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The rules surrounding the classification of an FI are complex. Broadly speaking, for family trusts, the trust will be classified as an FI if it meets the criteria for an ‘Investment Entity’. If the trust is not an FI it is a NFFE.
A trust will meet the criteria for an investment entity if it
Since a family trust is unlikely to have customers, only family members, it is unlikely to fall within the first criteria.
The test of being managed by a financial institution will be met where the Trust or its activities are being ‘professionally managed’. This will typically arise where the trustees have appointed a financial institution as a trustee, to manage trust activities, or as a discretionary fund manager. Note that engaging a financial institution purely to provide broker services, will not amount to management activity.
Should the trust be an investment entity it will have a registration and reporting requirement, whether or not the trust has any financial or other links with the US.
As noted above, should one of the trustees be a Reporting Financial Institution, the trust will be a Trustee Documented Trust. The trustee must register and report on the trust, and there is no individual trust registration or reporting requirement for the trust itself. It may be advisable for non-professional trustees to confirm with the Reporting Financial Institution trustee that the trust falls within the Trustee Documented Trust rules, and to keep a note of this on file.
In other circumstances, the trust can register with the IRS as a Foreign Financial Institution and report directly or appoint a third party to fulfil its reporting obligations (although note that all reporting obligations ultimately remain the responsibility of the trust). A registration will be required with the IRS who, on approval of the registration, will issue a Global Intermediary Identification Number (GIIN). The GIIN will then be required for registration with HMRC, and may also need to be provided to other institutions as evidence that the trust is compliant.
Alternatively the trust can opt to become a Sponsored Investment Entity, a Sponsored Closely Held Investment Entity or an Owner Documented Financial Institution (all of which require a third party sponsor or designated withholding agent). The trustees should discuss with the discretionary fund manager what FATCA services they can provide.
All FIs must be registered on the list to be published at 31 December 2014. Given that processing times are likely to increase towards the end of the year, it is recommended that registration is made as soon as possible to ensure that the FI is included on the list.
Registration for the HMRC FATCA service is now available using HMRCs on-line services. The first returns are due to be filed with HMRC by 31 May 2015. There are various detailed criteria which apply to determine whether an account is reportable to HMRC, depending on links with the US, and details can be found in the HMRC guidance. There is a requirement to submit a return even if there are no Reportable Accounts (a ‘nil return’).