a U.S. Reportable Account and document the investor in this way in time to report them to us by 31 July 2017, so we can report them to the IRS by 30 September 2017
    • is first registered on your books in the name of an investor on or after 1 January 2016 and before 1 July 2017 (even if the account is closed before 1 July 2017), you must also electronically review the data you possess on the investor – investors first registered during the 2016 calendar year must be reviewed in time for reporting to us by 31 July 2017, and investors first registered during the 2017 calendar year but before 1 July 2017 must be reviewed in time for reporting to the ATO by 31 July 2018, so we can report them to the IRS by 30 September 2017 or 30 September 2018 as applicable)

    The general requirements of the FATCA Agreement regarding ‘New Accounts’ of a Financial Institution will apply from 1 July 2017. The requirements of the OECD Common Reporting Standard (CRS) and its implementing legislation (Subdivision 396-C of Schedule 1 of the Taxation Administration Act 1953) will also apply from 1 July 2017.

    See also:

    9 Updates to this Guidance

    This AEOI guidance material is updated from time to time. The table below contains the updates to this guidance in chronological order and a description of significant updates or changes made:

    Date of update

    Updates or changes made

    8 April 2016

    • original publication

     

    29 June 2016

    • 8 - new content for transitional arrangements for exchange traded product issuers

     

    02 September 2016

    • 1.3 - new example of effect of the 'wider approach' on FATCA practices
    • 2.1 - new content on the residence of RFIs that are trusts and the maintenance of accounts
    • 3.6 - revised content on interests in Investment Entities 'regularly traded on an established securities market'
    • 3.9 - new listing of Excluded Accounts
    • 3.10 - new listing of retirement and pension accounts
    • 3.11 - revised content on Escrow Accounts held by non-financial intermediaries
    • 3.15 - new content on collateral and derivative arrangements - Custodial Accounts
    • 4 - new introduction to Due Diligence chapter
    • 4.2 - new content on alternative procedures and elections
    • 4.3 - new content on treatment of New Accounts as Pre-existing Accounts and joint account holders opening a New Account
    • 4.5 - new content on due diligence - Pre-existing Individual Accounts, Lower Value Accounts
    • 4.6 - new content on due diligence - Pre-existing Individual Accounts, High Value Accounts
    • 4.7 - new content on TINs and reasonableness of self-certifications for New Individual Accounts
    • 4.8 - new content on due diligence - Pre-existing Entity Account thresholds
    • 4.9 - new content on due diligence - Pre-existing Entity Accounts
    • 4.10 - new content on due diligence - New Entity Accounts
    • 4.11 - revised content on due diligence - settlors of trusts
    • 4.12 - revised content on beneficiaries of trusts - Controlling Persons
    • 4.14 - new content on validity and reasonableness of a self-certification
    • 5.1 - new content on Reportable Accounts
    • 5.2 - new content on Reportable Persons
    • 5.3 - new content for reportable information for Reportable Accounts
    • 5.4 - new content on account balance or value
    • 5.5 - new content on Taxpayer Identification Numbers (TINs) and date of birth
    • 5.6 - new content on closed accounts
    • 5.7 - new content on undocumented accounts
    • 5.8 - new content on identification of an account as reportable
    • 5.12 - new content on payments to Non-Participating Financial Institutions - FATCA only
    • 5.13 - new content on currency reporting and related issues
    • 6 - new introduction to compliance chapter
    • 6.1 - revised content on failure to obtain a self-certification - CRS
    • 6.2 - new content on significant non-compliance - FATCA
    • 6.3 - new content on collaboration on compliance and enforcement - CRS
    • 6.4 - new content on anti-avoidance measures - CRS
    • 7 - new frequently asked questions 2, 8, 9, 10, 11 (FAQs)
    • 8 - new section on transitional arrangements
    • 8.1 - revised content on exchange traded product issuers - FATCA
    • 9 - new table on updates to the AEOI guidance material in chronological order

     

      Last modified: 13 Oct 2016QC 48683