As if FATCA wasn’t
enough, UK trustees will have to get to grips with two new reporting regimes
next year – the CRS and the European Directive on Administrative Cooperation,
or DAC. The DAC is how the OECD’s Common
Reporting Standard (CRS) will be implemented by the EU.
There are many
similarities between the approach and the terms used in the FATCA and the CRS/DAC
reporting regimes. However, they are
quite different in the sense that the purpose of FATCA is to help the IRS identify
US persons with interests in accounts outside the US – the flow of information
is into the US only. The scope of the CRS/DAC
is multilateral and involves reciprocal exchange of information between
jurisdictions. The CRS/DAC are designed
to enable accounts held in any of the jurisdictions that have opted into the
CRS (of which there are now over 95) by an individual or entity resident in one
or more of these jurisdictions to be identified and information about it and
the account holder reported. The
intention is that information about a UK account held by a person resident in a
CRS jurisdiction will be reportable to HMRC for onward transmission to the
jurisdiction of residency and vice versa. As a result, many UK trusts that are classed
as Financial Institutions (FIs) under FATCA, and have not had to submit a
report to HMRC yet because of a lack of US persons, will now have to do so
annually.
Trustees will need to
go through the process of classifying their trusts for CRS/DAC purposes. Trusts that are both managed by an FI (which
can simply be a corporate trustee) and whose income is mostly (i.e. 50% plus)
derived from investing, reinvesting or trading in financial assets are likely
to be FIs. FIs must assess whether they
have any reportable accounts and whether each account is held by a reportable
person. Existing trusts will need to
look at their asset composition as at 31 December 2015 to assess their CRS/DAC
obligations, with a view to reporting to HMRC, if necessary, by 31 May
2017.
If the trust is not an
FI, the trustees will still need to assess whether the trust is an active or
passive Non-Financial Entity (NFE). Even
a passive NFE will have to provide details of its controlling persons to any FI
it deals with.
For those trustees
affected, complying with CRS/DAC is likely to involve much more collecting and safekeeping
of trust information, particularly concerning the beneficiaries and their tax
residence, and keeping the information collected under regular review. It will inevitably increase the costs
associated with administering trusts.
The introduction of
the CRS/DAC may also mean that only beneficiaries that have a real prospect of
benefiting from the trust remain named as potential objects in discretionary
trusts. The days of naming a wide class
of beneficiaries ‘just in case’ may be rapidly drawing to a close.
