Transcript Understanding International Tax Reporting(including FATCA)

Understanding International Tax Reporting
(including FATCA)
Grant Morton
Learning & Development Consultant
Distributor Relations & Training
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Rick Mercer on FATCA
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Learning Objectives
By the end of this session, you will be able to:
 Describe international tax reporting, including what it is, its rationale
and Canada’s response
 Explain how international tax reporting impacts Manulife, advisors &
distributors, and the clients they support and;
 Identify where to go for further information
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Agenda
 What is international tax reporting?
 What it means for:
 Manulife
 Clients
 Advisors
 Additional resources
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What is International Tax Reporting?
Exchange of information between nations to learn
about offshore accounts
Governments are augmenting self-reporting (honour
system) tax regimes
Growing global focus on international tax
compliance & transparency
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Rationale for Multinational Tax Information
Offshore tax evasion seen as a serious growing
international problem
Law-abiding taxpayers pay more than their share
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What is FATCA?
 The U.S. is at the forefront of international tax reporting
 FATCA stands for Foreign Account Tax Compliance Act
 It is a new U.S. tax regulation aimed at reducing offshore tax evasion
through enhanced reporting
 Requires foreign (non-U.S.) financial institutions (FFIs) to report U.S.
account holders to the U.S. Internal Revenue Service (IRS)
 Will require reporting on all U.S. persons by potentially imposing punitive
withholding tax on FFIs who do not cooperate
 Does not impose new taxes – only helps ensure foreign income is
reported properly
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Foreign (Non-U.S.) Financial Institutions
 Examples of FFIs include most:
 Banks
 Life insurance companies
 Collective investment vehicles
 Hedge funds
 Mutual funds
 Trust companies
 Custodians
 Stockbrokers
 Investment banks
 A number of Manulife’s
businesses are considered FFIs
under FATCA
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Canada’s Response to FATCA
Canadian Income Tax Act and CRA guidance contain
new reporting requirements for financial institutions
and clients
Canada has negotiated an agreement with the U.S for
mutual sharing of information
This is consistent with Canada’s commitment to
developing a global standard for automatic exchange
of tax information
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Canada – U.S. Information Sharingslide
Agreement
Information about U.S. persons holding Canadian accounts
Canadian
Financial
Institutions
CRA
IRS
American
Financial
Institutions
Information about Canadian persons holding U.S. accounts
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Canada – U.S. Agreement – Key Benefits
 Avoids imposing U.S. rules on Canadian financial institutions
 Ensures Canada will receive equal reporting from the IRS
 Reporting to CRA allows Canadian privacy laws to be upheld
 Exempts most registered accounts from reporting
 Eliminates U.S. withholding taxes under FATCA and possible account
termination for non-responsive clients
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What International Tax Reporting Means for
Manulife
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Impact – New CRA Reporting Requirements
Who?
 Clients with “U.S. status” – I.e.,
U.S. persons, or entities with
substantial ownership by U.S.
persons
 Clients who fail to respond to
inquiries about their U.S. status
What?
 Name
 Address
 U.S. Taxpayer Identification Number
(TIN)
 Account and/or policy number(s)
 Account balances or values
 Amounts credited to the client’s
account, including interest, dividends
and other income
 Any withdrawals
 For accounts owned by non-U.S.
entities, the name, address and TIN of
each substantial U.S. owner
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Impact – New Accounts & Policies slide
 Financial institutions may collect the U.S. status of non-registered
account holders by asking questions such as:
Are you a U.S. Citizen or U.S. Resident for tax purposes?
If yes, please provide your Taxpayer Identification Number (TIN)
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7 Indicators of U.S. Status
 Financial Institutions will need to look for 7 indicators of a
person’s U.S. status. These indicators are:
1.
U.S. citizen or resident
2.
U.S. place of birth
3.
U.S. mailing or residence address (if not temporary)
4.
U.S. telephone number
5.
Standing instructions to transfer funds to an account maintained in
the U.S.
6.
POA or signing authority granted to a person with a U.S. address
7.
An “In-care-of” or “hold mail” address that is the sole address on
file for the account holder
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Impact – Preexisting Accounts & Policies
Manulife must review the U.S. status of clients who have certain nonregistered accounts opened before July 1, 2014 – does not apply to
cash value insurance policies or annuities owned by individuals
Individual account holders will be screened using the same 7
indicators
Clients will have an opportunity to confirm if they have
U.S. status or not
Investigations will be required prior to reporting
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Impact – Change of Circumstancesslide
Manulife must
monitor for
indicators of a
change in U.S.
status
Account and
policy
maintenance
forms have been
updated with new
questions to verify
U.S. status
Advisors and
distributors may
be asked to
collect and follow
up for this
additional
information from
clients
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Manulife Insurance Products Impacted
All cash value insurance policies are impacted including:
 Performax Gold
 Manulife UL
 InnoVision
 Security UL
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Manulife Investment Products Impacted
All non-registered Manulife Investments products are impacted
including:
 Manulife RetirementPlus
 GIF Select
 Manulife PensionBuilder
 Manulife Private Investment Pools
 Manulife Investments Guaranteed Interest Contracts (GIC)
 Annuities
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Manulife Bank Products Impacted slide
Non registered deposit products (individual and business):
 Individual Accounts:
 Business Accounts:
 Personal Advantage Account
 Business Advantage Account
 U.S. $ Advantage Account
 U.S. $ Advantage Account
 Personal GICs
 Business GICs
Mortgage products are also impacted, but remain part of the Banking
Consultants’ application process with clients
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What International Tax Reporting Means for Clients
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U.S. Person Tax Reporting
 U.S. persons must file annual
tax returns to the U.S. IRS,
regardless of where in the
world they reside
 This is different from most countries,
where tax reporting obligations are
based on residency
 This has always been the case and
is not a result of FATCA
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U.S. Persons - Individuals
 A U.S. person is defined in U.S. law
and examples include:
 A U.S. citizen
 A permanent resident (green card
holder)
 A person residing in the U.S. i.e., a
person who spends a significant
number of days in the U.S. each
year – the U.S. refers to these
individuals who meet its substantial
presence test as “resident aliens”
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Snowbirds
Snowbirds: Canadians who travel south every winter to
enjoy a warmer climate
The U.S. IRS uses a formula to establish whether a
snowbird should be classified as a resident alien for tax
purposes; if so, they would be a U.S. person under the
FATCA rules
CRA has a guide called “Canadian Residents Going
Down South” to assist Canadians in assessing their
international tax situations
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Temporary U.S. Address or Phone slide
Number
 A temporary U.S. address or phone
number may be confused as a
permanent address by financial
institutions, resulting in the U.S. tax
status questions being asked
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U.S. Tax Classification of Entities slide
 Entities are grouped into the
following broad categories:
1.
Entities organized in the U.S. (or
subject to U.S. law)
2.
Foreign (non-U.S.) Financial
Institutions (FFIs)
3.
Non-Financial Foreign (non-U.S.)
Entities (NFFEs)
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Foreign (Non-U.S.) Financial Institutions
 FFIs include most:
 Banks
 Life insurance companies
 Collective investment vehicles
 Hedge funds
 Mutual funds
 Trust companies
 Custodians
 Stockbrokers
 Investment banks
 FFIs must abide by international
tax reporting rules set out in the
Canadian Income Tax Act and
administered by the CRA
 Managing General Agencies
and Insurance Broker
Corporations are categorized as
NFFEs, not FFIs
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Non-Financial Foreign Entities (NFFEs)
 NFFEs are defined as any non-U.S.
entity that is not an FFI
 NFFEs include:
 Corporations
 Partnerships
 Trusts
 Estates
 NFFEs are classified as either active
or passive
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Active NFFEs
 NFFEs are generally classified
as active if:
 Less than 50% of their income is
investment income and;
 Less than 50% of their assets
held produce passive income,
such as: dividends, interest,
royalties etc.
 Accounts of active NFFEs are
not reportable
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Passive NFFEs
 Entities that do not pass the active
tests are passive
 Passive NFFEs must provide added
details regarding ownership and
control
 If beneficial owners or those
controlling the entity directly or
indirectly are U.S. persons, then the
entity and the beneficial owner
information is reportable under
FATCA
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What International Tax Reporting Means for Advisors
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Ways to Support Your Clients
 Advisors are the first person clients
will call for help
 You can support your clients by:
 Ensuring that their information is
captured accurately at financial
institutions
 Helping them obtain the right
information on CRA and IRS websites
 Providing historical account/policy
information and tax receipts as
needed
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International Tax Reporting is an Opportunity
 Earn trust
 Build loyalty
 Strengthen client relationships
 Improve retention
 Earn referrals
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Complex Tax Obligations & Advice slide
 While the financial planning services
that advisors provide their clients
often include tax planning, it is
inappropriate and illegal for advisors
or agents to assist clients in avoiding
legal tax obligations
 Advisors should direct their clients
with questions or issues about
complex tax obligations to obtain
independent tax advice
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Additional Training
Available in Repsource (Home) under Quick Links > CE Centre > CE
Centre > Doing Business > Compliance > Compliance Rules &
Regulations Learning Series > Understanding Int’l Tax Reporting
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Additional Resources
 To learn more about international tax reporting, visit the following
key resources:
 CRA website:
 Enhanced financial account information reporting
 Canadian Residents Going Down South
 IRS website:
 Foreign Account Tax Compliance Act
 FATCA Information for Individuals
 FATCA Information for Foreign Financial Institutions and Entities
 Do You Need to File a Federal Income Tax Return?
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