FATCA – Financial Account Tax Compliance Act
The Foreign Account Tax Compliance Act (FATCA), became effective as of 1 July 2014. The Act requires that non-US organisations and entities file yearly reports to the IRS on accounts held by US persons.
The objective of FATCA is to prevent tax evasion by US persons. This is achieved by placing the responsibility of identifying and reporting to the IRS on US persons on financial institutions and banks worldwide.
Many jurisdictions around the world have signed intergovernmental agreements (“IGA”) with the United States transposing FATCA into their domestic laws. The Cook Islands has not signed up to an IGA and financial entities in the Cook Islands file information direct with the IRS.
Impact on entities and trusts registered in the Cook Islands
T&F is a registered foreign financial institution (FFI) under the FATCA regime and is prepared to assist clients who may need to comply with FATCA, including being appointed as a Sponsoring Entity to register and report on behalf of your trust or investment entity. T&F will also assist in determining the classification of each entity.
Entities and trusts are classified as either FFIs or Non-Financial Foreign Entities (“NFFEs”). A Cook Islands FFI must register with the IRS and report certain information on US persons only. Most Cook Islands companies or LLC’s will be classified as a NFFE and will not have to register or report to the IRS.
Information reported to the IRS:
1. Name and GIIN number of FFI
2. On any US Settlor/Grantor and Beneficiary of a trust or equity holder of an entity, the following details:
- The name and address of each individual
- US TIN number (where applicable) for each individual
- Account balance at the end of the calendar year
- Gross settlements and disbursements for the calendar year
We monitor updates or changes to the FATCA legislation in order to identify potential impact to our clients and understand where we need to report information to the IRS. We may contact you to request further information or documentation in order to verify your tax status under FATCA.
If you have any further queries regarding FATCA and your tax position, please contact a professional tax advisor.
For more information, the guidelines and FAQs on FATCA registration and compliance processes, visit the IRS FATCA website.
CRS – Common Reporting Standard
To help fight against tax evasion and protect the integrity of tax systems, governments around the world are introducing a new information-gathering and reporting requirement for financial institutions. This is known as the Common Reporting Standard (“the CRS”). The CRS facilitates the automatic exchange of financial account information between participating jurisdictions. Having incorporated the CRS into domestic legislation, the Cook Islands became the 106th jurisdiction to participate in the CRS and will commence the first of such exchanges by September 2018. Under the CRS, Cook Islands financial institutions (FIs) need to collect and report information on certain “account holders” to local tax authorities.
Impact on T&F and its clients Account holders will include individuals, entities and, in some cases, Controlling Persons of entities that own interests in a trust or investment entity which we manage.
We are required to determine where you are “tax resident” (this will usually be where you are liable to pay income or corporate taxes). If you are tax resident outside the Cook Islands then we will be required to report certain details to the Cook Islands Ministry of Finance and Economic Management. They may then share that information with the tax authority of the country (or countries) where you are tax resident.
Information reported to Cook Islands tax authorities:
- Name and address of reporting FI
- Name, Address, TIN(s) and jurisdiction(s) of residence for each account holder
- Date and place of birth or establishment
- Account number or functional equivalent
- Account balance at the end of the calendar year
- Income & Sales proceeds (or gross settlements and disbursements) for the calendar year
Entities and trusts that are classified as financial institutions Where T&F acts as trustee we will carry out the CRS due diligence and reporting obligations on behalf of the trust as part of our trustee services. We also offer CRS compliance services to other entities classified as FIs. An entity or trust that is not classified as a FI will be a non-financial entity (NFE) and is not subject to any due diligence or reporting requirements. Many financial institutions may refuse to maintain or open financial accounts for non-compliant entities. T&F will assist you in correctly identifying where you are tax resident and in determining the appropriate CRS classification for your entity.
Find out more about the CRS Information about the CRS and the countries that are committed to participating in the CRS is available on the Organisation for Economic Co-operation and Development (OECD) Automatic Exchange of Information portal: http://www.oecd.org/tax/automatic-exchange/
Additional Information Taxpayer Identification Numbers Your Taxpayer Identification Number (TIN) is a unique combination of letters and/or numbers assigned to you/your entity. Some countries do not issue a TIN, but may rely on other issued numbers such as social security/national insurance numbers or company registration numbers for entities. The OECD has published a list of the acceptable Taxpayer Identification Number (TIN) formats and their alternatives here.
Tax Residency Rules governing tax residence have been published by each national tax authority. This information can be found at www.oecd.org
If you have any specific questions regarding your tax residency, please contact a professional tax advisor.