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AEOI UpdateJohn Riva and Chris Lowe

14 December 2016

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Document Classification: KPMG Public

© 2016 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Agenda—Regulations—Common Reporting Standard

— Where should you be in relation to your AEOI programme?— What have we learnt from FATCA?— A few CRS issues

— Jersey’s Country-by-Country reporting regime

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Automatic exchange of information regulations—EU Savings Tax Directive regulations

—Mostly suspended—FATCA – US/Jersey IGA

—Effective 1 July 2014 until?—UK/Jersey IGA

—Effective 1 July 2014—2016 transition year—Cease to apply for 2017 reporting year

—CRS—Effective 1 January 2016

—CbCR—To be debated this week?—If agreed, effective for accounting

periods starts on or after 1 January 2016

—EU Exchange of Information in relation to Tax Rulings—Applicable on 1 January 2017 (?)—Also applies retrospective to ruling

issued since 2012—No regulations to accommodate Russian

FATCA

Where should you be in relation to your AEOI programme?

Chris LoweSenior Manager, Tax

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Where you should be for the US IGA/FATCA US IGA/FATCA – (US only)

— Classified all entities

— Registered on US Portal for all Reporting FIs (sponsored entities?)

— Changed take on procedures and obtained self certification for all new account holders

— ALL due diligence for PE accounts completed.

— All LV individual and entity accounts completed by 30 June 2016

— Entered into sponsoring entity agreements

— Submitted the 2015 report by 30 June 2016

Reminder

— Review account balance of all PELV accounts as of 31 December each year. If balance or value exceeded $1m then procedures for high value accounts are required.

— Additional reporting requirement for Custodial accounts for 2016 reporting – Total gross proceeds from the sale or redemption of property

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Changeover from UK IGA to CRS— If no agreed methodology, then RJFI would need to report on UK account holders under UK IGA

and also CRS. Plus they would have to undertake due diligence on UK account holders firstly under IGA and then also under CRS

— No desire by either Jersey or UK for double reporting

— UK desire to implement CRS by 1 January 2016 for all CD and OTs, but does not want to terminate IGA on 31 December 2015 as LVA would not be reported in 2016

— CRS 2016 report (to be submitted by 30 June 2017) will include the pre-existing LVA and pre-existing entity accounts for UK resident account holders

— New Accounts for IGA purposes will be viewed as New Accounts for CRS

— No requirement to undertake new due diligence procedures under CRS for UK accounts other than for de minimis pre-existing individual accounts and New Individual Depository Accounts

— The ARR effectively disappears for 2016 reporting and subsequent reports

— 2015 ARR - RND elected by 30 May 2016, FI applied by 30 May 2016 provision of details by 30 June 2016. Self-certs for RND clients for 2015 required by 28 Feb 2017

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Where you should be for the CRSCRS

— Classified all entities for CRS

— Changed your take-on procedures to accommodate CRS

— Decided on your approach to Due diligence

- Wider v narrow approach; complete all DD in 2016; apply new account procedures to PE accounts; apply high value procedures to low value; use the Residence address test; apply the $250k de minimis;

- Valuation of accounts as at 31 December 2015?

— Reviewed high value PE individual accounts by 31 December 2016 as a minimum

— Entered into third party agreements

— Considered the procedure to obtain data and report by 30 June 2017

— Decided on a Senior Managing Official

— Documented your policies/decisions – important for audit process

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CRS - Due diligence deadlines

*FIs can complete all DD in 2016

Individual Pre-Existing Accounts

Individual New Accounts

EntityPre-ExistingAccounts

Entity New Accounts

Low Value (<$1M)

Review by31 December 2017

Self Certification from1 January 2016

Review by31 December 2017


High Value (>$1M)

Review by 31December 2016


Review by 31December 2017


De Minimis Exclusions(no reporting or due diligence required)

n/a n/a <$250,000for all accounts

n/a

What have we learnt from FATCA?

Chris LoweSenior Manager, Tax

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Lessons we have learnt—Due diligence process – start early

- Account holders not understanding how to complete the forms

- Plan for entity account holders that do not provide self certifications

- Classification of entity accounts

—Self certifications

—Reasonableness test

- Examples

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Self certification

— Self certification required for all accounts opened from 1 January 2016:— ‘Jersey FIs have an obligation to maintain account opening processes that facilitate

collection of a valid self-certification at the time a New Account is opened’.— Self certification is required on ‘Day 1’, however local guidance gives you no later than 90

days after the account has been opened— A self certification is required if a Pre-existing account is held by a Passive NFE and the

value of the account exceeds $1m. This can be obtained form the account holder OR each controlling person

— If a self certification is not obtained then it will be treated as an undocumented account until a valid self certification is obtained. No requirement to close the account

— The undocumented accounts category may apply when no valid self certification is received following a ‘change in circumstance’

— If the FI has a disproportionate number of undocumented accounts it may be subject to a compliance review

Self certifications

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Self certificationReasonableness test – What is ‘reasonable’ ?The Reporting Financial Institution must confirm the reasonableness of such self-certification based on the information obtained in connection with the opening of the account, including any documentation collected pursuant to AML/KYC Procedures (i.e. the “reasonableness” test). To pass the test, the FI must be satisfied that it does not know or have reason to know that the self-certification is incorrect or unreliable— Example 1: The jurisdiction of the residence address contained in the self-certification conflicts with that

contained in the documentation collected pursuant to AML/KYC Procedures. As a consequence, it fails the reasonableness test

— Example 2: The residence address contained in the self-certification is not in the jurisdiction in which the Account Holder claims to be resident for tax purposes. Because of the conflicting information, the self-certification fails the reasonableness test

If fails then you need a reasonable explanation:(1) is a student at an educational institution in the relevant jurisdiction and holds the appropriate visa (2) is a teacher, trainee, or intern at an educational institution in the relevant jurisdiction or a participant in an

educational or cultural exchange visitor program, and holds the appropriate visa(3) is a foreign individual assigned to a diplomatic post or a position in a consulate or embassy in the relevant

jurisdiction(4) is a frontier worker or employee working on a truck or train travelling between jurisdictions

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Self certificationExample I - the Tax NomadThe Tax Nomad/perpetual traveller Situation A:Mr X opened an account on 1 August 2015 and deposited US$1.5m. He provided a Canadian passport and a residence address in France. On his self certification he left the tax residence section blank. Upon enquiry Mr X pronounced himself a citizen of the world as he is a perpetual traveller therefore not tax resident in any jurisdiction. What should theFI do?Answer: The self certification is not valid. Where indicia has been identified (only France as passport not indicia) Mr X will not be able to cure the indicia and therefore it will be necessary to report. As Mr X views himself not to be resident in any particular jurisdiction, the OECD has believed that this “over reporting” will not be an issue.

Situation B:What if he opened the account on 1 August 2016?Answer: The matter is more difficult with regards to New Account holders. The individual will not be able to provide a valid self-certification as he is not resident in any specific jurisdiction. Therefore, the account is treated as undocumented.Furthermore, we would suggest that in this situation you undertake an indicia search on all the information you have available and report in any jurisdiction in which an indicium occurs (the alternative would be to report to every participating jurisdiction).

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Self certificationExample II – Company with conflicting dataCompany with conflicting data

Situation A:A company opened a bank account on 1 July 2016. The self certification detailed it as resident in Jersey but the AML data showed it was incorporated in the BVI. What should the FI do?

Answer:As there is conflicting data on the form it would initially appear that the correct choice would be to deem it invalid and request an explanation for the difference. However, if the FI knows that a number of the directors are based in Jersey then it would not have reason to know that the self certification is incorrect and can therefore accept the self certification as valid. If, on the other hand, there are no Jersey based directors then the FI will need to request the company provide an explanation.

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Self certificationExample III – Individual with inconsistent detailInconsistent detail – UK tax resident but residence address in Italy

Situation A:Mr Y opened an account on 1 August 2016 and deposited £100k. He provided a self certification that detailed he was tax resident in the UK but provided a residence address in Italy. Upon enquiry Mr Y said that he was tax resident in the UK but had a holiday home in Italy.What should the FI do?

Answer:

This is a difficult one as there is not enough information for the FI to satisfy itself that the form is correct. If no further detail is provided then the self certification would be invalid and the FI would need to report to both jurisdictions. Therefore, we would encourage the FI to find out more information to satisfy itself that the self certification is reasonable. This could include asking Mr Y how long he spends in Italy? If 200 days a year then that would invalidate the self certification but if My Y is there for a week per year then it would appear reasonable.The key is for the FI to assess whether the self certification is reasonable based on the information they hold so asking the right questions is key.

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Self certificationExample IV – UK TIN but not UK residentUK TIN but not UK resident

Situation A:Miss Z opens an account on 1 March 2014 and deposited £100k. In order obtain a TIN, Miss Z was requested to complete a self certification form. Miss Z stated she was tax resident in Jersey and the UK, she also provided a UK TIN. However, the FI knows that Miss Z has UK rental property and only occasionally visits the UK. What should the FI do?

Answer:FI has reason to know that the form is incorrect. We suggest the FI should contact the account holder and explain the difference between being UK tax resident and having UK source income. This gives the account holder the opportunity to amend the self certification if it is in fact incorrect. If the self certification is subsequently amended to show she is only Jersey tax resident then it will be valid. However, if it is not amended then she will be reported to the UK.

A few CRS issues

John RivaPartner and Head of Tax

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What constitutes CRS regulations?—Every Jersey resident entity and Jersey PE must comply with the Jersey CRS

regulations

—Regulations place a number of obligations on FIs to comply with sections of the CRS

—What is the CRS?

- Reg1(1) states: CRS means the Common Reporting Standard for the Automatic Exchange of Financial Account Information in Tax Matters as approved by the Council of…. OECD on 15 July 2014 and published on the OECD’s website

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What constitutes CRS regulations (cont.)—CRS guidance notes version 3 state:

“the regulations have not replicated the Common Reporting Standard and/or the Commentary on the Standard. However the requirements of both have to be complied with if the obligations that Jersey has adopted, and to which the regulations refer, are to be fully met. Accordingly the Court can be expected to take account of the Standard and the Commentary when asked to rule on any non-compliance with the Island’s obligations”

—Jersey Financial Institution must adhere to:- Jersey regulations; CRS “legislation”; and CRS commentaries

—Jersey Financial Institutions should have regard of the following when interpreting their obligations:- CRS Guidance Notes- Certain sections of the Jersey FATCA/IGA Guidance Notes- OECD CRS handbook- OECD CRS FAQs

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Should Jersey Reporting FIs report name of a FI Trust? —CRS places obligations to report name of Reporting FI

—Trusts that avail themselves of Trustee-Documented Trust regime become Non-Reporting FIs

—CRS is silent on reporting name of NRFI

—Commentary however states that:

- The trustee must report such information as the Trustee-Documented Trust would have reported …….and identify the Trustee-Documented Trust with respect to which it fulfils the reporting and due diligence obligations

—For FATCA, IRS insisting on treating TDTs same as sponsored entities and requiring disclosure of the name of trust

- Where does it give the RFI the ability to disclose this information?

- Data protection issues?

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Investment Entity managed-by definitionCRS definition“The gross income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets, if the entity is managed by another entity that is a depository institution, a custodial institution, a specified insurance company, or an Investment Entity described in subparagraph A(6)(a).An entity is treated as primarily conducting as a business one or more of the activities described in subparagraph A(6)(a), or an entity’s gross income is primarily attributable to investing, reinvesting, or trading in financial assets for purposes of subparagraph A(6)(b), if the entity’s gross income attributable to the relevant activities equals or exceeds 50% of the entity’s gross income during the shorter of: (i) the three-year period ending on 31 December of the year preceding the year in which the determination is made; or (ii) the period during which the entity has been in existence.”

IGA definitionMeans any entity that “…. is a managed by an entity that is regarded as an Investment Entity”

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Investment Entity managed-by definition (cont.)—CRS regulations 1(5):

“a reporting financial institution may use…. a definition in any other international governmental agreement…. in so far as such use would not frustrate the purpose of the [CRS] agreement”

—OECD has opined in non-public forums that jurisdictions should not use any definition for investment entities other than the CRS definition

—OECD might issue a FAQ in respect of its views on this matter

—Jersey likely to maintain current stance until at least end of 2017 and then revert to CRS definition only if it needs to change

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Investment Entity managed-by definition (cont.) —What would this mean in practice?

- Reconsider the classification of all managed-by entities

—Unlikely to be many reclassifications but you need to check

—Likely changes to classification relate to those entities holding cash, real estate and other non-financial assets

—Inform all counterparties (e.g. banks) if there is change in status

- Entity has 30 days to notify change to a W-8BEN-E

—Issues with different status for FATCA and CRS

—Re-visit classification process every year

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Do sponsored entities need to register under FATCA—FATCA Treasury Regulations state that all sponsored entities must have own

GIIN by 31 December 2016

—IGA states that a FI must comply with registration process in Partner Jurisdiction i.e. in Jersey not US

—Jersey regulations place no obligation to register other than:

- Requirement to report GIIN when making a report

- Sponsoring Entity (“SE”) must register Sponsored Investment Entity if the SE has identified a US Reportable Account

—So why won’t some banks accept an SP GIIN for a Sponsored Entity?

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Local registration—Currently no Jersey registration requirement for Jersey FIs

- Reporting FI, must make a report, must register on the Taxes Office Reporting Portal

—Currently no requirement for Nil reporting (i.e. no Reportable Accounts as apposed to Reportable Accounts with Nil balance)

—Jersey has a requirement under the CRS to “have procedures in place to periodically verify the compliance of Reporting Financial Institutions”

—For a JRFI with no reportable accounts, how will the Taxes Office even know of its existence?

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Miscellaneous matters—Announcement soon to be made on multi-jurisdictional reporting

—Compliance and audit regime still to be considered

—Requirement to obtain US TINs for all pre-existing account holders

- IGA requires local jurisdiction to put in place a mechanism to obtain this information in 2017

—To whom do we report?

- OECD list?

- Schedule 2/3 list?

Jersey’s country-by-country reporting regimeJohn RivaPartner and Head of Tax

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Jersey’s CbCR regime - Introduction—As a BEPS Inclusive Framework Member, Jersey has committed to

implementing all of the 4 minimum standards

- CbCR being one of the four

—Draft Taxation (Implementation) (International Tax Compliance) (Country-by-Country Reporting: BEPS) (Jersey) Regulations 201- published on 20 October 2016

—Awaiting debate and ratification by States of Jersey

—Expecting administrative guidance on implementation of the Regulations

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Jersey’s CbCR regime – Filing criteriaEntities required to file a CbCR:

i) Ultimate parent entity (UPE) resident in Jersey

ii) Group must operate in another jurisdictioniii) Total consolidated group revenues of EUR 750M

—This is the main filing criterion for all jurisdictions implementing CbCR

—Doubtful that there will be many UPE resident in Jersey that will meet these criteria

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Jersey’s CbCR regime – Filing criteria (cont.)Entities required to file a Jersey CbCR:

A Jersey subsidiary of an MNE Group meeting the filing threshold, and (broadly)

- UPE is located in a jurisdiction that has no reporting obligation and no other subsidiary files on its behalf; or

- the UPE or reporting subsidiary is located in a jurisdiction that has no or ineffective tax information exchange arrangements with Jersey

—It is likely that a few Jersey entities could meet these criteria

—Notification of COIT is required of intention to file a CbCR

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Jersey’s CbCR regime – Notification criteriaEntities required to make a CbCR notification to the Comptroller:

—A Jersey resident subsidiary of a qualifying MNE Group that is not required to file a CbCR as:

- the UPE or another subsidiary has filed/intends to file a report in its tax resident jurisdiction before the filing deadline

- there are effective exchange of information arrangements between the foreign jurisdiction and Jersey

—Jersey entity must notify COIT by the end of the reporting period with:

(i) details of the entity making the report

(ii) jurisdiction in which the report is to be filed

—It is expected that this will apply to a number of Jersey entities

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Jersey’s CbCR regime – Filing/Notification obligation —CbCR filing deadline is 12 months after the end of an accounting period

Example 1:

- If a reporting entity’s accounting period for CbCR ends on 31 December 2015, it will be required to file a CbCR in respect of an accounting period ending 31 December 2016 on or before a filing deadline of 31 December 2017

Example 2:

- If a Jersey subsidiary is required to notify COIT of its intention to file or the entity filing a CbCR in respect of an accounting period ending 31 December 2016, notification must be made on or before 31 December 2016

—Reporting format is expected to follow OECD’s proposed XML Schema

—Awaiting administrative guidance on other reporting obligations e.g. notification period, mode of notification, filing mechanism (via existing Tax on-line portal), use of tax agents etc.

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Jersey’s CbCR regime – Offences and penalties Offences and penalties similar to those applicable under CRS

—Failure to file CbCR by the due date - £300

—Subject to Commissioner of Appeal, daily default penalty £60 up to £1,000

—Provision (knowingly) of inaccurate information - £3,000

—Comptroller or authorised person has power to enter business premises and examine business documents

—Unlimited fine and 6 months imprisonment for obstructing an authorised person seeking to enter business or examine business documents

—Unlimited fine and 2 years imprisonment for intentionally altering, suppressing or destroying business documents that have been requested by the Comptroller or authorised person

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Jersey’s CbCR regime – Be prepared—BEPS/CbCR Impact Assessment - Assess risks that may arise when MNE

Group and/or Jersey entity is required to file a CbCR

—Effective co-ordination within MNE Group to meet filing obligations in different jurisdictions including Jersey

—Address resourcing challenges – Do you have capacity to meet filing obligations (need for external advisors?)

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AEOI teamJohn RivaHead of TaxKPMG, Channel Islands+44 (0) 1534 [email protected]

Tony ManciniTax PartnerKPMG, Channel Islands+44 (0) 1481 [email protected]

Jason LaityChairman KPMG, Channel Islands+44 (0) 1534 [email protected]

Chris LoweSenior Manager, TaxKPMG, Channel Islands+44 (0) 1534 [email protected]

Chris WillemseSenior Manager, taxKPMG, Channel Islands+44 (0) 1481 [email protected]

Andreas EgelandAssociate Manager, TaxKPMG, Channel Islands+44 (0) 1534 [email protected]

Sinéad LeddySenior Manager, TaxKPMG, Channel Islands+44 (0) 1481 [email protected]

Justine BielikManager, Tax & AdvisoryKPMG, Channel Islands+44 (0) 1534 [email protected]

Sylvia AworiSenior Manager, TaxKPMG, Channel Islands+44 (0) 1534 [email protected]

Tomas MachadoSenior Consultant, TaxKPMG, Channel Islands+44 (0) 1534 [email protected]

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