Guernsey Trust Alert
12 April 2017
Under the Common Reporting Standard (“CRS”), trusts will usually either be regarded as an investment entity (and hence a financial institution (“FI”)) or a passive Non-Financial Entity (“NFE”). Whilst being a FI places reporting obligations on the trust itself, in the event that the trust is a passive NFE, it will be obliged to furnish identification of itself and its “controlling persons” to other FIs (for example, banks), with which it maintains financial accounts.
The definition of controlling person of a passive NFE is widely drawn and can even encompass individuals who may not even be aware that they may potentially be beneficiaries of discretionary trusts. This will inevitably cause issues where trustees of passive NFE trusts need to provide details of tax residence and tax identification numbers of beneficiaries to banks with whom the trust maintains an account.
In order to help mitigate the impact on passive NFE trusts, CRS contains an option for the alignment of the controlling persons of such trusts with those that would be regarded as “reportable persons” of an investment entity. If this option is taken up, then a beneficiary of a discretionary trust would only be reportable in the event that they actually received a distribution.
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