Use of nominees to avoid CRS does not work


Use of Nominee shareholders and Nominee Management
Amazingly, many practioners still believe that the use of nominees will be out of scope of CRS reporting. The use of nominees for management and / or ownership is well within scope of the Common Reporting Standard. This includes nominees as Financial Institutions ("FIs") or individuals and NFEs acting as nominees.

FIs will have to look-through nominees at the ultimate beneficial owners, or inn the case of FI's established by nominees, they will ahve to identify the owners as holding equity interest. Furthermore, if FI's claim they cannot look-through nominees, an EU Directive obliges the identification of ultimate beneficial owners by accessing AML info.
1. Exchange of Information with Respect to Reportable Accounts

CRS page 24 par 2(e)

In the case of any Custodial Account:
  • the total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account) during the calendar year or other appropriate reporting period; and
  • the total gross proceeds from the sale or redemption of Financial Assets paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder


2. Section I: General Reporting Requirements

CRS page 30 par 5

In the case of any Custodial Account:
a) the total gross amount of interest, ...dividends, ...other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account); and
b) the total gross proceeds from the sale or redemption of Financial Assets paid or credited to the account with respect to which the Reporting Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder

3. Section VIII: Defined Terms : Financial Account

CRS page 51 par 4

In the case of a trust that is a Financial Institution, an Equity Interest is considered the beneficiary of all or a portion of the trust. A Reportable Person will be treated as being a beneficiary of a trust if such Reportable Person has the right to receive directly or indirectly (for example, through a nominee) a mandatory distribution or may receive, directly or indirectly, a discretionary distribution from the trust.

4. Section VIII: Defined Terms : Miscellaneous : Account Holder

CRS page 60 Par E(1)
The term “Account Holder” means the person listed or identified as the holder of a Financial Account by the Financial Institution that maintains the account. A person, other than a Financial Institution, holding a Financial Account for the benefit or account of another person as agent, custodian, nominee, signatory, investment advisor, or intermediary, is not treated as holding the account for purposes of the Common Reporting Standard, and such other person is treated as holding the account.

5. Amending Council Directive 2011/16/EU
COM(2016) 452 final

As regards access to anti-money-laundering information by tax authorities
The Directive foresees that, where the Account Holder is an intermediary structure (i.e. a Passive Non-Financial Entity), the Financial Institutions shall look through that Entity and identify and report its Controlling Persons (beneficial owners in anti-money-laundering terminology). That important element in the application of the Directive involves a step relying entirely on anti-money-laundering (“AML”) information for the identification of the Controlling Persons.

Without access by the tax authorities to that AML information, the effectiveness of the monitoring of Financial Institutions on applying the Directive on Administrative Cooperation will be reduced significantly. In the absence of that information, those authorities will not be able to monitor, audit and confirm that the Financial Institutions apply properly the Directive and identify correctly and report the Controlling Persons of intermediary structures.

Therefore, the objective of this initiative is to enable tax authorities to consistently access the AML information for the performance of their duties in monitoring the proper application of the Directive on Administrative Cooperation by Financial Institutions.

The amendments to the Fourth Anti-Money-Laundering Directive, referred to in the next section, are important to improve the identification of money-laundering, corruption, terrorist financing and other criminal activities. Tax authorities should also have access to such information in order to maximise their capacity to tackle tax evasion and avoidance. The Commission is therefore proposing that this access should be granted through the Directive on Administrative Cooperation, which is the framework for many of the EU's other tax transparency measures.

missing file Nominee is an individual or Passive NFE

Where the nominee / agent acting for the ultimate beneficial owner is an individual or passive Non Financial Entity, then the Financial Institution maintaining the assets must identify the ultimate beneficial owner.

The Financial Institution must identify the account holder or controlling persons utilising anti money laundering information at its disposal.

If the Financial Institution regards or "pretends" the nominee / agent is the ultimate beneficial owner, then the Financial Institution is acting illegally and is subject to sanctions provided in local AML and CRS legislation. Also the Financial Institution would fall foul of the CRS anti avoidance provisions regarding adopting practises to circumvent reporting obligations.
missing file Nominee is Financial Institution estabished by or for a beneficial owner

Where the nominee or agent establishes a Financial Institution to be nominee, then that Financial Institution must report on the ultimate beneficial owner. Even if that FI is an Investment Entity, Custodial Institution, Depository institution or Specified insurer.
  • CRS Commentary Pg 176 Par 61: If the FI is an Investment Entity, the reportable Account Holder is the Person who has the right to receive directly or indirectly, for example, through a nominee
  • If the FI has been set up with the purpose to avoid reporting, then the Equity interest will be According to subparagraph C(1)(b), an equity or debt interest in a FI other than those described in subparagraph C(1)(a) is considered a Financial Account only if the class of interests was established with a purpose of avoiding reporting in accordance with Section I. Thus,equity or debt interests in a Custodial Institution, Depository Institution, Investment Entity other than an investment advisor or an investment manager described in subparagraph C(1)(a), or Specified Insurance Company, thatwere established with a purpose of avoiding reporting will be Financial Accounts.
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