Reporting by FI on NFE resident in same jurisdiction

Inane advice is being propounded that if a Non Financial Entity (NFE) is tax resident in the same jurisdiction as the Financial Institution (FI) maintaining the account, then the FI will not report anything as per the Common Reporting Standard.
The ill-informed and ignorant do not seem to realise that there are two distinct reviews for reporting by the FI maintaining a financial account held by an entity. Many practioners incorrectly believe there is only one review.

  1. The first review of the account for reporting is regarding the Account Holder. There is no reporting on the Account Holder if the Account Holder is not tax resident in a reportable jurisdiction. An Account Holder is in a reportable jurisdiction if the jurisdiction of the FI has a Competent Authority Agreement with the competent authority of the tax residence of the Account Holder. A jurisdiction obviously does not have a CAA with itself, so an Account Holder tax resident in the same jurisdiction as the FI is not a reportable jurisdiction person.
  2. The second review of the account for reporting, irrespective of the reporting on the Account Holder in the first review, is with respect to the controlling persons of the Account Holder if the Account Holder is a passive NFE.

It is inane to believe there is no second review for reporting by the FI if there is no reporting in first review of the account.

Even more asinine, is the opinion that an investment entity in the same jurisdicton as the FI maintaining the account would have no reporting obligations. In this case, the investment equity would do due diligence on those that have equity and debt interest in the investment entity.
Once a FI has a Financial Account to review, it must determine if the Account is a Reportable Account. The account will be reportable if (a) it is held by reportable persons, or (b) by a Passive NFE which has controlling persons which are Reportable Persons. This requires two tests. The first test is in relation to the Account Holder. The second testis in relation to the controlling persons of a passive NFE.



So let us take an example of a Liechtenstein entity with a Liechtenstein bank account and Russian controlling persons of the Liechtenstein entity.
In the first test the Account Holder, the Liechtenstein entity, is managed in the same jurisdiction as the FI maintaining the account. Hence the FI will not report on the Account Holder. In the second test, which is done irrespective of the outcome of the first test, the FI determines if the Account Holder is a Passive NFE. If so, the FI undertakes due diligence on the controlling persons of the passive NFE. As the controlling persons in our example are Russian residents, the Liechtenstein bank will report on the controlling persons of the passive NFE.




What if the Passive NFE is owned by a Liechtenstein Trust or Foundation?

In this case the controlling person of the passive NFE is an investment entity, the trust. A FI is an excluded Reportable Person and so the Liechtenstein bank would or not look-through the Liechtenstein Foundation to determine the controlling persons.

However, the Liechtenstein Foundation, as an investment entity would report on reportable persons having equity and debt interest in the foundation, i.e. founder, council members, protectors, beneficiaries in certain cases, etc.