Guernsey: Stepping Up To FATCA

Last Updated: 28 April 2014
Article by Laila Arstall

Most Read Contributor in Guernsey, September 2018

Laila Arstall of Carey Olsen charts Guernsey's path to automatic exchange of information.

In 2013, UK Prime Minister David Cameron turned the political spotlight on international tax compliance, with his focus on trade, tax and transparency at the World Economic Forum in Davos. He was riding the current trend towards automatic exchange of information (AEOI), which has been given significant impetus by the global reach of FATCA-based reporting. However, compliance with FATCA, as implemented through US regulations, engages domestic principles of confidentiality and data protection for jurisdictions such as Guernsey, whose laws acknowledge and safeguard the legitimate interests of the individual to maintain privacy as regards their personal affairs.

Pathway to FATCA

In September 2012, Guernsey, along with the other Crown Dependencies, Jersey and the Isle of Man, announced its intention to negotiate an intergovernmental agreement (IGA) with the US to enable financial institutions based in Guernsey to comply with FATCA in a way that does not engage domestic laws of duty of confidentiality and data protection.

However, Guernsey required prior authorisation from the Crown to enter into an IGA with the US because international agreements are normally the preserve of sovereign states. The need to secure this authorisation gave the UK government leverage to insist that Guernsey (and Jersey and the Isle of Man) first agree to adopt a tax package including AEOI with the UK through a separate IGA, and a disclosure facility for UK tax defaulters with investments in the island.

Milestones on the path to FATCA

The first milestone was the signing of the Guernsey Disclosure Facility (GDF) on 11 March 2013. This is available to UK taxpayers with investments in Guernsey who have irregularities in their UK tax affairs, so they can come forward and clear all of their outstanding UK tax liabilities. The GDF, as with other disclosure facilities, sits alongside the framework for tax investigation, which, in turn, depends upon data gathered from as many sources as possible. This takes us to the next two milestones: the two new IGAs, one with the UK and the other with the US.

UK-Guernsey IGA

On 22 October 2013, Guernsey signed the UK-Guernsey IGA. Jersey and the Isle of Man signed broadly similar agreements, with certain island-specific differences.

The data to be reported to the States of Guernsey Income Tax Office (ITO) under the UK-Guernsey IGA relates to a specified person who is identified, pursuant to due diligence procedures (including applicable thresholds) set out in the IGA, as resident in the UK for UK tax purposes in respect of that person's interest in a financial account maintained by a Guernsey-based financial institution. Where the account holder is an entity with one or more controlling persons identified as a specified person resident in the UK for UK tax purposes, the reporting would be in relation to the specified person or persons.

AEOI will be reciprocal: UK-based financial institutions will report the same information on financial accounts held in the UK for Guernsey resident specified persons. Information will be exchanged between HMRC and the ITO under the UK-Guernsey tax information exchange agreement (TIEA), signed in 2009. Until October 2013, the TIEA only permitted information exchange on request. The amended TIEA will now also facilitate AEOI.

US-Guernsey IGA

The US-Guernsey IGA, signed on 13 December 2013, defines specified persons to include US citizens, and not just residents. As with the UK-Guernsey IGA, data to be reported will be exchanged with the US Internal Revenue Service (IRS), under the US-Guernsey TIEA signed in 2002, which has also been amended to permit AEOI, as well as exchange on request.

Draft guidance notes

On 31 January 2014, the three Crown Dependencies jointly issued draft guidance notes on implementation of the IGAs signed by each island with the UK and US. The starting point for the draftsmen of the guidance notes was the draft guidance published by HMRC on 14 August 2013 on the implementation in the UK of the US-UK IGA signed in 2012. The Crown Dependencies' draft guidance notes set out a common approach for compliance with both the US and UK IGAs. Where applicable, differences between the IGAs are noted.

The draft guidance notes, as currently published, are substantially the same for each island, subject to certain island-specific differences. The current draft is regarded as a work in progress and the views of local industry in each island are being sought.

The guidance notes aim to provide practical assistance to both business and staff of each island's tax office when dealing with entities affected by the IGAs and, in time, other bilateral AEOI agreements implementing FATCA-based reporting. The notes assist with particular questions, including 'Am I a financial institution?' and 'Do I maintain financial accounts?' The draft guidance notes do not include the draft regulations implementing, under domestic law, the IGA obligations for financial institutions based in the islands.

How it works

The GDF

Under the memorandum of understanding, HMRC's obligation is to make available a disclosure facility for UK taxpayers with irregularities in their UK tax affairs from 6 April 2013 to 30 September 2016. Guernsey's obligation is to require financial intermediaries (i.e. locally licensed financial service providers) to contact existing clients who are known to be relevant persons with an interest in relevant property to advise them about the GDF before the end of 2013 and again in the last six months before the facility expires. Guernsey financial intermediaries must also ensure that existing anti-money laundering obligations continue to be observed. It is currently understood that HMRC is considering extending the scope of the disclosure facilities to enable residents in the Crown Dependencies to clear UK tax liabilities.

There are rules governing eligibility to benefit under the favourable terms of the GDF even if the client is a relevant person with an interest in relevant property. Those rules of eligibility turn on whether the client is, or has been, subject to an investigation by HMRC. That is a matter for the client to determine, rather than the Guernsey financial intermediary.

UK-Guernsey IGA

Article 2 of the UK-Guernsey IGA sets out the data a Guernsey-based reporting financial institution would need to fi le with the ITO. The ITO would then transfer that information to HMRC under new paragraph 5A of the UK-Guernsey TIEA. The standard level of reporting is required for UK-based accountholders who are taxed in the UK on an arising basis on their worldwide income and gains, and an alternative reporting regime is available for UK-resident nondoms, who are taxed in the UK on a remittance basis.

US-Guernsey IGA

Unlike the UK-Guernsey IGA, the US-Guernsey IGA does not contain an alternative reporting regime. Moreover, all reporting Guernsey financial institutions and any entity that is a registered deemed-compliant entity, as defined under the US-Guernsey IGA, must be registered on the IRS FATCA portal and obtain a global intermediary identification number (GIIN). There is no current requirement to register with the ITO under either the UK-Guernsey IGA or the US-Guernsey IGA, or with HMRC under the UK-Guernsey IGA. However, a form of registration may be required to access each tax office's electronic reporting systems.

UK-Guernsey IGA's alternative reporting regime

Individuals who are tax-resident but not also domiciled in the UK can, where available, by election and payment of the appropriate remittance basis charge, claim to be taxed in the UK on a remittance basis for the relevant period. As a result, their UK tax liability is limited to UK-source income and gains, and worldwide income and gains that are remitted to the UK during the relevant period. Under the UK-Guernsey IGA, eligible individuals who have completed the election and annual self-certification process are subject to the alternative reporting regime, under which the Guernsey reporting financial institution will report gross payments and movements of assets from a UK source or from an undetermined jurisdiction to the reportable account in Guernsey. It will also report gross payments from the reportable account in Guernsey to the UK or undetermined jurisdiction. This is in place of account balances under the standard reporting regime.

The words 'unknown ultimate destination' were inserted so that correspondent bank transfers through the UK can be ignored. This means, if a sterling payment is made from the reportable account in Guernsey to an account in France, but goes via the UK because it is a sterling payment, the Guernsey reporting financial institution can ignore the intermediate transfer into the UK received by the correspondent bank.

Future developments

The GDF and the two IGAs are not the end of the story in terms of tax compliance and reporting for Guernsey-based financial service providers. Irrespective of what is going on with FATCA, the OECD, in close co-operation with the EU, launched on 13 February 2014 a new single global standard, referred to as the Model Competent Authority Agreement (CAA), to be supported by a Common Reporting and Due Diligence Standard (CRS). Under the CAA and CRS, jurisdictions will be required to obtain financial information from their financial institutions, which they automatically exchange with other jurisdictions annually. The CRS will set out reporting and due diligence rules and the CAA will contain rules on AEOI. The new standard is designed to be broad in scope, across three dimensions:

  • The financial information to be reported with respect to reportable accounts includes all types of investment income but also account balances and sales proceeds from financial assets.
  • The financial institutions required to report under the CRS not only include banks and custodians but also other financial institutions, such as brokers, certain collective investment vehicles and certain insurance companies.
  • Reportable accounts include accounts held by individuals and entities (including trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals who ultimately control these entities.

The CAA and CRS are likely to be implemented through the platform of the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters, and therefore Guernsey's request to the UK to extend the Convention to Guernsey (subject to permitted reservations) is a further illustration of Guernsey's commitment to tackling tax evasion and encouraging AEOI as the new global standard. From Guernsey's perspective, this would be a significant step towards creating a global level playing field in tax information exchange.

An original version of this article appeared in the STEP Journal, April 2014.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions