Tax Residence of NFE Account Holder


missing image Report NFE account holder to wrong jurisdiction Ask 100 Financial Institutions where they report the NFE account holder to, and you will assuredly receive 100 incorrect replies.
The author, while presenting seminars in dozens of CRS jurisdiction to hundreds of Financial Institutions concludes unequivocally not a single CRS officer precisely follows the tax residency guidance of the CRS Commentary. Shockingly, some FIs do not report on the entity account holder at all. However, ubiquitously when a FI does report on the entity account holder it reports to the wrong or insufficient tax jurisdictions. At the risk of being called lazy, and without interpretation, I hereby replicate the relevant clauses of CRS 144 – 145 The following examples illustrate how an Entity’s residence for tax purposes may be determined:
Example 1: A company is incorporated in Jurisdiction A and has its place of effective management in Jurisdiction B. Under the laws of Jurisdiction A, residence for tax purposes is determined by reference to place of incorporation. The same applies under the laws of Jurisdiction B. Thus, the company is resident only in Jurisdiction A.
Example 2: Same facts as Example 1, except that, under the laws of Jurisdiction B, residence for tax purposes is determined by reference to place of effective management. Thus, the company is resident in both Jurisdictions A and B. Example 3: Same facts as Example 1, except that, under the laws of Jurisdictions A and B, residence for tax purposes is determined by reference to place of effective management. Thus, the company is resident only in Jurisdiction B.
Example 3: Same facts as Example 1, except that, under the laws of Jurisdictions A and B, residence for tax purposes is determined by reference to place of effective management. Thus, the company is resident only in Jurisdiction B. Example 4: Same facts as Example 1, except that, under the laws of Jurisdiction A, residence for tax purposes is determined by reference to place of effective management and, under the laws of Jurisdiction B, residence for tax purposes is determined by reference to place of incorporation. Thus, the company is not resident in either Jurisdiction A or B.
Reporting Financial Institutions are not expected to carry out an independent legal analysis of relevant tax laws to confirm the reasonableness of a self-certification. However, the OECD has facilitated easy validation of tax residency of place of incorporation and place of management on its tax residency web page.





Sample 1:Hong Kong and has its place of effective management in Brazil.
  • under the laws of Hong Kong, residence for tax purposes of an entity is determined by reference to place of incorporation
  • under the laws of Brazil, residence for tax purposes of an entity is determined solely by reference to place of incorporation (No CFC rules)

Thus, the company is tax resident only in Hong Kong.
Sample 2: Company incorporated in Hong Kong and has its place of effective management in China.
  • under the laws of Hong Kong, residence for tax purposes of an entity is determined by reference to place of incorporation.
  • residence for tax purposes of an entity in China includes reference to place of effective management
    • Thus, the company is tax resident in both Hong Kong and China.
Sample 3: Company incorporated in the Netherlands, and has its place of effective management in Mexico
  • under the laws of the Netherlands, residence for tax purposes of an entity is determined by reference to place of effective management
  • residence for tax purposes of an entity in Mexico includes reference to place of effective management.
Thus, the company is tax resident only in Mexico.
Sample 4: Company incorporated in the Netherlands and has its place of effective management in Brazil
  • under the laws of the Netherlands an entity residence for tax purposes is determined by reference to place of effective management
  • under the laws of Brazil, residence for tax purposes of an entity is determined solely by reference to place of incorporation
Surprise, surprise. The company is not tax resident in neither the Netherlands, nor Brazil. (controlling persons of Passive NFE will be reported.