Are Trust Companies Custodial Institutions Under FATCA and CRS?
A recurring AEOI classification question is whether trust companies—particularly those providing trustee and related fiduciary services—should be classified as custodial institutions under FATCA and CRS. The answer under both regimes depends heavily on how the entity earns its income.
Under FATCA (Treas. Reg. §1.1471-5(e)(1)(ii)) and the CRS (Section VIII, subparagraph A(4) and the accompanying Commentary), an entity is classified as a custodial institution if:
20% or more of its gross income over a three-year period (or since inception, if shorter) is attributable to holding financial assets for the account of others and providing related financial services.
What exactly constitutes “income attributable to holding financial assets and related financial services”?
According to the CRS Commentary, paragraph 10 of the Commentary on Section VIII, this income includes, for example:
- Custody, account maintenance, and transfer fees
- Commissions and fees earned from executing and pricing securities transactions with respect to Financial Assets held in custody
- income earned from extending credit to customers with respect to Financial Assets held in custody (or acquired through such extension of credit)
- income earned on the bid-ask spread of Financial Assets held in custody, and fees for providing financial advice with respect to
- Financial Assets held in (or potentially to be held in) custody by the entity
The FATCA regulations (Treas. Reg. §1.1471-5(e)(3)(ii)) contain a virtually identical definition of income attributable to holding financial assets and related financial services”.
Now consider the typical trust company: It earns fees for acting as trustee, company secretary, or director—fees that are unrelated to the custody or safekeeping of financial assets. Even where the trust company facilitates banking or investment relationships for the structures it administers, the financial assets are held not by the trust company itself, but by third-party custodians or banks.
Simply put, a trust company that does not earn custody fees or does not itself hold client assets on its balance sheet is not engaged in the kind of custodial business contemplated by FATCA or CRS.
Accordingly, most trust companies should not be classified as custodial institutions unless their business model truly involves direct custody of assets and earning income from that custodial relationship. Misclassifying such entities not only creates unnecessary reporting burdens, but also risks undermining the integrity of entity classification frameworks.
As always, classification must rest on a fact-specific analysis of income streams—not assumptions