1. business and industrial

HMRC Discussion document:
Implementing Agreements under the
Global Standard on
Automatic Exchange of Information
to Improve International Tax Compliance
22 City Road
Finsbury Square
London
EC1Y 2AJ
Tel: +44 (0) 20 7448 7100
Email: [email protected]
Web: www.thewma.co.uk
A response from the Wealth Management Association1
Introduction
The Wealth Management Association (WMA) welcomes the opportunity to respond to HMRC’s
discussion document setting out how the UK plans to implement the OECD’s Common Reporting
Standard (CRS).
WMA and its member firms recognise that everyone should pay their fair share of tax and that a
key part of that is to tackle offshore tax evasion. At the same time it is vital that the requirements
are proportionate and the costs to both the financial services industry and to the tax authorities
are kept to a minimum. One way to achieve that is to try and ensure that FATCA (through the
UK-US Intergovernmental Agreement), the UK-Crown Dependencies/Overseas Territories
(CDOT) Agreement, and the OECD’s CRS are as consistent as possible and avoid duplication
wherever possible. With those principles in mind we would flag the following as critical issues in
respect of the CRS for WMA member firms and, in most cases, for the financial services industry
more widely:

Proportionality - The lack of threshold for pre-existing individual accounts will leave
Financial Institutions no option but to check many thousands of relatively small accounts
which, even if identified as reportable, would ultimately yield insignificant amounts of
revenue. The costs to both the financial services industry and respective tax authorities is
disproportionate to the amounts of revenue likely to accrue.

Definitions – The Owner Documented FI (ODFI) option is widely used by wealth
managers for the many thousands of small family trusts as a practical and sensible
solution to comply with the existing FATCA requirements. It would be helpful if the ODFI
category could be included as part of the CRS requirements to ensure consistency of
treatment for such entities.
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The Wealth Management Association is a trade association representing 186 Wealth Management firms and
Associate Members. With formal contracted client relationships our firms deal in stocks and shares and other financial
instruments for individuals, trusts and charities and offer a range of services across a spectrum spanning execution
only through to full discretionary services.
Our member firms act for over 4 million private investors and carry out around 20 million transactions a year in the
marketplace. Our members also manage in excess of £650 billion of wealth in the UK, Ireland, Channel Islands and
Isle of Man, operate across more than 580 sites and employ approximately 32 000 staff.
Our aim is to ensure that any changes including operational, regulatory, tax and other business matters across Europe
and the rest of the world are appropriate and proportionate for our wealth management community and, most
importantly, their clients.
Wealth Management Association (WMA)
Company limited by guarantee
Registered in England and Wales No. 2991400
VAT Registration No. 675 1363 26
Another example is the treatment of an Investment Entity in a Non-Participating
Jurisdiction as a Passive NFE under the CRS (as set out in Paragraph vii in the response
to Q1 below).

Complexity – The variance in definitions between the CRS and IGAs will result in more
complex self-certification forms which will be to the detriment of both Financial Institutions
and their clients.

Consistency – There is a very real risk of material differences between the CRS, EU
Directive of Cooperation (DAC) and EUSD leading to proliferation of differing
requirements. WMA recognise that HMRC are aware of these concerns and we hope that
a single consolidated reporting standard is agreed which avoids duplication of reporting
and different due diligence standards between FATCA, CRS and DAC.
It is also vital that signatories to the Model Agreement implement it consistently to keep
the costs of compliance for Financial Institutions to a minimum.
HMRC is aware of industry concerns regarding the CRS B1 procedure where the
requirement in respect of “documentary evidence” is paper based and makes no
reference to electronic KYC being acceptable. This is a huge issue for the wealth
management industry where several million accounts are administered online.
Q 1 Are there any definitions in the Agreement that give rise to uncertainty or raise
practical issues which have not been covered by the existing UK guidance on automatic
exchange of information agreements?
We have the following observations in respect of what we perceive to be anomalies between the
Agreement and existing UK guidance on automatic exchange of information agreements:
i.
The definition of Custodial Institution requires a 20% income test. Within the WMA
community nominee companies generally make no charge or receive income because
they are internal group companies with no commercial transactions. This could lead
entities to adopt the position that nominees do not fulfil the definition of a custodial FI.
ii.
The defined term under Section VIII C(9) for pre-existing accounts should be expanded to
take account of the alternative application rules relating to new accounts opened by preexisting account holders.
iii.
The CRS definitions make no reference to the Owner Documented FFI category (ODFFI).
At present it is unclear how such entities are to be treated under the CRS. The ODFFI
route is one that is being widely used by discretionary investment managers in respect of
small family trusts and it would be unfortunate if this was not available under the CRS.
We believe the sponsoring FI should be allowed to perform all required reporting on
behalf of the ODFFI for the accounts which it maintains.
iv.
In respect of Closure of Accounts, we note that there is a discrepancy in the requirements
between the IGAs and the CRS. Under the IGAs the FI is required to provide the closing
balance but not indicate that the account has closed but for the CRS the closing balance
is optional but the FI must indicate that the account has closed. It would be helpful to have
a consistent approach but at very least confirmation that under CRS the closing balance
can be reported so that the only change is in respect of notification that the account has
closed.
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v.
In Section IV (Due Diligence for New Individual Accounts) A of the Agreement relating to
Self-certification the commentary on Page 129), states that the self-certification may be
pre-populated by the Reporting FI to include the account holder’s information except for
the jurisdictions of tax residence(s), to the extent already available in its records. It would
be helpful if such pre-population of self-certification forms could be similarly reflected in
the IGA Guidance.
vi.
Paragraph A2a) of Section V (Due Diligence for Pre-existing Entity Accounts) and
Paragraph A2a) of Section VI (Due Diligence for New Entity Accounts) of the Agreement
in respect of determining whether the Account Holder is a Passive NFE requires a
Reporting FI that cannot determine the account holder as an Active NFE or FI other than
non-participating professionally managed investment entity to presume that it is a Passive
NFE. This means that all Investment Entities in non-participating jurisdictions will be
deemed to be Passive NFEs. This raises significant operational challenges for the FI in
having to identify the Controlling Persons for these entities whereas for Participating
Jurisdictions they would be classified as FIs. We note that this definition is not the same
as the UK/US and CDOT Agreements.
vii.
In respect of Section V (Due Diligence for Pre-existing Entity Accounts) and Section VI
(Due Diligence for New Entity Accounts) relating to requesting Self-certifications the CRS
commentary (Paragraph 16 on Page 139 and Paragraph 9 on Page 145 respectively)
that, when requesting self-certifications, Reporting Financial Institutions are expected to
provide Account Holders with the information that is relevant for the latter to determine
their status. We assume that the obligation here is no more than directing the Account
Holder to the relevant Guidance Notes or information contained in any Explanatory Notes
to a Self-Certification Form.
viii.
The definition of “Reportable Person” in Paragraph D2. of Section VIII (Defined Terms) of
the CRS excludes Financial Institutions resident in a Reportable Jurisdiction. The
commentary on this section explains in Paragraph 116 on Page 193 that Financial
Institutions will do their own reporting or are otherwise considered to present a low risk of
being used to evade tax. It also repeats that Investment Entities resident in Nonparticipating Jurisdictions will not be considered FIs but passive NFEs and, thus,
reportable.
In order to ensure consistency between the IGAs and the CRS it would be helpful to have
the following clarification:

In the UK-US guidance Financial Institutions resident in the UK or in a Partner
Jurisdiction with uncured US indicia are not US Reportable Accounts. The
explanation is similar to the CRS commentary, i.e. that such Financial Institutions
will do their own reporting or are otherwise considered to present a low risk of
being used to evade tax.

Similarly in the UK CDOT guidance that Financial Institutions resident in the UK or
in the CD/Gibraltar with uncured CD/Gibraltar indicia are not Reportable Accounts.
The explanation is similar to the CRS commentary, i.e. that such Financial
Institutions will do their own reporting or are otherwise considered to present a low
risk of being used to evade tax.
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ix.
Paragraph 14 on Page 210 of the Commentary in respect of Section IX concerning
Effective Implementation states that a jurisdiction would follow up with any Reporting FI
when undocumented accounts are reported. It would be helpful to have more clarification
as part of the Guidance as to how many such accounts would trigger intervention – is it
for example based on the percentage of reported accounts or a percentage of the FI’s
total number of accounts and what the follow-up would involve – both the threshold for a
“simple inquiry” and the threshold for a full audit and whether this would be commissioned
externally. It should also be noted that this procedure is not replicated in the IGAs.
Q 2 To enable us to produce estimates of the administrative burdens on UK business for
publication in the TIIN, can you tell us what additional burdens and costs are anticipated
in respect of the reporting and transmission of data assuming that reporting applies to all
the jurisdictions that have committed to early adoption of the CRS?
The main additional burden will be in system costs i.e. adding new logic to the system to be able
to determine whether or not an account is reportable and then generate an XML in the desired
format. This will be further complicated if the definition of a ‘specified person’ is not consistent
across each jurisdiction.
It is also not clear at this stage whether FIs will be submitting a single consolidated CRS report,
or will be expected to produce a separate report per jurisdiction. This would have a significant
impact on system logic and design.
There will also be longer client take-on as well as more communication required with clients.
Q3 Will the differences in the information being requested lead to any increased burdens
for your business? If so then what will the additional costs be, what will they relate to and
how will they arise?
Until the details of the Agreement are finalised it is very difficult to estimate what the additional
costs will be.
One very significant difference is that there is no de-minimus threshold for individual accounts –
therefore there will be a significant number of new accounts FIs will need to review (that FIs did
not necessarily need to review under FATCA and CDOT).
Q4 Will Reporting Financial Institutions find it useful for HMRC to publish in guidance the
format that TINs take for each of the jurisdictions with which exchange will take place
under the CRS?
Yes, it would be helpful for HMRC to publish in guidance the format/structure of each country’s
respective TIN. However, we request that guidance make clear that there is no requirement to
validate an Individuals TIN.
We note the EU already provides similar guidance in respect to TINs. Please see attached link
for reference https://ec.europa.eu/taxation_customs/tin/tinByCountry.html
It would also be useful to have more specific examples of what the functional equivalents are for
the various different types of entities. Similarly, it would be helpful to have examples of the
circumstances under which a person/entity would not have a TIN.
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Q5 Are there any Financial Institutions that do not have Reportable Accounts under the
CD and Gibraltar agreements but are likely to have Reportable Accounts under any
Agreement between the UK and another early adopter jurisdiction?
It is extremely unlikely that WMA members will not have Reportable Accounts under the CD and
Gibraltar agreements due to the close proximity of the UK and CD territories. Due to the very
nature of the investment services offered by the WMA community members anticipate greater
volumes of Reportable Accounts under the CDOT Agreements than under the US/UK agreement
and CRS.
Q6 Will the Financial Institutions identified above already be undertaking due diligence
procedures for the purposes of the CD and Gibraltar agreements? For instance they may
be undertaking due diligence in order to identify that there are no Reportable Accounts
under these agreements.
Yes, but the due diligence performed under CDOT Agreements differs to the CRS. There are
significant differences between CDOT, FATCA and CRS. For example, the CRS is silent on the
use of alternative procedures allowed under the UK/US Agreement and provides for different
threshold limits. As highlighted above WMA member firms are not currently collecting place of
birth details and TINs are not currently mandatory for non-CD/Gibraltar jurisdictions and therefore
FIs will likely still be required to go back and re-document the same accounts.
The requirement to perform due diligence under CRS should not be seen merely as a re-run of
CDOT or FATCA search programmes. For the vast majority of the WMA community, the CRS
will require the implementation of new projects to perform the necessary changes to systems and
operational processes.
Q7 To enable us to produce estimates of the administrative burden on UK business, for
publication in the TIIN, can you tell us what additional burdens and costs the requirement
to report data under the CRS is likely to introduce for any of the Financial Institutions
identified above
As highlighted in response to Q3 it is very difficult to quantify until the details of the requirements
in respect of the Agreement are finalised.
The main factors are likely to be the cost of running a new project, cost of IT system
enhancements, resource allocated to due-diligence reviews and resourced required to identify
and react to changes in circumstances on an on-going basis.
Q8 Will the identification of jurisdictions that do not issue or do not require collection of
the TIN give Reporting Financial Institutions sufficient certainty that the need to report has
been removed? If not, how should this be addressed to provide the required certainty?
Yes, we believe the publishing of such information would provide sufficient certainty. However, it
is crucial that such information be regularly maintained.
It would also be helpful for confirmation that FIs are not required to validate that all TINs provided
are accurate. It would also be helpful to list examples of exceptions where a person/entity
genuinely would not have a TIN – i.e. if client tells the FI does not have a TIN how would the FI
know if this is reasonable? For example; do charities and non-taxable entities have TINs? What
would be the TIN for a Trust? For accounts held for a Minor; should the FI use the TIN of the
parent?
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Q9 Is the option to use New Account due diligence procedures for Pre-existing Accounts
something that business would like to have available?
Yes, the WMA believes that FIs should have the option available to them. It would be particularly
helpful for smaller FIs with only a small number of accounts.
Q10 Is the option to use High Value Account due diligence procedures for Lower Value
Accounts something that business would like to have available?
Yes, as with our response to Q9, FIs should be afforded the option.
Q11 In what circumstances would Financial Institutions be effectively prevented from
selling Cash Value Insurance Contracts or Annuity Contracts to residents of Reportable
Jurisdictions?
Not applicable to WMA members.
Q12 Does a positive election to apply the de minimis meet the needs of business better
than having an election to disapply the limit as envisaged in the CRS? If not, what are the
factors that make disapplying the election the better option?
We note that this issue was covered as part of the HMRCs consultation on the UK/US
Agreement. Data Protection concerns were raised if FIs were not obliged under legislation to
identify and report all accounts irrespective of value unless an election was made otherwise.
On balance we would support a positive election to apply the de-minimis.
As what was then APCIMS commented in February 2013 in response to the HMRC consultation
implementing the UK-US Agreement we believe that there will be data protection issues in the
absence of prescribed legislation that allows an FI to make an election. For example, a client may
take issue with an account being reported that is under the $50K threshold.
Q13 Would UK insurance companies find the inclusion of this provision in Section VII
beneficial?
Not applicable to WMA members.
Q14 To help us produce estimates of the increase in administrative burden on UK
business for publication in the TIIN, can you tell us what additional burdens and costs you
envisage arising from applying due diligence procedures in respect of Reportable Persons
under the CRS in addition to burdens and costs already being incurred from applying due
diligence procedures in respect of CD and Gibraltar Specified Persons and US indicia?
As highlighted in response to Q3 and Q7 it is very difficult to quantify until the details of the
requirements in respect of the Agreement are finalised.
The main factors will likely be cost of running a new project, cost of IT system enhancements,
resource allocated to due-diligence reviews and resourced required to identify and react to
changes in circumstances on an on-going basis.
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Q15 Are there other types of financial institution that meet the above conditions that could
be included as Non-Reporting Financial institutions? If so, what are the characteristics of
these institutions that enable them to satisfy the requisite criteria?
As flagged earlier in response to Q1, it would be helpful to clarify if the ‘owner-documented FI’
arrangement described under FATCA is permitted under CRS – with clarification on how this
would work where the reporting FI is in a different jurisdiction to the owner-documented FI (i.e. is
reporting submitted to the reporting FI’s tax authority or to the owner-documented FI’s tax
authority?)
Q16 Would UK Financial Institutions find the inclusion of this provision in Section VII
beneficial?
Not applicable to WMA members.
Q17 Are there other types of account that meet the conditions for being low risk as
defined by the CRS that could be included as Excluded Accounts? If so, what are the
characteristics of these accounts that enable them to satisfy the requisite criteria?
We have no additional examples of accounts/products that could be included as Excluded
Accounts.
Q18 Would the inclusion of ‘dormant accounts’ with a value not exceeding $1,000 as
Excluded Accounts be beneficial to UK Financial Institutions?
Yes, the inclusion of a threshold to remove ‘dormant accounts’ from review is welcome.
However, we would welcome an increase of the threshold from $1000 to $10,000.
Confirmation would be welcome that the stated figure is cumulative i.e. the aggregated balances
of accounts owned by a dormant account holder.
Q19 Do the draft regulations ensure effective implementation of the reporting and due
diligence procedures set out in the Competent Authority Agreement and the CRS? If not,
please identify the areas where you believe the draft regulations are deficient, say why
they are deficient and let us have your suggestions for alternative language that would
rectify the deficiencies.
We have no suggestions for amendment to the draft regulations.
Q20 Which of the above options provides the least burden for business? Please explain
why the option that you have chosen provides the lowest burden on business.
A single reporting format for all reportable accounts is the most preferred option. However, the
WMA notes that there are differing reporting requirements under UK/US, CDOT and CRS. For
example, the availability of the $50k exemption for depositary accounts.
The WMA recognise that there is still sufficient uncertainty at a political level around the
implementation and revision of the Directive of Administrative Cooperation and revised European
Savings Directive and as such a phased implementation of reporting formats may be required in
the medium term.
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Q21 Are there any other options for reporting that would provide a better solution for
business? If so, please explain how the burden on business would be reduced beyond the
options above.
The re-introduction of $50k threshold applicable to pre-existing individual accounts would reduce
the burden of reporting low value accounts and enable tax authorities to focus on h igh net worth
accounts.
Subsuming EUSD reporting into one CRS report would be WMA’s preferred option as we believe
that otherwise there will effectively be double-reporting of just about the same information.
Andy Thompson
Wealth Management Association
22 City Road
London EC1Y 2AJ
[email protected]
Tel: 020 7448 7100
8 October 2014
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