Automatic exchange of tax information (FATCA and CRS)

FATCA is the Foreign Account Tax Compliance Act valid in the United States.

The purpose of the act is to prevent tax evasion in the US. By virtue of FATCA, financial institutions must identify US Reportable Persons among their customers.

FATCA has been or will be transposed into local legislation in several countries, including all Nordic and Baltic countries.

As a result of FATCA, financial institutions are under an obligation to identify those of their customers that are US persons, companies and corporations and subsequently report information about financial accounts and assets held by these customers, directly or indirectly, on an annual basis. The financial institutions usually report to the local tax authorities in their respective countries.

FATCA has been or will be transposed into local legislation in each Nordea country. An exception to this is Russia where Nordea has signed an agreement on compliance directly with the IRS.

Thus Nordea must comply with the FATCA requirements in each country and review all current and new customers to confirm their FATCA status. Where necessary, Nordea will contact customers for further information.

Nordea must also withhold tax on FDAP (fixed or determinable, annual or periodical) payments from a US source to certain financial institutions that do not comply with FATCA.

No. FATCA and the related local laws only regulate the customer due diligence and reporting that financial institutions must perform. It does not affect the tax laws you as a person must consider.

Nordea recommends that you consult a tax professional if you have any questions regarding tax rules.

Nordea must:

• Conduct a review of existing and new customers to identify those that are US reportable under FATCA.
  
• Report information to the local tax authorities about all accounts held directly or indirectly by US persons. In Russia and Switzerland Nordea reports directly to the IRS.
• Nordea will also have to report information about accounts and other assets held by customers who do not respond to questions regarding their US status.
• Withhold tax on FDAP (fixed or determinable, annual or periodical) payments from a US source to certain financial institutions that do not comply with FATCA.

No, all financial institutions are required to comply with the requirements of FATCA. However, their approach may differ from the one taken by Nordea.

The information to be submitted on the year 2014 includes name, address and US taxpayer identification number as well as account numbers and balances.

No. The law specifies a number of criteria that financial institutions must look for in respect of all customer accounts in order to determine if someone may be a US person. Customers that meet any of these criteria may be contacted in order to obtain further information:

• US citizenship or residence
  
• US place of birth
• Work permits (“Green Cards”)
• Persons who spend a significant number of days in the US each year
• US address in the beneficiary register
• US telephone number in the beneficiary register
• Recurring payments to an account maintained in the US
• Powers of attorney or signatory authority granted to a person with a US address
• Instances where a “care of” address or post office box address is the only address known to Nordea.

Note that financial institutions are required to search their customer bases for indications of US persons. They may therefore contact customers who in fact are not US persons.

If you are a US person, Nordea may contact you in order to obtain further documentation. You may also wish to determine if you are required to submit any other information to the US authorities.

Note that Nordea cannot give you any advice on this, so please contact a professional tax adviser.

Nordea is required to report information about you and your accounts to the local tax authorities annually. In Russia and Switzerland Nordea reports directly to the IRS.

Most customers who are not US persons will see no impact and will not be required to act.

However, Nordea may contact you to confirm your status as a non-US person if there is reason to believe that you may be a US person for FATCA purposes.

Note that if you have a joint account with a US person, this account will be treated as being subject to the FATCA regulations.

Since you own a large part of the shares of a company, you are most likely a beneficial owner/controlling person in that company.

Nordea may be required to report information about you, but that depends on the business your company is conducting. If your company’s business is “passive”, Nordea must report information about you if you are a beneficial owner/controlling person in that company. A company may be seen as passive if, for instance, more than 50 per cent of the income of the company consists of interest or dividends.

Are only US companies affected?

No, FATCA has a wider impact that goes beyond just US companies.

Nordea will contact many customers worldwide to determine their FATCA status in order to be able to classify each customer. This may take place using Nordea forms or US tax forms, depending on what information is needed.

Nordea will contact affected customers and provide full details as to what information is needed and what forms must be completed for FATCA purposes. 

When Nordea contacts a customer, we will either include the relevant forms or provide links to a website from which they can be downloaded.

Under the FATCA regulations, financial institutions are under an obligation to treat customers who do not provide the information requested as US reportable persons. This means that Nordea will report the same information about such customers to the local tax authorities as it will about those who have provided documentation confirming their status as US persons.

In some exceptional circumstances, financial institutions may be required to withhold tax on certain payments from US sources coming into accounts held by customers who have not provided the information requested.

CRS ("Common Reporting Standard") is a global standard for the automatic exchange of information on financial accounts. The standard requires financial institutions to identify financial accounts held by customers with a tax residence in another state or jurisdiction other than its own. The objective of CRS is to fight international tax evasion.

CRS entered into force on the 1st of January 2016. All financial institutions must by then:

• identify new individual and entity customers’ tax residencies (including customers that only have a domestic tax residency),
  
• review existing individual and entity customers in order to identify customers with a tax residency outside the bank country (end date 31 Dec 2018),
• identify certain corporate/entity customers, and their beneficial owners/controlling persons who have a tax residency other the bank country, and
• report the customers with other tax residency/-ies than the bank country to the local Tax Authority.

The CRS regulation is based on the FATCA regulations, but CRS also differs in significant aspects in comparison with FATCA. The main difference is that CRS encompasses numerous countries and customers compared to FATCA which only covered the United States and account holders who have a tax residency in the United States.

All EU Member States are participating in CRS and have signed an agreement on automatic exchange of financial information (the DAC II directive).

CRS affects individuals and corporates/entities that are tax resident in any country other than the bank country, and who holds a product in scope for the CRS.

The term ‘tax residence’ means that a person is resident in a country (tax residence) for tax purposes in accordance with internal law.

Corporate/Entity

Generally, an entity will be resident for tax purposes in a jurisdiction if, under the laws of that jurisdiction, it pays or should be paying tax therein by reason of its domicile, residence, place of management or incorporation, or other criterion of a similar nature.

Subsidiaries/Branches of entities:

The tax residence of the branch of an entity is normally only in the country of tax residence of the entity to which the branch belongs. Example: a Swedish subsidiary/branch of a Danish company normally only have tax residence in Denmark.

When is an entity tax resident in another country?

The domestic laws of the other countries lay down the conditions under which an entity is to be treated as tax resident. They cover various forms of attachment to a country which, in the domestic tax laws, form the basis of a comprehensive taxation (full tax liability).

Individuals

In general, tax residence is the country in which you live. Special circumstances (such as studying abroad, working overseas, or extended travel) may cause you to be resident elsewhere or resident in more than one country at the same time.

When is an individual tax resident in another country?

In general, the tax residence is the same as the permanent residence or whereabouts. However, each country has its own set of rules for determining tax residence.

For more information about tax residency rules in a certain jurisdiction, please visit the OECD Automatic Exchange Portal at: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/#d.en.347760.

If the customer has questions about how to determine their tax residency, the customer should consult a tax advisor or contact their local tax authority.

Banks and other financial institutions such as securities institutions, fund management companies, investment companies and life insurance companies are obliged to identify all of their customers according to the CRS regulation. Further these institutions must report customers and their customers’ financial assets to the tax authorities.

The tax authorities will in turn send the data to the tax authorities in other CRS-countries.

Sekä yhteinen raportointistandardi että FATCA kuuluvat asiakkaan tuntemisvelvollisuutta koskeviin menettelyihin. Nordea esittää asiakkaille uusia kysymyksiä, kun he esimerkiksi avaavat uuden tilin tai sijoittavat rahoitusvaroja tai kun heille maksetaan summia henkivakuutussopimuksista.

Kysymysten avulla Nordea voi tunnistaa ne asiakkaat, joista sen pitää raportoida veroviranomaiselle.

The customer needs to answer the questions asked by the bank/other financial institutions. If the customer is liable to tax in one or more countries other than the bank country, we might ask the customer to fill out a self-certification. In this self-certification the customer should provide their tax residencies and TIN(s) ("Taxpayer Identification Number").

The term Taxpayer Identification Number (TIN), or similar, is a unique combination of letters or numbers assigned by a jurisdiction to an individual or an entity for tax administration purposes.

Some jurisdictions do not issue a TIN. If so, the customer must state so. However, most countries issue TIN and if that is the case, the customer must provide its TIN.

Please note that the customer in certain situations may not have a TIN and must in such cases apply for a TIN according to local regulations.

Further details on jurisdiction specific TIN formats can be found at: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers/#d.en.347759

Nordea will start collecting information relating to CRS in the beginning of 2016. The first time Nordea will report under CRS is in 2017.

Please note that the customer in certain situations may not have a TIN and must in such cases apply for a TIN according to local regulations.

Furtherdetails on jurisdiction specific TIN formats can be found at: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers/#d.en.347759.

Dodd-Frank (“US restrictions”)

Under Dodd-Frank, it is the residence/domicile in the USA that is decisive. I e the requirements differ from FATCA (where also US citizenship is important).

FATCA

In case the customer is tax resident in the U.S, i.e. holds a U.S. Citizenship or e.g. “green card”, FATCA (the national laws implementing FATCA) will apply. Under these laws the customer have to provide a self-certification including TIN, etc. You can find more detailed information about FATCA on nordea.com. FATCA is applicable to both natural and legal persons..

CRS

The CRS regulation affects customers with a tax residency other than the bank country. The CRS is applicable to both natural and legal persons.

With respect to the year 2016 and onwards on an annual basis, the Nordea will report the following information starting in 2017:

• balance/value on depository accounts, custodial accounts, insurances and fund accounts
  
• information about interest, dividends and other returns
• gross proceeds and gross amounts (for example from sale of securities and equity and/or funds), and redemption payments.
• For "Passive Non-Financial Entities", we will also report the beneficial owners/controlling persons that have a tax residency other than the bank country.

The following accounts are considered to be Excluded accounts (no reporting):

• pension related insurances and pension savings accounts which meet certain criteria
  
• accounts held by estate,
• escrow accounts and,
• accounts held by publicly traded corporations or a related entity of such publicly traded corporation.

A customer who is liable to submit a tax return where he/she has a tax residency but has not submitted a tax return, should submit a tax return afterwards.

If a person voluntarily submits a tax return via a posteriori (self-correcting), any penalties are normally lighter compared to if a tax authority discovers any failure to submit a tax return and pay taxes.

Credit of tax, to avoid double taxation, may in some cases be allowed for income taxed in another country. This depends on whether there is a double taxation treaty between the countries in question.

We should recommend the customer to contact a tax advisor in case the customer needs assistance with correcting a tax return or has questions how this procedure works. Generally, we may recommend any of the major accounting firms (PwC, EY, Deloitte, KPMG) as they usually have local contacts in all countries and can handle any issues that may come up because of the tax liability in another country.

A company (other than a financial institution) is considered active if the company’s:

1) income to more than 50% comes from sales of goods and services and

2) whose assets more than 50% is attributable to business activities relating to the sale of goods and services

Active companies includes, for example:

• A company whose revenue to more than 50% derives from manufacturing and/or sale of goods and/or services.
  
• A listed company or a related company (subsidiary/affiliate) of a listed company
• Governmental entities/units and international organizations and companies owned exclusively by such entities
• Foundations, non-profit organizations, registered religious communities and other legal entities that are exempt from tax under Chapter 7. 3-17 §§ in the Swedish Income Tax Law.

A company (which is not a financial company) is considered passive if:

1) more than 50% of its income is passive or

2) more than 50% of its assets are those that generate passive income.

Passive income can be, for example, dividends and interest. It can also be rent and royalties if the company does not have employees. Further, it may be annuities (often related to life insurances), capital gains/profits on the sale of assets/property that can produce passive income, certain insurance return or payment/redemption.

A financial institution is a company which is a depositary institution (typically companies that manage depository accounts), custodial institutions (companies offering custodial accounts or similar to customers), investment entities (typically investment funds) or an insurance company which offers savings products such as an endowment insurance.

A The term beneficial owner/controlling person mean the natural persons who exercise control over an entity. For this purpose control includes direct or indirect ownership of more than 25 per cent of the entity’s financial assets.