F.A.T.C.A. - CIFA STEP Luncheon... · TITLE Sub Heading Date: 00/00/2013 Table of contents 1....

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Date: 00/00/2013 www.amicorp.com

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Presented by: Jose A. Romero, LL.M. Head of the Corporate Team / LATAM Curaçao Office

F.A.T.C.A. Determining U.S. Beneficial Ownership of Foreign Entities.

www.amicorp.com

Copyright Notice: ©2010 Amicorp Group. All rights reserved. The contents of this presentation have been prepared by the Amicorp Group for informational purposes only. The information contained in this presentation does not constitute or contain any type of advice, and neither our presentation of such information nor your receipt of it will create a commercial or legal relationship. Consequently, you should not act or rely upon the information contained in this presentation without seeking professional counsel. This presentation does not constitute tax, legal or professional advice. Amicorp Group is the owner of all copyright and other rights in and to all copyrightable text and graphics on this presentation. Your company or its representatives may lawfully use this presentation for its own, non-commercial purposes, by displaying this copyright notice. Any other reproduction, copying, distribution, retransmission or modification of all or any parts of this presentation is strictly prohibited without the express prior written permission of the Amicorp Group. Trademark Notice: The Amicorp word and device are trademarks of Amicorp Holding Limited. All rights reserved.

Date: 08/16/2013

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Table of contents 1. Introduction 2. Clasification of foreign entities under FATCA 3. U.S. beneficial ownership 4. Entities and Trusts 5. U.S. beneficial ownership ot trusts 6. U.S. beneficial ownership under IGA 7. Remarks – multilateral exchange of information 8. Extended implementation dates

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1.Introduction

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1. Introduction

General comments on U.S. International Tax Law. Let’s give FATCA some context.

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2. Clasification of foreign entities under FATCA

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• All foreign entities and foreign trusts are potentially subject to FATCA • Withholding rules and reporting requirements under FATCA depend

upon the entities clasiffication

• FATCA classifies foreign entities as either financial entities or non-financial entities.

Foreing financial entities: FFIs Non-financial foreign entities: NFFEs

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Focus of this presentation: • Determing U.S. beneficial ownership of NFFEs,

those non-U.S. entities that are not FFIs. • That is, determining U.S. beneficial ownership of

foreign entities and trusts that are not FFIs.

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• Excepted NFFEs: Publicly traded corporations and affiliates Active NFFEs • Active NFFE: Less than 50% of income is passive and less than 50% of assets are held for the production of passive income. • Passive NFFE: Any NFFE that is not an excepted NFFE.

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3. U.S. beneficial ownership

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What is beneficial ownership ?

This cocept is the core of FATCA and of U.S. International Tax Law.

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General rule: A beneficial owner is the person who is the owner of the income for U.S. Tax purposes. Therefore, a person who receives income merely in the capacity as a nominee, agent or custodian for another person IS NOT the beneficial owner.

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3. U.S. beneficial ownership For FATCA purposes,

• A U.S. owned NFFE is an entity with

one or more substantial U.S. owners. • Typically, a substantial U.S. owner is

any U.S. Person with greater than 10% direct or indirect ownership interest in the foreign entity.

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4. Entities and Trusts

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4. Entities

For U.S. Federal Income Tax Purposes, The first question that must be asked by a WH agent with respect to a foreign entity (foreign to the U.S.), except for Per-se corporations, attempting to open an account is whether a Form 8832 has been filed electing to treat that entity as: • A disregarded entity (one owner), or • A foreign partnership (two or more owners)

Until that question is anwered, it cannot be determined whether the entity is: (a) a corporation; (b) a flow-thru entity (two or more owners such as partners); or (c) a disregarded entity (one owner).

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4. Entities

For U.S. Federal Income Tax Purposes, The tax classification of a foreign entity is determined on a «default» basis. The word «default» in the Treasury Regulations means the type of entity, for tax purposes, will be determined by deafult based on the foreign statute under which the entity is formed. For example, if a statute provides that no owner (shareholder, partner or member) has personal liability, then that foreign statute will default the classification, for tax purposes, of the entity to a corporation. Should any of the owners have personal liability then the tax classification defaults to a partnership (two or more owners) or to a disregarded entity (one owner).

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4. Entities

PER SE CORPORATIONS List of specfic foreign entities which are classified as corporations under Treasury Regulations and with respect to which an election cannot be made. No Curaçao entities on the Per-se corporations list.

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4. Entities andTrusts

For U.S. Federal Income Tax Purposes, Foundations do not default to any tax classification under the Treasury Regulations. A foreign foundation that is funded directly or indirectly by a U.S. Person will be classified for U.S. Income Tax Purposes as either (a) a foreign corporation or (b) a foreign trust.

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5. U.S. beneficial ownership ot trusts

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Entities and trusts are very different under U.S. Law. Entities: title to properties is not divided. Trusts: U.S. Law splits the ownership in two parts: legal and equitable. The trustee owns the legal title for the benefit of the beneficiaries and beneficiaries own the equitable title. A trust is a legal arrangement, a relationship, not an entity. Thus,

ALSO DIFFERENT TREATMENT UNDER FATCA but fall under classification as FFIs or NFFEs for FATCA purposes.

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A trust or other similar arrangement created under foreign law may be classified as a trust for U.S. tax purposes. If the purspose of the arrangement is to protect or conserve property for the beneficiaries, it will be treated as an ORDINARY TRUST. On the other hand, if the purpose of the arrangement is to associate to carry on a business and divide the profits, it will not be treated as a trust for tax purposes despite it is legally organized in trust form..

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Assuming the arrangement is classified as a trust: domestic or foreign. DOMESTIC TRUST if (a) a court in the US is able to exercise primary supervision over the administration of the trust (the instrument MUST state what specific jurisdiction controls the trust); AND all or substantially all «substantial decisions» concerning the trust are under the authority of US fiduciaries (US Persons). If either test is not met, then FOREIGN TRUST.

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The beneficial owners of a FOREIGN TRUST for FATCA purposes are not the trustee but, the Grantor and/or Beneficiaries. A FOREIGN TRUST would have a substantial US owner if a specified US Person is considered to be an owner of any portion of the trust (US Grantor) , or holds directly or indirectly, more than 10% of the beneficial interest of such trust. A person will be considered to hold a beneficial interest in a foreign trust if such person has a right to receive directly or indirectly (ie. thru a nominee) a mandatory distribution or may receive, directly or indirectly, a discretionary distribution from the trust.

RELEVANT FACTS AND CIRCUMNSTANCES

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FOREIGN GRANTOR TRUST When the settlor is a US Person and the trust has a US Person as beneficiary, then the settlor is treated as the beneficial owner of the trust. By default, a foreign trust has a US beneficiary unless the trust instrument states that no income or principal can be paid to or accumulated for the benefit of a US Person, and that if such trust were to terminate then no income or principal can be paid to a US Person.

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Under the Regulations, U.S. individuals who are treated as the grantor of a non-U.S. trust will always be reportable as the U.S. owner of a trust, regardless of whether it is classified as an FFI or an NFFE. Where a U.S. person is reported as the grantor, this may potentially result in reduced reporting requirements with respect to other U.S. persons who are beneficiaries. Under the IGA Model 1, reporting is focussed on controlling persons under the FATF definitions.

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6. U.S. beneficial ownership under IGA

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Depending on the FATCA Partner's interpretation of the FATF guidelines, in the case of determining whether a U.S. beneficiary is a substantial U.S. owner of a trust, a 25 percent beneficial ownership threshold may apply, whereas the Regulations impose a 10 percent (or potentially a zero percent) beneficial ownership threshold. IGAs also significantly deviate from the approach under the Regulations by introducing a new concept of “controlling persons” (defined to mean natural persons who exercise control over an entity) into the test for determining whether an account should be categorised as having U.S. owners.

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IGAs significantly deviate from the approach under the Regulations by introducing a new concept of “controlling persons” (defined to mean natural persons who exercise control over an entity) into the test for determining whether an account should be categorised as having U.S. owners.

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This may lead to additional reporting obligations in certain IGA jurisdictions with respect to certain U.S. beneficiaries or fiduciaries who have certain powers over the trust, even where such persons do not have a beneficial interest in the trust. For example: protectors.

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In the case of a trust, the category of controlling persons can include U.S. individuals who are settlors, trustees, protectors and beneficiaries (to be interpreted consistently with the FATCA Partner country's interpretation of the FATF recommendations.

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7. Remarks on multilateral exchange of information

Tax-compliant structures.

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7. Extended implementation dates

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Notice 2013-43 realeased by the IRS on July 12th, 2013 • IGAs: Countries have an additional period to enter into IGAs (until

July 1, 2014). Furthermore, the US indicate that signed IGAs, even though they may not have entered into force by July 1, 2014 (because of jurisdictional procedures) are treated as effective IGAs, thus allowing FFIs to register as Model-1 Reporting FFIs

• Registration: portal to be opened as of August 19, 2013 (was July 15). FFIs can use the period until December 31, 2013 to register “informally” and get acquainted with the system – information can be adjusted at all times. As of January 1, 2014, final submissions can be made. GIINs will be issued to FFIs upon final submissions in 2014 (not earlier). First FFI-list to be published as per June 2, 2014. Registration deadline for ensuring that the FFI is included in the June 2014 FFI-list is April 25, 2014.

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Notice 2013-43 realeased by the IRS on July 12th, 2013 • For Model 1 IGA Reporting FFIs the deadline for getting a GIIN is by

the end of 2014 (!) because withholding against Model 1 IGA Reporting FFIs will only start as per January 1, 2015.

• Withholding: withholding on US FDAP income on payments to non- participating FFIs will start as of July 1, 2014 (was January 1, 2014) and as of January 1, 2015 for Model 1 IGA Reporting FFIs that may not have received a GIIN.

• Due diligence: US Withholding Agents and PFFIs must implement new account opening procedures (including the US Indicia Screening) as of July 1, 2014 (probably same applies to Model 1 IGAs)

• Reporting: first reporting date by PFFIs / Model-1 IGA FFIs will still be March 31, 2015, but will no longer include 2013 account information (only 2014 accounts)

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Date: 08/16/2013

THANK YOU

Copyright Notice: ©2010 Amicorp Group. All rights reserved. The contents of this presentation have been prepared by the Amicorp Group for informational purposes only. The information contained in this presentation does not constitute or contain any type of advice, and neither our presentation of such information nor your receipt of it will create a commercial or legal relationship. Consequently, you should not act or rely upon the information contained in this presentation without seeking professional counsel. This presentation does not constitute tax, legal or professional advice. Amicorp Group is the owner of all copyright and other rights in and to all copyrightable text and graphics on this presentation. Your company or its representatives may lawfully use this presentation for its own, non-commercial purposes, by displaying this copyright notice. Any other reproduction, copying, distribution, retransmission or modification of all or any parts of this presentation is strictly prohibited without the express prior written permission of the Amicorp Group. Trademark Notice: The Amicorp word and device are trademarks of Amicorp Holding Limited. All rights reserved.

Jose A. Romero, LL.M. Head of the Corporate Team / LATAM Amicorp Curaçao B.V. Pareraweg 45 I P.O. Box 4914 I Curaçao Tel.: +599 (9) 434 3500 I Fax.: +599 (9) 434 3533 I Mobile: +599(9) 540-2995 I Direct: +599(9) 434-3552 I VOIP:3552 [email protected] I Skype:jose.a_romero www.amicorp.com

F.A.T.C.A. - CIFA STEP Luncheon... · TITLE Sub Heading Date: 00/00/2013 Table of contents 1....

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