102570 – Due Diligence: General Requirements: Thresholds: Elections and Processes

The exemptions may be applied by the financial institution making an election. The effect of the election is that the financial institution is not required to review any of its accounts within the de minimis threshold(s) or, where the election instead provides, a clearly identifiable group of such accounts (for example, accounts held by a particular line of business).

The election is made on the electronic return of information to HMRC. A financial institution wishing to apply the election will need to register on the HMRC portal and complete the appropriate notification of election on the return even if there are no accounts to report. As at September 2015 the portal has no facility to apply multiple separate elections by business line where different approaches are taken by separate business units within the same legal entity. Affected entities wishing to make multiple elections should notify their usual HMRC point of contact, for example, a Customer Relationship Manager. 

If a financial institution chooses not to make an election to apply a particular threshold exemption it will need to review all relevant accounts (subject to any other elections made) in order to identify Reportable Accounts. 

Where an election has been made to apply the de minimis threshold as at 30 June 2014 to an account (new account due diligence procedures apply to accounts opened after that date), the FATCA and CDOT agreements state that the account must then be reviewed again at 31 December 2015 and annually thereafter and if it has become a High Value Account it must then be reviewed, and reported if applicable. However, this has been overtaken by subsequent developments and the introduction of the DAC/CRS– see below. 

Effect of applying the ‘wider approach’

The International Tax Compliance Regulations 2015 and the International Tax Compliance (Crown Dependencies and Gibraltar) Regulations 2014 require financial institutions to identify the territory of tax residence of the Account Holder, irrespective of whether it is a Reportable Jurisdiction, and to apply the due diligence procedures relevant to each regime (FATCA, CDOT and DAC/CRS). As a result of this and the absence of de minimis thresholds for individuals applicable to DAC/CRS, the benefit of the $1,000,000 higher threshold at which FATCA and CDOT pre-existing individual accounts that have been subject to elections become reviewable is lost from 31 December 2015. That is because from that date pre-existing individual accounts need to be identified for DAC/CRS purposes. This means that all individual accounts in existence on that date will need to be reviewed. This includes accounts that have been subject to an election, but that now have a balance over $50,000 but not exceeding $1,000,000 and that would not, absent the DAC/CRS, be reviewable for the CDOT or FATCA regimes. 

Once a pre-existing individual account is identified, the account will become reportable irrespective of the previous $1,000,000 review threshold.