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FATCA

Date published: 1 May 2018

BACKGROUND 

From the year ended 31 December 2014 onwards, a large number of financial institutions and non-financial foreign entities have been under the obligation to collect, verify and report information on its customers to the Guernsey Tax Authorities. This requirement for reporting has been imposed by the Foreign Account Tax Compliance Act (FATCA) and other equivalent legislation.

Based on recommendations made by the US Congress, FATCA was enacted in 2010 as an instrument made available to the US tax authorities which aims to discourage tax evasion by US taxpayers investing through non-US financial institutions.

FATCA is a United States federal law that requires US persons, including individuals who live outside the US, to report their financial accounts held outside of the US, and requires Foreign Financial Institutions to report to the US Internal Revenue Service (IRS) about their US clients.

SCOPE

The scope is very broad and affects the following:

  • Foreign Financial Institutions (FFIs)
  • Non-Financial Foreign Entities
  • US Withholding Agents
  • US Persons with non-US assets/accounts

As privacy laws across the world very often conflict with FATCA the US Department of Treasury published model Intergovernmental Agreements (IGAs). These IGAs allow for the exchange of information between the US and the country signing the IGA. These IGAs allow foreign financial institutions to report information on US account holders directly to their national tax authorities who then report onto the IRS.

IMPACT OF FATCA ON NORDBEN

Guernsey, like Norway, Sweden, the United Kingdom and a number of other countries, has signed an IGA with the US to bring FATCA requirements into its national law. 
 
Under the above IGA, Guernsey Financial Institutions report to the Guernsey Tax Authorities who then share the information with the US Tax Authorities.

Nordben Life and Pension Insurance Co. Limited (Nordben) is therefore registered with the IRS as an FFI participating in the FATCA program, which came into force with effect from 1 July 2014.

PRODUCTS

All products provided by Nordben with the exception of group life, disability and accident products fall within scope of the IGA detailed above.  

The main requirements arising from the IGA detailed above is the identification and declaration of legal persons (i.e. companies and natural persons) meeting the criteria as defined in the IGA as well as the reporting of balances and payments in respect of those persons that are identified.

REQUIREMENTS CONTAINED IN THE IGA

The requirements contained in the IGA is as follows:

  • Nordben identifies all client account balances exceeding USD 250,000 (or equivalent) as at 30 June 2014.
  • Nordben assesses which of the identified client account balances relate to a “specified” US person (i.e. deemed to be caught under the IGA).
  • If there is any uncertainty, Nordben contacts the policyholder/account holder for self-certification of their tax status.
  • The status of the policyholder/account holder as at 30 June 2014, the date set in the IGA, will determine the threshold that will trigger a declaration by Nordben:
    • If the person was already a policyholder/account holder with Nordben as at 30 June 2014 he/she is referred to as a pre-existing account holder. For pre-existing account holders as at 30 June 2014: only those qualified as specified US persons with aggregated account balances exceeding  USD 250,000 (or equivalent) as at 30 June 2014 are declared to the Guernsey Tax Authorities.
    • For new account holders as of 1 July 2014: the declaration to the Guernsey Tax Authorities will only affect policyholder/account holders qualified as specified US or UK persons if their aggregated account balances exceed USD 0 on 31 December every year.
  • For policyholder/account holders who held accounts as at 30 June 2014 but were not identified as “pre-existing account holders” as at 30 June 2014 (e.g. due to their balance being below threshold, not being deemed to be a specified US person, etc.) but subsequently they are deemed to be identified after 30 June 2014 (e.g. due to their balance rising above threshold, now being deemed to be a specified US person, etc.): only members qualified as specified US persons with assets exceeding USD 1,000,000 (or equivalent) as at 31 December each year will be declared to the Guernsey Tax Authorities.
  • However, once a policyholder/account holder has been reported as a US person, he/she will be systematically reported every year until termination of the policy/account when the policy benefits have been paid in full, regardless of the value of the policy/account. Policyholder/account holders will cease to be reported from the date they are no longer considered to be a US person.

It should be noted that the guidance notes to the IGA state that it is not necessary to obtain specific indicia for each new employee that enters into a Group Plan (i.e. a Member of an International Pension Plan) unless the Group Plan has fewer than 25 employees OR the aggregate amount payable to the employee or beneficiary exceeds USD 1,000,000.  However, when a benefit payment is made, Guernsey Financial Institutions must ensure that all recipients who have not previously been fully identified do undertake the due diligence procedures to identify any “specified” US person.

If Nordben contacts a policyholder/account holder for self-certification of their tax status and the request is not fulfilled, Nordben will be required to declare the surname, first name and date of birth of these policyholders/account holders to the Guernsey Tax Authorities if their assets exceed USD 250,000 (or equivalent) as we will not hold information to confirm they are not a specified US person.

Please note that we are not in a position to provide any tax advice and recommend that you contact your tax advisor for further information on the IGAs and their possible implications for you