100620 – Financial Institutions: UK Financial Institutions

The various UK regulations for automatic exchange of financial account information impose obligations on UK financial institutions.

A UK Financial institution is any financial institution resident in the UK, as well as any branch of a non-resident financial institution located in the UK.

In many cases whether or not a financial institution is a resident in or located in the UK will be clear, but there may be situations where this is less obvious.

In these cases, HMRC will look to determine the entity’s status for the various automatic exchange of information agreements from the tax residence of the entity. If the financial institution is resident for tax purposes in the UK, then HMRC will regard the financial institution as within the scope of the UK Agreement.

For these purposes, resident for tax purposes in the UK means the following:

  • For a company
    • If the company is incorporated in the UK or centrally managed and controlled in the UK. For example, a UK incorporated subsidiary of a foreign banking group will be a UK tax resident entity.
  • For a company not resident in the UK under the above test
    • Where it is within the charge to corporation tax if, and only if, it carries on trade in the UK through a permanent establishment in the UK. For example, a UK branch of a foreign bank that trades through a permanent establishment in the UK will be UK tax resident.
  • For trusts
    • For CDOT and DAC purposes, if one or more of the trustees are resident in the UK for tax purposes then the trust is UK resident unless the trust is resident for tax purposes in another jurisdiction with which the UK automatically exchanges financial account information and the trust reports details of Reportable Accounts to that jurisdiction.
    • For FATCA purposes, a trust will be regarded as resident in the UK for reporting purposes where most or all of the trustees are resident in the UK for tax purposes. Where some of the trustees, but not all are UK tax resident, then the Trust is also to be treated as UK resident if the settlor is both resident and domiciled in the UK for tax purposes.
  • For partnerships
    • If the control and management of the business of the partnership takes place in the UK, or the partnership registers with and submits Partnership Tax Returns to HMRC.

If an entity is a dual resident, such that it is resident in the UK and also in another country, it will still need to apply the UK legislation in respect of any Reportable Accounts maintained in the UK.

Entity Classification Elections (known as check the box elections), made to the IRS, do not determine the residence of an entity. The tests above must be applied to determine the residence of entities making such elections.

Subsidiaries and branches of UK tax resident financial institutions that are located outside of the UK are not UK financial institutions. However, where such subsidiaries and branches act as introducers of business to a UK financial institution resulting in the financial accounts being held and maintained by the UK financial institution, then the UK financial institution will be required to undertake the appropriate due diligence procedures and report the details of the accounts to HMRC.