04.20 – Arrangements for establishing tax residency

The UK Regulations (Regulation 11 (2) (a)) require a reporting Financial Institution to introduce and maintain arrangements to establish the tax residency of all account holders, i.e. not just US persons.

This requirement requires Financial Institutions to introduce systems for collecting and maintaining information regarding the tax residence of account holders from 1 September 2013, in anticipation of subsequent FATCA like agreements such as those that conform with the expected Global Standard for Automatic Exchange of Information. This should minimise implementation costs while also enabling compliance with data protection rules.

HMRC will expect the relevant systems to be in place by 31 May 2016 to enable data to have been populated in respect of all Reportable Accounts for the year ending 31 December 2015. For accounts opened on or after 1 January 2016, data must be populated by the end of the calendar year in which the account is opened.

Financial Institutions will still be required to comply with their reporting obligations under the Agreement and with any specified due diligence requirements contained in subsequent UK Regulations, enacting future FATCA like Agreements entered into by the UK.

The regulation also allows the financial institution to collect the tax residency of existing Account Holders as at 1 September 2013. This includes the ability to ask the customer for a self-certification, and other evidence of their tax residency at any time. Evidence may include documentary evidence such as a certificate of Tax Residency, or other details such as local tax identification numbers for the jurisdictions in which they are resident.

Example

A financial institution introduces arrangements to establish the tax residency of their account holders on 1 September 2013. A new customer opens an account with the financial institution on the 2 September 2013. As part of their arrangements the financial institution asks the customer for their tax residency and their local tax identification number. The customer gives their tax residence as the Isle of

Man,and provides their National Insurance Number. Although on the 2 September 2013 there are no reporting obligations in respect of Isle of Man residents, under Regulation 6 (1) (b) the financial institution can maintain this information.

When putting in place the arrangements to establish the tax residency remediation timelines in any applicable agreement should be adhered to,

Example

A new customer opens an account on 7 July 2014. On this date, the financial institution does not have the systems capability to record tax

residencyof the customer. Having obtained residency details from the customer, the Financial Institution must have systems in place to record that data by 31 May 2016.