Classification of entities (Entity) under FATCA or CRS is very important，Because it concerns that entity Under FATCA or CRS whether needs to bear and bear what kind of compliance obligations. Any entity, if it does not belong to the category of Financial Institution, should be classified as a non-financial institution（Non-Financial Entity, “NFE”, or FATCA below Non-Financial Foreign Entity, “NFFE”) , The non-financial institutions themselves do not have any compliance obligations under FATCA or CRS.
According to the type of business of non-financial institutions, it can be further classified into active non-financial institutions and Negative non financial institutions. Following the discussion of active non-financial institutions in the previous section, this article summarizes the content of negative non-financial institutions for the reference of those in need.
What is a Passive non-financial institution (Passive NFE)
Unlike active non-financial institutions, passive non-financial institutions do not have a clear concept and classification, but are a default category.In principle, if a non-financial institution is not an active non-financial institution, it should be classified as a passive non-financial institution.
It needs to be noted that,Unlike the bilateral information exchange mechanism of the US FATCA, CRS belongs to the global information exchange.In order to prevent individuals from setting up investment institutions in non-CRS participating countries， Unreasonable tax avoidance.CRS has specifically added a class of passive non-financial institutions, namely, investment institutions in CRS non participating countries.For example, Lee, a Chinese resident, set up an investment institution A in Botswana (non CRS participating countries) ,When A holds a financial account in the B Bank of Switzerland (CRS participating countries), B should classify A as a passive non-financial institution.But if the investment institution A is established in Korea (CRS participating countries),So B bank, as a financial institution under CRS, does not have to do due diligence and account identification for another investment institution of the other CRS participating countries (a financial institution).
The application of the "penetration" principle
As a non-financial institution, the negative non-financial institution itself does not have any compliance obligations under FATCA or CRS, and there is no problem of identifying financial accounts and collecting and reporting financial account information.However, if a negative non-financial institution holds a financial account of another financial institution, the financial institution not only needs to identify the tax resident status of the negative non-financial institution, but also needs to “penetrate” the passive non-financial institution and identify its actual control People (Controlling Persons, or Substantial Owners), see if they belong to the situation that needs to be declared .
For example,A is an asset holding company registered in the Cayman Islands and is managed by a local professional company in the Cayman Islands.Li Mou, a Chinese resident, is the actual controlling person of A company.A company sole asset is cash 10 million Swiss Franc at B bank, Switzerland.B bank in Switzerland as a financial institution,When identifying the financial account holder A, A company will be required to provide its compliance status under FATCA or CRS.Because A's assets are only cash,Usually under CRS, they will be classified as passive non-financial institutions.Therefore, Bank B will also ask Company A to provide information about its actual controller, Li.Since Switzerland and China are both the second participating countries of CRS, in theory, Lee's financial account information will be transmitted to the State Administration of Taxation in September 2018.
What is the actual controlling persons.(Controlling Persons)
Actual controller usually refers to a natural person who directly or indirectly controls an entity (including a legal person or an entity without legal person).
The concept of the actual controller should be consistent with the concept of “beneficiary owner” in the against money laundering Financial Action Task Force (FATF) Recommendation 10 (Recommendation 10, February 2012 edition) and must be carried out in accordance with Recommendation 10 Explanation. In doing so, on the one hand, it is aimed at combating financial crimes, preventing tax evaders from abusing the international financial system for tax criminal activities, and on the other hand, reducing the compliance costs of financial institutions.Because according to this regulation, financial institutions can use the information obtained by existing anti-money laundering investigations when conducting compliance under FATCA or CRS, and no need to repeat work. According to the interpretation of FATF Recommendation 10, the actual controllers under FATCA or CRS mainly include:
Ⅰ）For Legal Person entity, the actual controller refers to the natural person who controls the entity. The understanding of "control" usually refers to exceed certain proportion of stock right control, such as 25%.For example, Chinese residents A and B, and an asset company in Bermuda, each holding 50% of the shares, then usually A and B should be the actual controller of the company.
If the shareholding ratio of all shareholders of a company is less than 25%, That is to say, from the perspective of shareholding ratio, no one controls the company. then the company's top management should be its actual controller, such as chairman, general manager and so on.
Ⅱ） For trust entities,The actual controller usually refers to the principal (Settlor), the trustee (Trustee) and the beneficiary.And other natural persons who ultimately control the trust,Usually, when the principal itself is a non-natural person entity (e.g. an enterprise), it is usually necessary to "penetrate" the Settlor entity and find out the actual controller behind it.
Ⅲ）For legal arrangements other than trusts, the actual controller's judgment can generally be handled by reference to the trust.
Direct reporting non-financial institutions under the FATCA(Direct Reporting NFFEs)
The US National The 69 notice (Notice 69-2013) issued by the State Administration of Taxation (IRS) in 2013 stipulates a special negative non-financial institution under FATCA, that is, direct declaration of non financial institutions.
Under FATCA, generally negative non-financial institutions need to provide information on their actual controllers in the W-8BEN-E form provided to the Withholding Agent agent (Agent), and do not need to register as the financial institutions to the IRS website and obtain GIIN code.However, according to Circular No. 69, negative non-financial institutions can also register as non-financial institutions directly on the IRS website and obtain GIIN numbers.At this time, the direct declaration of the non financial institution in filling out the W-8BEN-E form requires only the GIIN number to be provided to the pre deduction agent, without providing the actual controller information, and the relevant actual controller information is directly provided by the non-financial institution to the National Tax Bureau (by submitting form 8966).
There is no such provision under CRS.
Which financial account tax information will be exchanged?
For the actual controller, if it is identified as a resident of the United States or Residents of the country to be declared under the CRS, the following information will usually be exchanged as a tax related information to the corresponding country.
Name.
Address.
The country or region of a tax resident.
Tax identification number.
Date of birth.
Place of birth.
In addition, the financial institution should also declare the full balance or value of the account held by the negative non-financial institution, as well as the other total income received in the corresponding year (including interest income, financial asset transaction income, etc.).
Giving a simple example：
Chinese resident Li has set up an asset holding company company A in the Cayman Islands, and company A has a cash deposit of 10 million euros in Swiss bank B. China, the Cayman Islands and Switzerland are all CRS participating，countries. Under the CRS，Usually company A will be classified as a passive non-financial institution，At this time, Bank B will hold the A company's deposit balance of 10 million euros and Lee's name, address, China resident status, tax identification number (or ID number), and place and date of birth, etc the relevant information was submitted to the Swiss government, which then Swiss government passed it on to the Chinese government.