02.03 – Subsidiaries and Branches

A subsidiary or branch of a non-UK entity (including a US entity) carrying on a business, as a Custodial Institution, a Depository Institution, an Investment Entity, a relevant Holding Company, a Treasury Company or a Specified Insurance Company in the UK, will be a Reporting UK Financial Institution.

Subsidiaries and branches of UK tax resident Financial Institutions that are not located in the UK are excluded from the scope of the UK Agreement and will not be regarded as UK Financial Institutions.

These entities will be covered by the relevant rules in the jurisdiction in which they are located. Those rules will either be the US Regulations or the legislation introduced to bring effect to an Agreement between that jurisdiction and the US.

However, where such subsidiaries and branches act as introducers with regard to a Financial Account and the relevant account is held and maintained in the UK by a UK Financial Institution and is subject to UK Regulatory requirements, the account will be within the scope of the UK Agreement. The UK Financial Institution maintaining the account(s) will be required to undertake the appropriate due diligence processes and report the appropriate details to HMRC.

Example 1

Albion Bank PLC, located in London, has within its group the following entities:

  • a subsidiary (S) located in Edinburgh,
  • a foreign subsidiary (D) located in Partner Jurisdiction 1
  • a foreign branch (F) located in Partner Jurisdiction 2
  • a foreign branch (X) located in Eurasia and
  • a foreign branch (Y) located in New York

Under the terms of the Agreement:

  • Albion Bank in London and its subsidiary S will be UK Financial Institutions and report to HMRC.
  • D and F will be classified under the Agreement as Partner Jurisdiction Financial Institutions and will report to their respective jurisdictions.
  • X will be a Limited FFI and will have to identify itself as a Non Participating Foreign Financial Institution for withholding/reporting purposes if Eurasia does not have an Agreement with the US and if X cannot enter into an FFI Agreement directly with the IRS due to legal or other impediments. However, X will have to undertake the obligations required under the US Regulations as far as it is legally able to do so.
  • Y will report on UK persons who hold accounts to the IRS.

Example 2 Where an overseas bank has a branch located in the UK

Oceania Bank of Australia has a branch Z, which is a permanent establishment for tax purposes, located in London.

  • As Z is a permanent establishment for UK tax purposes, it will be a UK Financial Institution and will, therefore, fall under the UK Agreement and will need to comply with the UK Regulations and legislation and report information on any reportable Financial Accounts to HMRC.