Questions and Answers
This page provides you with an overview of the Foreign Account Tax Compliance Act (commonly known as FATCA), which are contained in the US HIRE Act 2010 and the potential impact on Quilter Investors and all its UK and Irish domiciled funds, as Financial Institutions and their investors.
For more information on FATCA please visit https://www.gov.uk/government/publications/uk-us-automatic-exchange-of-information-agreement
Q. What is the FATCA?
A. The FATCA is a piece of US legislation within the US HIRE Act 2010 that is aimed at reducing tax evasion by US citizens.
The law affects non-US Financial Institutions (also known as “Foreign Financial Institutions” or “FFIs”) in that it requires them to introduce measures to identify and report US taxpayers who have accounts, which includes any direct customer of Quilter Investors or any investor in any of Quilter Investors’ funds to the US tax authorities, the Internal Revenue Service (“IRS”). A 30% withholding tax is imposed on the US source income of any Financial Institution that fails to comply with this requirement.
Q. What other agreements are in place for the purpose of improving tax compliance?
A. The UK Government stated in 2013 that it would look to sign agreements with other jurisdictions as part of its commitment to combat tax evasion.
The Isle of Man, Guernsey and Jersey (the Crown Dependencies) and the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands, Montserrat and Gibraltar (the British Overseas Territories) have all entered into automatic TISAs with the UK. TISAs impose similar obligations on Financial Institutions as the obligations under FATCA. However, whereas FATCA concentrates on US taxpayers, TISAs are focussed on Crown Dependency, Gibraltarian and UK taxpayers and policies/accounts held with institutions in the Crown Dependencies, British Overseas Territories and the UK.
Q. What is the impact of these agreements on Financial Institutions?
It depends on where the Financial Institution is registered and whether the Government for that jurisdiction has signed Model 1 or Model 2 agreement with the IRS.
If a Model 1 agreement has been signed, Financial Institutions in that jurisdiction will report to their local tax authority. The local tax authority will then forward the information to the IRS. The UK, Ireland and Cayman Islands have signed a Model 1 agreement.
If a Model 2 agreement has been signed, the Financial Institution will report direct to the IRS.
The Crown Dependencies and the British Overseas Territories have signed agreements with the UK, meaning that Financial Institutions will have to provide data on financial accounts held by residents of those territories.
For example, a UK registered Financial Institution must provide data to UK HM Revenue & Customs where it has accounts held by Isle of Man residents, and an Isle of Man Financial Institution will provide information to the Isle of Man Treasury where it has accounts owned by UK residents.
Complying with FATCA and TISA
Q. Will we comply?
A. Yes, all Quilter Investors corporate entities have been registered with the IRS and have been provided with a Global Intermediary Identification Number (“GIIN”). This number demonstrates Quilter Investors’ intent to comply with the regulations.
The register of all complying FFIs is available to view by any third party, through the IRS website.
Q. When will the agreements for FATCA and TISA take effect?
A. The main requirements of the FATCA and TISA came into effect on 1 July 2014.
Q. What obligations does the legislation impose on us as a Foreign Financial Institution?
A. New applications
Foreign Financial Institutions are required to obtain a client self-certification from individuals and to determine the applicant’s tax status. The self-certification detail requirements are being included in all Quilter Investors fund application forms from this date.
For FATCA, this means that the applicant must certify whether or not they are US resident or a US citizen (a US Specified Person) for tax purposes.
For TISAs, this means that we must obtain a client self-certification from individuals to determine if the applicant is a Crown Dependent, Gibraltar or UK resident for tax purposes.
If the applicant is an entity, which includes individual trustees and corporate trustees, companies and other legal structures or arrangements, the rules are different and complex. However, the broad intention with entity applicants that are not established or incorporated in the US, Isle of Man, Guernsey, Jersey, Gibraltar or the UK is to look to the underlying ‘controlling persons’ to determine where they are resident for tax purposes.
A Tax Reference Number means:
Tax Identification Number
Isle of Man and the United Kingdom
National Insurance Number
Jersey, Guernsey and Gibraltar
Social Security Number
Q. Which products are exempt from the regulations?
A. Individual Savings Accounts (“ISAs”), pensions and term assurance policies which are not unit linked, are defined as exempt products and are therefore excluded.
Q. Are there any other situations where a Financial Institution must assess if an individual or entity is a US, Crown Dependency, Gibraltarian or UK Specified Person?
A. Yes, a self-certification must be obtained where there is a change of circumstance on an account/policy. A change of circumstance is any change on a policy which could indicate a US, Crown Dependency, Gibraltar or UK indicia. For example, where a Financial Institution is notified of a change of address or a policy is assigned. The following events, which are indicative and not exhaustive, will also be regarded as a change of circumstance:
- An assignment to one or more individuals.
- An assignment to a trust or legal entity.
- Adding a power of attorney or change to a power of attorney.
- A standing instruction to pay to a US, Crown Dependency, Gibraltar or UK bank account.
- A change of controlling persons to an entity or trust.
- A change of phone number to a US phone number.
- A change of beneficiary, trustee or protector of a trust.
Q. Must the self-certification for a change of circumstance be obtained for all policies/accounts?
A. No, it is not required where the product is an ISA or a pension.
Financial advisers and their clients
Q. I am a financial adviser and I do not have any clients who fall within scope for FATCA or TISA. Do I still have to provide information on my clients, in accordance with FATCA and TISA?
A. The information requested is mandatory and is requested so that we can meet the obligations to determine if the customer is, for example a US Specified Person or Crown Dependency, Gibraltarian or UK Specified Person. If the information is not supplied, the account will be treated as reportable even if the customer is not a US Specified Person or Crown Dependency, Gibraltarian or UK Specified Person.
Q. If I do provide the required information and my client is not a US Specified Person or Crown Dependency, Gibraltarian or UK person, will this be reported?
A. No, this information will not be reported.
Q. As a financial adviser, am I an FFI and do I have to comply with FATCA or TISA?
A. The regulations are complex and in some circumstances financial advisers may be regarded as an FFI. It is suggested that legal advice is sought to determine your status under the regulations.
Q. If information relating to my client is reported to the IRS or local tax authority does this mean my client will be liable to tax?
A. No, neither FATCA nor TISA imposes additional taxes on individuals. They do however provide the relevant tax authorities with information which they may or may not use to assess whether individuals or companies are liable to any taxes which have not been paid.
Q. When must FFIs start reporting?
A. It depends on the nature and the value of the financial account.
Where new policies/accounts commence, they must be reported by 31 May in the following calendar year.
Where new policies/accounts commence, they must be reported by 30 June in the following calendar year