103440 – Due Diligence: Entity Accounts: Determining Whether the Entity is a Reportable Person

Where a New Entity Account is held by one or more Entities that are Reportable Persons, then the account must be treated as a Reportable Account.

Self-certification

To determine this, financial institutions must obtain a self-certification as part of the account opening procedure and confirm the reasonableness of such self-certification based on the information obtained in connection with the opening of the account, including any documentation collected under AML/KYC Procedures. In practice, this means the financial institution must not know or have reason to know that the self-certification is incorrect or unreliable if the self-certification fails the reasonableness test, a new valid self-certification must be obtained. Financial institutions are not, however, expected to carry out an independent legal analysis of relevant tax laws to confirm the reasonableness of a self-certification. Paragraph 14 of the Commentary on Section VI of the DAC/CRS contains examples illustrating the application of the “reasonableness” test.

The self-certification must allow determining the Account Holder’s residence(s) for tax purposes (see AEIM103460).

For New Entity Accounts, a self-certification is valid only if it complies with the requirements for the validity of self-certifications for Pre-existing Entity Accounts.

Timing of self-certification

It is expected that financial institutions will maintain account opening processes that facilitate the collection of a self-certification at the time of the account opening, whether that process is done face-to-face, online or by telephone. There may be circumstances, however, where it is not possible or practical to obtain a self-certification on ‘day one’ of the account opening process, for example where an insurance contract has been assigned from one person to another or in the case where an investor acquires shares in an investment trust on the secondary market.

In such circumstances, it is expected that the self-certification should be obtained within a period of 90 days or such reasonable time as the circumstances dictate. Financial institutions must make proper endeavours to obtain the self-certification in these circumstances, including issuing follow-up letters on at least an annual basis. If an Account Holder fails to respond then, there is no need to close the account but it should be reported as undocumented. HMRC may make enquiries if particular financial institutions appear to have a disproportionate number of undocumented accounts.

Information in the financial institution’s possession or that is publicly available

The due diligence procedures provide an exception to the requirement to obtain a self-certification where the financial institution can reasonably determine, based on information in its possession or that is publicly available, that the Account Holder is not a Reportable Person. For example, such information may show that the entity is, in fact, a corporation that is publicly traded or a Governmental Entity.

Where a self-certification is obtained, and it indicates that the Account Holder is resident in a Reportable Jurisdiction, the financial institution must treat the account as a Reportable Account. Again, an exception applies where the financial institution can reasonably determine, based on information in its possession or that is publicly available, that the Account Holder is not a Reportable Person concerning such Reportable Jurisdiction.

Note that financial institutions are not obliged to rely on these exceptions and they may insist on self-certifications being provided.

This can be summarised in the following diagram (© OECD).

103400