The CRS states that an account holder which is a FI is a non reportable person.
CRS Commentary page 173
Ref CRS page 57, CRS Commentary page 192
|As a practical matter, an Investment Entity all the interests in which are held by or through non-Reportable Persons would generally not have any reporting obligations, irrespective of whether it qualifies as an Exempt Collective Investment Vehicle|
|2.||CRS guideline handbook page 45 defines FIs as non reportable persons||
Step 2: Is the Account Holder a Reportable Person?
99. The Reportable Jurisdiction Person will then be a Reportable Person unless specifically excluded from being so. In general, the specific exclusions are: a corporation the stock of which is regularly traded on one or more established securities markets and a Related Entity of theirs; a Governmental Entity; an International Organisation; a Central Bank; or a Financial Institution (which will itself be subject to the rules and obligations contained in the Standard).
Par 217 of the OECD guidelines clearly states trusts must look through any entity account holder to controlling person
"Where an Equity Interest (such as the interest held by a settlor or beneficiary) is held by an Entity, the Equity Interest holder will instead be the Controlling Persons of that Entity."
|As such, a FI trust will be required to look through a settlor or beneficiary that is an Entity (wheher entity is an investment entity or not) to locate the relevant Controlling Person. This look-through obligation should correspond to the obligation to identify the beneficial owner of a trust under AML / KYC. It doesn't state the entity must be passive NFE or not. For example use of a trust to settle a trust, still must id the original settlor... or use of a reporting FI protector, must still identify the controlling persons of the entity protector||2.||OECD FAQ Q7 page 2||
Reporting Controlling Persons of settlors that are Entities
The Standard provides that where the settlor of a trust is an Entity, Reporting Financial Institutions must also identify the Controlling Person(s) of the settlor and report them as Controlling Person(s). Are the Controlling Persons to be identified and reported only in the year of settlement, or also in subsequent years?
The identification and reporting of Controlling Persons of the settlor is required not only in the year of settlement but also in all subsequent years.
STEP CRS guidance on trusts.
Given that the construction of CRS treaties is a matter of domestic law, it is to be noted that where we reference STEP’s understanding of OECD Secretariat’s view, that does not mean this represents the only possible construction of the CRS treaty, and the local law must always be considered.
Issues relating to the identity of settlors
We understand the starting point for the analysis under CRS is to identify the settlor of a trust, and this is always relevant whether a Reporting Financial Institution or a passive NFE. In particular, we note from paragraph 69 of the commentary (at page 178) references made to 'any person treated as a settlor of all or a portion of the trust'. We also note from the handbook at paragraph 217, reference is made to the use of AML/KYC procedures and that, in general terms, Reporting Financial Institutions should rely on such procedures to determine the identity of Controlling Persons ‘where those procedures are in accordance with the 2012 FATF recommendations’.
Example 2: trust to trust appointment – in some cases, trusts are not established directly by a transfer of assets from an individual but by a transfer from an existing trust or similar entity such as a foundation. In these circumstances, applying AML/KYC principles, it would be necessary for a trustee of the receiving trust (Trust 2) to make enquiries of the appointing trust (Trust 1) as to who its economic settlor was when it was created.
|ii.||STEP meeting with OECD secretariate 1st October 2015||
Q.1 Paragraph 109 – time of identification of the Controlling Persons of an Entity
We note the requirement to follow FATF principles and essentially look through entities to their Controlling Persons. In many cases where trusts are established by individuals whose domestic law does not recognise trusts, the individual settlor may be advised to first transfer assets to a company that acts as the corporate settlor of the trust. For CRS purposes, in order to identify the individual who is the economic settlor of the trust, it is necessary to consider the ownership of the corporate entity and its ‘Controlling Persons’ at the time assets are contributed to the trust and not at the time that the report by the RFI is being prepared (where possibly ownership of the entity concerned may have changed or the entity may no longer exist).
The OECD Secretariat confirmed that for pre-existing customers, the RFI can rely on what they hold on file for AML purposes. For new customers, if the RFI is relying on AML processes to identify the Controlling Persons, the AML processes must be consistent with the 2012 FATF Recommendations.
Q 10. Paragraph 217 – look through Entities to Controlling Persons – where the Entity is a Reporting Financial Institution (RFI)
In the OECD Secretariat’s view it would be necessary to identify Controlling Persons in these circumstances. There was a discussion about certain types of structure where this could give rise to a problem, e.g. a corporate protector administered by a law firm which is owned by discretionary trusts established by the partners of that law firm. Following OECD Secretariat guidance would mean that Controlling Persons in relation to those discretionary trusts would also need to be disclosed even though they have no beneficial interest or control in the underlying trust of which the corporate protector acts as trustee. However, as noted in question 4, where the Reporting Financial Institution has information on the type of Controlling Person (such as being a protector), this must be included in the report. Doing so will enable the tax administration receiving the information to make appropriate use of the information in tax compliance actions.