New FATCA / CRS guidance: clarifications to self-certification requirements

The Australian Taxation Office (ATO) has further updated its guidance material on the Australia-US FATCA Intergovernmental Agreement (IGA). This is especially important in relation to self-certification requirements.

The ATO has followed the US interpretation that a FATCA self-certification must be obtained before a new individual account is opened.

The OECD has released a new CRS Implementation Handbook which further clarifies the intended operation of the OECD Common Reporting Standard (CRS). This will assist Australian financial institutions in their preparations for the CRS.

Must I obtain a self-certification before opening a New Individual Account?

The ATO guidance now clarifies the meaning of the requirement that a Reporting Australian Financial Institution must obtain a self-certification “upon” opening a New Individual Account (section III.B of Annex I to the IGA).

The guidance makes it clear that the entity must not open the account until it has obtained the self-certification from the New Individual Account holder.

This clarification is similar to the interpretation issued by the US Internal Revenue Service (IRS) on its website (see this web page). Therefore, the ability to apply the due diligence procedures in the US Treasury Regulations in lieu of the procedures in the IGA would not modify this requirement.

This rule is subject to the exception for certain low value Depository Accounts and Cash Value Insurance Contracts (section III.A of Annex I).

This clarification has particular implications for markets where a FATCA self-certification is not, or cannot, be obtained prior to account opening.

What about New Entity Accounts?

The position is less restrictive for opening New Entity Accounts (section V.B of Annex I). The ATO has confirmed that self-certification of New Entity Accounts can take place at account opening or soon afterwards.

Separately, the US has provided a notification that it has included more favourable terms in its agreement with the British Virgin Islands. These terms apply automatically to the Australian IGA unless Australia notifies the US otherwise.

The notification confirms previous guidance released by the ATO and the IRS that allows Entity Accounts opened on or after 1 July 2014 and before 1 January 2015 to be treated as Pre-existing Entity Accounts for the purposes of applying the due diligence procedures in the IGA.

What if the account is opened by an existing account holder?

The guidance helpfully clarifies that a new account can be treated as a pre-existing account if the holder or payee also holds an earlier pre-existing account (applying the alternative procedures in the US Treasury Regulations).

How else has the ATO guidance changed?

The ATO has included a new paragraph 1.21 confirming that unregistered managed investment schemes do not satisfy the condition to be “licensed and regulated” under the Local Client Base exception in Annex II to the IGA.

The ATO has also reworked paragraph 4.8 relating to currency conversion, and has included several new worked examples.

The updated ATO guidance is available here.

What’s on the FATCA watch list?

Regularly traded interests

There are now less than five months to go before Investment Entities whose interests are regularly traded on an established securities market must report on holders that are registered on the books of the Investment Entity.

While acknowledging that entities may face practical difficulties in complying with this requirement, the Australian Government has not negotiated an exemption for such interests in the IGA, only a transitional period which will end on 31 December 2015.

CRS (“global FATCA”) is coming

Now that Australia has signed the OECD Common Reporting Standard Multilateral Competent Authority Agreement (see our previous alert), financial institutions should start preparing for the implementation of the Common Reporting Standard.

In particular, financial institutions should turn their mind to whether they fall within the CRS (as drafted), and engage with the Australian Treasury in relation to any specific concerns.

To assist governments and financial institutions with the implementation of the CRS, on Friday the OECD released a new CRS Implementation Handbook and a Model Protocol to the Tax Information Exchange Agreement (TIEA) (available here). The Handbook provides high-level guidance on steps to implement the CRS into domestic law and select appropriate information exchange procedures, to develop the IT systems required for the reporting regime and to establish appropriate confidentiality and data security protocols. The Handbook also contains detailed guidance on the due diligence procedures in the CRS, as well as a summary of the technical differences between FATCA and CRS.

The OECD has also released an updated report on Offshore Voluntary Disclosure Programmes, which now contains information from 47 countries concerning their self-reporting regimes. The OECD intends that this material will encourage jurisdictions to focus on voluntary disclosure prior to commencement of the CRS.