09.04 – Reporting on Non-Participating Financial Institutions

Reporting on Non-Participating Financial Institutions

Where a Reporting Financial Institution makes payments to a Non-Participating Financial Institution, under the Agreement it is required to report the name and the aggregate value of all payments made to each NonParticipating Financial Institution for the years 2015 and 2016.

This obligation was included as a temporary solution to the requirement to withhold on ‘foreign passthru payments’ which is included in the US provisions. Under the Agreement a UKFI, providing that it complies with its due diligence, and reporting obligations is not subject to withholding.

Whether or not this reporting requirement continues will need to be considered alongside any discussion on the longer term solution that delivers the underlying policy objectives of passthru payments, but which removes the legal problems for Financial Institutions outside the US.

The payments that are to be reported are:

a) US source payments made to an NPFFI paid in respect of a Financial Account in connection with a securities lending transaction, sale-repurchase transaction, forward, future, option, swap, or similar transaction which are directly or indirectly contingent upon or determined by reference to, the payment of interest or a dividend from US sources; and

b) Non-US source interest paid on a Financial Account held by an NPFFI

c) Non-US source dividends paid on a shareholding held in a Financial Account held by an NPFFI

d) Non-US source payments, to an NPFFI, which are the proceeds or benefits of a Cash Value Insurance Contract or Annuity Contract.

Exceptions

The following do not need to be reported:

  1. Any payments made that are not in respect of a Financial Account held by the Financial Institution;
  2. Payments for the following: services (including wages and other forms of employee compensation (such as stock options)), the use of property, office and equipment leases, software licenses, transportation, freight, gambling winnings, awards, prizes, scholarships, and interest on outstanding accounts payable arising from the acquisition of goods or services.;
  3. Payments where the Reporting Financial Institution has only a passive role in the payment process and so, alternatively either no knowledge of the facts that give rise to the payment or no control over the payment or no custody of the property which relates to the payment (e.g. processing a cheque or arranging for the electronic transfer of funds on behalf of one of its customers, or receives payments credited to a customer’s account) or does not have custody of property which relates to the payment, and
  4. Capital markets payments in c) above that are not directly traceable to a US source.

Payments of Dividends made by a Financial Institution

Dividend payments made by a Financial Institution to its shareholders will only be reportable where the shareholding is held in a Financial Account, for example where the shareholding is held in a Custodial Account, of an NPFFI.

Shareholdings of a Financial Institution, other than shareholdings or equity interest in certain Investment Entities (See Section 3.8), are not deemed to be Financial Accounts in their own right and as such where a payment is made directly to an Investor, who is an NPFFI, the payment will not be reportable.

4. Payments made to Participating Financial

Institution or Model 1 or 2 Financial Institution are not subject to Article 41b

Reporting

1) A payment will be treated as being made when an amount is paid or credited to an NPFFI.

2) Only the aggregate amount of foreign reportable payments made to the payee during the calendar year need to be reported.

3) Where the payments described in c) above, cannot be separately identified as being the equivalent of a U.S. source interest or dividend income then the entire amount of the payment made in relation to that transaction is to be reported.

4) The amount of income to be aggregated is the net amount of the income payment made; there is no requirement to consider amounts withheld, or,

5) Alternatively the Financial Institution may report the aggregate number of accounts held by NPFFIs and the aggregate amount of reportable payments paid to such accounts.