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IRS clarifies FATCA registration procedure for trustees

Thursday, 15 May, 2014

The US tax authorities have definitively set out the procedure by which trustees worldwide can certify a trust as exempt from the US Foreign Account Tax Compliance Act.

FATCA requires all foreign financial institutions (FFIs) to report the accounts of their American clients to the US Internal Revenue Service. Failure to comply is punished with a 30 per cent withholding tax on all investment income from US sources.

The law applies not just to banks but to all legal entities that could potentially handle US taxpayers’ assets. However, the US authorities have granted exemptions to broad classes of institutions in jurisdictions that have signed FATCA implementation agreements with the US government. In general, however, these institutions still have to notify themselves to the IRS as ‘deemed compliant’. This applies to most express trusts with a corporate trustee, whether or not the trust has any American connections.

The procedure to be followed by trustees of Trustee-Documented Trusts is similar to that used by the parent companies of banking groups (referred to by the IRS as ‘sponsoring entities’) to certify their branches or subsidiaries. The trusts themselves are not ‘registered’ for FATCA in that they do not get their own registration number (called a Global Intermediary Identification Number or GIIN ), they are merely notified as ‘branches’.

Trustees that are required to register for FATCA because they themselves are classed as ‘foreign financial institutions’ must do this in addition to the sponsoring procedure for each trust. They will thus end up with two separate GIINs, one as an FFI and the other as the trustee of a trustee-documented trust.

Trusts that are not trustee-documented, and which are not managed by an investment entity, are generally classed under FATCA as non-financial entities and need not register or make FATCA reports. Instead they will be reported on by the financial institutions they interact with.

Sources

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