CRS and FATCA expert

Have You Been Tricked by your CRS Regulator Like This?

Peter Cotorceanu CRS, CRS Regulator, FATCA

Most fiduciaries are conscientiously trying to comply with FATCA and CRS as best they can. Therefore, it’s more than a little frustrating when regulators try to change the rules mid-stream—and in ways not authorised by local law.

In a couple of CRS countries, regulators have purported to impose obligations on Financial Institutions (FIs) that go beyond what local law requires. As a result, many FIs have, in the regulators’ minds at least, now unwittingly blown CRS deadlines. The specific jurisdictions are the British Virgin Islands (BVI) and Switzerland. And the obligations? To register on the local CRS registration portal. The deadlines were 31 July 2017 for the BVI and 31 December 2017 for Switzerland.

First a bit of background. Unlike FATCA, CRS as published by the OECD does not require FIs to register. However, many jurisdictions have taken it upon themselves to require at least some FIs to register for CRS. The registration requirements fall into three broad categories, depending on the jurisdiction:

  • Only FIs with Reportable Accounts must register.  This is the least burdensome approach—these FIs have to file reports anyway so requiring a specific registration obligation as well doesn’t add much work.
  • All Reporting FIs must register even if they have no Reportable Accounts. This approach exempts Trustee-Documented Trusts (TDTs) from registering since TDTs are Non-Reporting FIs.
  • All FIs—both Reporting and Non-Reporting—must register, again, even if they have no Reportable Accounts.

What did the BVI and Switzerland do? Well, it depends on what documents you refer to.

The BVI

Under the BVI CRS Law, a “Reporting Financial Institution that has reporting Obligations” must register. (The italics are mine.) (See section 28(1) of The Mutual Legal Assistance (Tax Matters) (Amendment) (No. 2) Act, 2015, available here.) Registration is referred to as “notification” in the BVI and requires enrolling on the BVI Financial Account Reporting System (BVIFARS) portal (available here). The fact that only FIs with reporting obligations must register is underscored elsewhere in the legislation, which also states that the notification must be provided by 30 April in the first calendar year “in which the Reporting FI is required to comply with reporting obligations” under the Act. (BVI CRS law section 28(3).) (Again, the italics are mine.) (Note: The BVI’s 2017 registration deadline was subsequently extended to 30 June then again to 31 July. For 2018 and subsequent years, it remains 30 April.)

Section 2.3 of the BVI CRS Guidance Notes (updated 28 November 2016, available here) accurately quote the BVI CRS law. More specifically, section 2.3 repeats the requirement that Reporting FIs must provide notifications no later than 30 April in the first calendar year “in which the Reporting Financial Institution is required to comply with the reporting obligations” of the law. (Italics are mine.) The BVI CRS homepage (available here) also confirms near the bottom that only a Reporting FI “that has reporting obligations” must register.

Notwithstanding all of these confirmations that only FIs with reportable accounts must register, the following is buried in section 4 of the BVI CRS Guidance:

  • NOTE: Under section 29 of the CRS law the filing of nil returns is not mandatory. However, the Financial Institutions with no reportable accounts will still need to complete the notification requirement via the Portal for CRS.”

In addition, a screen shot of the BVIFARS system included on page 7 of the BVIFARS User Guide (updated 21 December 2017, available here) confirms that “all BVI Reporting Financial Institutions are required to enroll with the BVI International Tax Authority using the form below”. (Italics are mine.) Even more telling is this unambiguous FAQ 5 towards the end of the User Guide:

  • 5. Are Financial Institutions required to enrol with BVIFARS if there is nothing to report? 

For US FATCA, No  . . . .

For CRS, yes. All BVI CRS Reporting Financial Institutions must enrol, regardless of whether they have reportable accounts for the reporting period. (Italics are mine.)

Are these references in the Guidance to FIs “with no reportable accounts” and in the BVIFARS Users Guide to “all” BVI CRS Reporting Financial Institutions mistakes? Hard to believe, especially given how explicit the FAQ is. Mistake or not, this much is certain: A massive number of BVI FIs that haven’t yet had any CRS reporting obligations have not yet registered on the BVIFARS website despite these statements.

Are they in trouble? It’s difficult to see how. Neither the BVI CRS Guidance Notes nor the BVIFARS Users Guide are law. Does that mean FIs should ignore them? By no means. It’s always good to stay onside with a regulator if you’re not violating any law by doing so. Although the BVI CRS law requires only FIs with reportable accounts to register, it does not prohibit others from registering. So if the regulator thinks you should (even if you don’t have to), there’s no harm in registering. I would therefore encourage all BVI FIs with no reportable accounts to register as soon as practicable. But I wouldn’t lose sleep over the fact that the registration is now months “late”. How can you be penalised for not complying with a “requirement” that has no legal effect?

Switzerland

All of the following documents unambiguously provide that “Reporting Swiss Financial Institutions” must register on the Swiss CRS registration portal. (Italics are mine.):

  • The Swiss Federal Act on the Automatic Exchange of Information in Tax Matters (AEOI) of 18 December 2015 (the Swiss CRS Act), Section 3, Art. 13
  • The Swiss Ordinance on the Automatic Exchange of Information in Tax Matters (AEOI Ordinance) of 23 November 2016 (the Swiss CRS Ordinance), Section 8, Art. 31
  • The Guidelines on the Standard for Automatic Information Exchange for Financial Accounts, Common Reporting Standard of 17 January 2017 (the Swiss CRS Guidelines), Section 9.1.1. (Unlike the CRS guidance in most countries, Switzerland’s CRS Guidelines are binding.)

(English translations of the Swiss CRS Act, Ordinance, and Guidelines are available for a fee from the Swiss Association of Trust Companies (SATC) by filling out the online form available here).

The Swiss CRS registration deadline was 31 December 2017, i.e., just a few days ago.

As mentioned earlier, Reporting FIs do not include TDTs. Accordingly, based on the Swiss CRS Act, Ordinance, and binding Guidelines, one would be forgiven for thinking that TDTs did not have to register. But one would be mistaken according to a CRS FAQ released by the Swiss Federal Tax Administration (FTA) on 13 December 2017, less than three weeks before the registration deadline. The German version of the FAQ is available here (click on “Auslegungsfragen” and then on “Registrierung von Trustee-Documented Trusts”). French and Italian versions are available here and here, respectively. An unofficial English translation of this FAQ is as follows:

  • Question
  • ​Who needs to register with the FTA in the case of a Trustee-Documented Trust (TDT) and how to fill in the CRS XML Schema?
  • Answer
  • ​The FTA has ruled that if the TDT concept is used, the Trust – regardless of the classification of the Trust as a non-reporting Swiss financial institution – registers with the FTA as the reporting financial institution and adds “TDT =” before its name. If the trust has no UID, the registration can be done without UID. In the CRS-XML schema, the name of the trust must be specified in the element “Reporting FI”. Again, add “TDT =” before the name. (Italics are mine.)

How can this be? The FAQ purports to impose registration requirements not mandated by the Swiss CRS Act, Ordinance, or Guidelines. Although the SATC has done a good job of notifying its members of this FAQ, many Swiss trust companies are not members of the SATC and will not have heard of this before now.

If you’re one of them, I would encourage you to take a deep breath. I’m not a licensed Swiss lawyer, but it’s hard to imagine how an FAQ that purports to impose obligations beyond what the law requires can carry any legal weight whatsoever. It’s also hard to imagine the Swiss FTA attempting to penalise any trustees for not registering their TDTs by 31 December, especially given the late publication of the FAQ. All of that said, I would encourage Swiss trust companies to try to stay onside with the FTA by registering their TDTs as soon as is practicable.

For what it’s worth, the BVI and Swiss regulators are not the only ones who have played sleight of hand with CRS registration requirements. As mentioned in a previous blog, the Cayman Islands CRS regulations and Guidance originally required only FIs with reportable accounts to register. The Guidance was subsequently revised to say that all FIs had to register. (See “The Cayman Guidance Notes: CRS on Steroids”, available here). But since that blog was written, Cayman has at least had the decency to go back and amend its CRS regulations to now require all FIs to register, thus once again aligning the regulations with the Guidance.

In sum, the bad news is that some CRS regulators are a little out of control when it comes to CRS registration requirements. The good news is that, last time I checked, most offshore jurisdictions were still governed by the rule of law, not by the rule of regulators’ whims. So . . .

  • if an FI has failed to register because it wasn’t legally required to do so
  • but the regulator (wrongly) thinks the FI must register anyway
  • and the registration deadline has since passed

. . . go ahead and register as soon as practicable, albeit “late”. But “Keep Calm and Carry On”. Again, how can a regulator penalise you when the registration “obligation” is not enshrined in a legally binding document?

I wish you all a wonderful 2018.