CRS includes Panama Foundations


Panama foundations in scope of CRS despite Panama law that there is no link with the founder
1. Some legal advisors incorrectly opine that the founder of panama foundation is not a beneficial owner of the foundation. A critical principle to comprehend regarding the OECD's Common Reporting Standard ("CRS") is the Standard overides any local legislation regarding who is a beneficiary of local structures. The Standard deems who is a beneficiary of an entity, often contrary to local legislation.

2. The CRS encompasses foundations

Some incompetent advisors wrongly opine that the CRs tackles trusts, but not Foundations.
The Standard page 17 par (20) Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations)

The Standard page 62 par(3) The term Entity means a legal person or a legal arrangement, such as a corporation, partnership, trust, or foundation.

The Commentary page 178 par (69) Definition of Equity Interest - The same as for a trust that is a Financial Institution is applicable for a legal arrangement that is equivalent or similar to a trust, or foundation that is a Financial Institution.

The Commentary page 179 par (70) The same is applicable with respect to the treatment of a Reportable Person as a beneficiary of a legal arrangement that is equivalent or similar to a trust, or foundation.

3. CRS specifically states foundations must be treated same as trusts

This means:
  • The Equity Interest of Investment Entity foundations is the same as Equity Interest of Investment Equity trusts, and
  • Controlling Persons of NFE Foundations are the same as Controlling Persons of NFE Trusts
Commentary page 199 par (136) In relation to legal persons that are functionally similar to trusts (e.g. foundations), Reporting Financial Institutions should identify Controlling Persons through similar customer due diligence procedures as those required for trusts, with a view to achieving appropriate levels of reporting.
4. The CRS specifically states founders of foundations are Controlling Persons

Any advisor opining that founders are not reportable in CRS because "Panama Private Interest Foundation law expressly provides that the patrimony of the foundation is separate from the patrimony of the founder. Accordingly, the assets contributed to the foundation are separate from the founder`s estate" is staggeringly ignorant of the Common Reporting Standard and its treatment of foundations.

Tax advisor opining founders are separate from a Panama Foundation.
The Commentary page 197 par (137)- Where a Reporting Financial Institution relies on information collected and maintained pursuant to AML/KYC Procedures for purposes of determining the Controlling Persons of an Account Holder of a New Entity Account (see subparagraph A(2)(b) of Section VI), such AML/KYC Procedures must be consistent with Recommendations 10 and 25 of the FATF Recommendations (as adopted in February 2012), including always treating the settlor(s) of a trust as a Controlling Person of the trust and the founder(s) of a foundation as a Controlling Person of the foundation.

5. The Commentary includes Foundations in the definition of Entity and related Entity Page 201 Par (144) Entity and Related Entity
Subparagraph E(3) defines the term “Entity” as a legal person or a legal arrangement. This term is intended to cover any person other than an individual, in addition to any legal arrangement. Thus, e.g. a corporation, partnership, trust, fideicomiso, foundation (fondation, Stiftung), company, co-operative, association, or asociación en participación, falls within the meaning of the term “Entity".

6. Reporting FIs include Foundations Implemetation Handbook page 35 par (79) What is an Entity?
Only Entities can be Reporting Financial Institutions. The definition of Entity is broad and consists of legal persons and legal arrangements, such as corporations, partnerships, trusts, and foundations.

7. Example Reporting by Panama Foundation
Categorised as an Investment Entitiy with bank account in USA
Board of Panama Foundation reports on:

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8. Example Reporting on Panama Foundation
Categorised as a Passive NFE with custodian account in USA and investment advisor in Andorra.
Investment manager (CRS Amendmnet in 2017) reports on:

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