Why can’t I classify my entity for both CRS and FATCA at the same time?
This is not logistically possible. While CRS and FATCA have many similarities, they also have many differences—sometimes major, sometimes subtle.
An example of just one major difference is that, under CRS, if an entity satisfies the criteria for both an Investment Entity Financial Institution (FI) and one of four types of Active Non-Financial Entities (NFEs), the latter classification trumps the former, i.e., the entity will be an Active NFE. This is an exception to the general rule that FI status trumps NFE status. In contrast, the FATCA Inter-Governmental Agreements (IGAs) contain only one “trumping” provision, and it applies to charitable NFFEs, which are not one of the four types of trumping Active NFEs under CRS. The U.S. FATCA Regulations also contain a trumping provision for certain so-called “Excepted NFEs”, but it applies to different types of entities than the ones to which the CRS trumping provision applies.
An example of a subtle difference between CRS and FATCA is that, under CRS, if certain conditions are met, an entity is an Investment Entity FI if it derives most of its income from investing, administering, or managing “Financial Assets or money” on behalf of other persons. In contrast, the corresponding definition under the IGAs refers to “funds or money” whereas the corresponding definition under the U.S. FATCA Regulations refers to “funds, money, or financial assets”.
Because of the various differences between CRS and FATCA, the questions that the AEOI Classification tool asks vary—sometimes subtly and sometimes substantially—depending on whether the classification is being made for CRS or FATCA purposes and, if for FATCA, whether the classification is being made under a FATCA IGA or the U.S. FATCA Regulations. Thus, it is simply not possible to classify an entity for both CRS and FATCA at the same time.
The AEOI Classification tool has specific questions concerning British Virgin Islands (BVI) private-client investment and succession planning structures. Does the tool also have BVI-specific questions concerning other types of entities?
Not in this first version of the tool. However, the upcoming versions of the AEOI Classification tool will have an entire BVI-specific classification path that takes into account BVI’s CRS and FATCA legislation and Guidance Notes and BVI’s FATCA IGA. For now, though, BVI entities that are not private-client investment and succession planning structures are asked the same questions as entities from all other countries, and—just like all other entities—their classifications are based on the OECD CRS, the Model FATCA IGAs, and (where relevant) the U.S. FATCA Regulations.
Will more country-specific classification paths that take into account local FATCA and CRS legislation, regulations, Guidance Notes, FAQs, etc. be added to the AEOI Classification tool?
This will depend on demand. Please email us at [email protected] if you would like us to create a country-specific classification path for a specific country.
The AEOI Classification tool classifies companies, partnerships, and trusts. What if my entity is something else, e.g., a foundation, a Stiftung, a Kommanditgesellschaft, an Anstalt a Trust reg., or any other type of entity?
In such cases, you should treat your entity as the same as its closest analogue. For example, as the CRS/FATCA Dictionary definitions of Trust, Foundation, Company, and Partnership respectively make clear, foundations and Stiftungs are generally treated as trusts for FATCA and CRS purposes, Anstalts and Trust reg.s are generally treated as companies for FATCA and CRS purposes, and Kommanditgesellschafts are generally treated as partnerships for FATCA and CRS purposes.
I am quite familiar with CRS and FATCA and with their various definitions. Do I really need to consult the CRS/FATCA Dictionary for terms that are underlined in the AEOI Classification tool?
Absolutely. The CRS/FATCA Dictionary is a crucial part of the AEOI Classification tool. No matter how familiar you may be with CRS and FATCA definitions, you must consult the CRS/FATCA definition for all terms underlined in the AEOI classification tool. The CRS/FATCA dictionary does not just define the various terms but also points out ambiguities, potential interpretations, and the consequences of adopting the various interpretations. Failure to consult the CRS/FATCA Dictionary may very well result in a misclassification.
CRS and FATCA are not always crystal clear. How does the AEOI Classification tool handle grey areas?
Ambiguous terms are included in the CRS/FATCA Dictionary. The Dictionary sets forth the various interpretations and then says how those interpretations are likely to effect the ultimate classification of an entity, e.g., whether the entity is more likely to be classified as an FI an NFE and, if an NFE, as an Active or Passive NFE. However, the Dictionary does not stop there. It then discusses the consequences of each of the potential classifications. Thus, users are given all the information necessary to make an informed decision as to which interpretation to adopt where more than one reasonable interpretation is available.
Can you guarantee that a regulator or a Financial Institution such as a bank will agree with the classification generated by the AEOI Classification tool?
No. Given the ambiguities in many aspects of CRS and FATCA, reasonable people may differ as to how an entity ought to be classified. Indeed, as discussed in the answer to the previous question, the AEOI Classification tool’s CRS/FATCA Dictionary informs users of ambiguities and gives them the information necessary to make an informed decision as to which interpretation to adopt. Thus, different people using the tool but making different decisions as to how to interpret an ambiguous provision may end up classifying the same entity differently just as in real life two individuals may classify an entity differently.
That said, we are experts in CRS and FATCA and have taken every effort to ensure that the classifications generated by the AEOI classification tool are reasonable based on the OECD’s CRS, the FATCA IGAs, and the U.S. FATCA Regulations as applicable.
Finally, of course, the tool’s classifications necessarily depend on your answers to the various questions.
For FATCA purposes, my entity’s IGA country also allows the use of the definition of an Investment Entity in CRS. Does the AEOI Classification tool allow IGA entities make this choice?
Yes, if the IGA country permits this option, the AEOI classification tool permits it as well.
My entity’s FATCA IGA country allows the use of definitions in either the IGA or the U.S. FATCA Regulations. Does the AEOI Classification tool allow IGA entities to make this choice?
Yes, if the IGA country permits this option, the AEOI classification tool permits it as well.
Can the AEOI Classification Tool classify U.S. entities?
Can the AEOI Classification Tool classify entities incorporated in a U.S. Territory such as the U.S. Virgin Islands?
Does the AEOI Classification tool take into account U.S. “entity classification” elections, otherwise known as “check the box” elections?
My entity’s IGA country says that U.S. “entity classification” elections, otherwise known as “check the box” elections, should be ignored. Does the AEOI Classification tool allow entities to ignore such elections?
Yes, if the IGA country says that U.S. “entity classification” should be ignored, the AEOI Classification tool also permits such elections to be ignored.
Why are the U.S. FATCA Regulations’ definitions of “Excepted NFFEs” incorporated into the AEOI Classification tool for entities that are covered by an IGA even though the IGAs don’t have this category of entity?
Because the IGA definition of an “Active NFFE” specifically includes any entity that is “excepted NFFE” under U.S. FATCA Regulations
Does the AEOI Classification tool follow the OECD’s CRS FAQs?
For the most part, yes. However, following the OECD’s FAQs is required only if the entity in question is resident in a country that mandates following the FAQs. The CRS/FATCA Dictionary notes where the OECD’s FAQs are arguably inconsistent with CRS itself and—unless the entity in question is resident in a country that mandates following the FAQs—gives users the option of following either CRS itself or the OECD CRS FAQs.
Will the AEOI Classification tool be updated to take into account changes in FATCA and CRS, including the OECD’s proposed amendments to CRS and country-specific changes?
Yes, but country-specific updates will depend on demand. A country-specific classification path will be decommissioned rather than updated if demand for that specific country does not warrant the time and expense of updates.
The definitions in the CRS/FATCA Dictionary of the following FATCA terms are quite complex: Expanded Affiliated Group (EAG), Nonfinancial Group, and Participating FFI Group. Can these be simplified?
No. The definitions come from the U.S. FATCA Regulations, which are unfortunately hyper-technical. We have done our best to explain the meaning of these terms in the CRS/FATCA Dictionary. However, oversimplifying the definitions runs the risk of misclassifications. If, after reading the CRS/FATCA Dictionary definitions of these terms, you are still unsure of whether your entity is a member of an EAG, Nonfinancial Group, or Participating FFI Group, please consult your tax team or a qualified FATCA advisor.
The AEOI Classification tool classifies entities as Financial Institutions (FIs), Passive NFEs, and Active NFEs including specific subcategories of these classifications. Does the tool categorise FIs as Reporting or Non-Reporting FIs under CRS or, for example, as Sponsored Investment Entities (SIEs), Sponsored Closely Held Investment Vehicles (SCHIVs), or other types of Deemed-Compliant Financial Institutions under FATCA?
No. The categories of Reporting and Non-Reporting FIs under CRS and Sponsored Investment Entities, Sponsored Closely Held Investment Vehicles, and other types of Deemed-Compliant Financial Institutions under FATCA determine whether and to what extent an FI must comply with CRS or FATCA. Sometimes this categorisation is automatic (for example, certain retirement funds are automatically Nonreporting FIs under CRS) and sometimes it depends on the FI’s choice (for example, whether an entity is treated as an SIE or SCHIV under FATCA). Such compliance categories are beyond the scope of the AEOI Classification tool.
How long is my entity classification valid?
Entity classifications are valid for only so long as CRS, FATCA, and any applicable local legislation, regulations, Guidance Notes, and FAQs, not to mention the specific circumstances of the entity in question, have not changed. In addition, many criteria for classifying entities look back to the entity’s income or assets in previous years, and these can vary—sometimes substantially—from year to year. Therefore, we strongly recommend that classifications be updated no less frequently than once a year and, in any event, whenever CRS, FATCA, or—for country-specific classification paths—local CRS and FATCA implementation legislation, regulations, Guidance Notes or FAQs have been amended.