02.01 – Introduction

2.1 Introduction

The first step to be undertaken by an entity or its representative is to establish whether, for the purposes of the Agreement, the entity is a Financial Institution. This will determine the extent of the obligations that need to be undertaken.

Through the US Regulations, FATCA introduces the concept of a Foreign Financial Institution (FFI). This term applies to non-US entities that meet the definition of a Financial Institution. Under the Agreement, UK entities are regarded as United Kingdom Financial Institutions (UKFI’s) if they fall within any of, or more than one of, the following categories.

Each category of Financial Institution is determined by set criteria, which must be met. Where an entity does not meet the definition of a Financial Institution, then the entity will be regarded as a Non-Financial Foreign Entity (NFFE). (See Section 2.6)

Under the Agreement UK Financial Institution’s will be classified either as a Reporting UK Financial Institution or a Non-Reporting UK Financial Institution.

As long as UK Financial Institutions are in compliance with the UK legislation then they will not be subject to any withholding tax on their US source income under S1471 of the US Internal Revenue Code.

Non-Reporting UK Financial Institutions

A Non-Reporting UK Financial Institution is any Financial Institution specifically identified as such in Annex II of the Agreement, or one which otherwise qualifies under Article 1. 1. (q) of the Agreement as:

· a Deemed Compliant Financial Institution,
· an Owner Documented Financial Institution,
· an Exempt Beneficial Owner, or
· an Excepted Financial Institution.

A Non-Reporting Financial Institution will not need to obtain a Global Intermediary Identification Number (GIIN) or carry out the due diligence and reporting obligations under the Agreement.

However, there is one scenario in which an entity that is treated as Deemed Compliant under Annex II could still have some reporting obligations. That is where an entity meets the criteria of a Financial Institution with a Local Client Base, and has US Reportable Accounts. (See Section 2.13)

A Registered Deemed Compliant Financial Institution will need to obtain a GIIN. (See Section 2.15)

Reporting UK Financial Institutions

Any UK Financial Institution that is not a Non-Reporting UK Financial Institution will be a Reporting UK Financial Institution. They will be responsible for ensuring that their due diligence and reporting requirements are met.