The Canadian Institute's CRS Compliance Forum …...Legislative proposals to implement the CRS Legislative proposals for consultation were released on April 15 and July 29, 2016 Effective

The Canadian Institute'sCRS Compliance Forum

October 18, 2016

22

Overview

1) Political commitment & international engagement

2) Legislative proposals to implement the CRS

3) CRA guidance & self-certification forms

4) Legislative proposals to amend Part XVIII of the ITA

5) Part XIX Information Return

Political commitment & international engagement

As of July 26, 2016, 101 jurisdictions had

committed to implement the CRS

104 signatories to the Multilateral Agreement

Convention (MAC) and 84 signatories to the

Multilateral Competent Authority Agreement

(MCAA)

Global Forum is monitoring its

implementation 3

Legislative proposals to implement the CRS

Legislative proposals for consultation were released

on April 15 and July 29, 2016

Effective July 1, 2017 with first exchange in 2018

Big bang approach

Fewer carve-outs than the IGA

CRA website will list the participating jurisdictions

Penalties

Tabling expected in fall 4

Certain comparisons

5

Issue CRS vs. IGA Impact

Place of tax

residence

Under the CRS the

classification is based on

residency rather than

citizenship or nationality.

More than one tax

residency may be

applicable.

TIN / date of birth Both required under the

CRS. IGA requires

recorded DOB if TIN not in

records.

To enhance matching in

multilateral context.

Indicia Differences between the

CRS and IGA.

In both cases the indicia

must be cured.

Thresholds Unlike the IGA, no de

minimus threshold for

preexisting individual

accounts and cash value

insurance / annuity

contracts.

More accounts to review.

Certain comparisons

6

Issue CRS vs. IGA Impact

Thresholds Unlike the IGA, the US$250,000

threshold for entity accounts does not

apply to new entity accounts only to

preexisting entity accounts.

More accounts

subject review.

Definition of

passive

NFEs

Unlike the IGA, the CRS defines

investment entities in non-participating

jurisdictions as passive NFEs.

Need to look through

the passive NFE to

identify controlling

persons.

New

accounts

Under the CRS, you need self-

certification for new accounts.

Changes proposed under Part XVIII to

remove alternative procedure.

Better alignment

between the CRS

and the IGA.

Excluded

accounts

The CRS does not exclude TFSA

however it includes dormant accounts.

More accounts

subject to review.

Certain comparisons

7

Issue CRS vs. IGA Impact

Financial

accounts

Unlike the IGA, the CRS does

not exclude equity or debt

interests from the definition of

financial account on the basis

of whether they are regularly

trade on an established

securities market.

However, the results are

intended to be the same

and it is therefore

acceptable for a financial

institution to use the

definition of financial

account in Part XIX for the

purposes of Part XVIII.

Personal

trusts

CRS allows outcomes

consistent with IGA.

Better alignment between

the CRS and the IGA.

Non-reporting

FIs

IGA includes deemed compliant

FIs (e.g., local bank) and

exempt beneficial owners

whereas CRS does not.

Certain listed financial

institutions that are not

reporting Canadian FIs

under Part XVIII are within

scope of reporting under

the CRS.

Reporting financial institutions

It is a three-step process to determine whether an

entity has a potential reporting obligation in Canada

under Part XIX:

• You must first determine whether the entity is a financial

institution for the purposes of Part XIX.

• If an entity is a financial institution, you must then

determine whether it is a Canadian financial institution.

• If that is the case, you must finally determine whether it is

a reporting financial institution.8

Reportable accounts

Accounts maintained by a reporting financial institution.

Held by one or more reportable persons or a passive NFE with one

or more controlling persons that are reportable persons.

Once a reporting financial institution has identified the financial

accounts it maintains, it needs to review them to identify the

jurisdiction in which the account holder is a resident for tax purposes.

If no accounts are reportable nil reporting is not required.

9

Reportable persons

A reportable person means an individual or an entity

resident in a reportable jurisdiction other than:

• a corporation the stock of which is regularly traded on one or

more established securities markets;

• any corporation that is a related entity of a corporation described

previously;

• a governmental entity;

• an international organization;

• a central bank; or

• a financial institution (however, where the entity is resident in

Canada it has to be a Canadian financial institution).10

Reportable jurisdiction

For the purposes of the Part XIX, a reportable

jurisdiction means a jurisdiction other than

Canada and the United States.

11

Categories of financial accounts

12

Due diligence procedures for preexisting individual accounts Aggregation of the accounts

Enhanced review procedures for high value accounts

• Electronic record search

• Paper record search

• Relationship manager enquiry

Review procedures for lower value accounts• Residence address test based on documentary

evidence

• Electronic record search

Curing indicia – self-certification or documentary evidence

13

Due diligence procedures for preexisting entity accounts Aggregation of the accounts

US$250,000 thresholds

Review information maintained for regulatory or

customer relationship and AML/KYC procedures

to determine if the account holder is a reportable

person

If the entity is not a reportable person, you must

determine if the entity is a passive NFE with one

or more controlling persons that are reportable

persons

14

Filing requirement

FI will have to file a Part XIX information return to the CRA by

May 1 of the following calendar year

CRA will transmit information to its exchange partners

Information to be reported include:

• Name and address

• Jurisdiction of residence

• Tax identification number (if applicable)

• Date of birth (if applicable)

• Account number, balance or value

• Income flows (interest, dividends, other income, total gross amount)

• Gross proceeds from sale or redemption of property

15

Tax identification number

If not in your record, you have until the end of the

second calendar year from when the account is

identified as a reportable account to obtain TIN

FI should request the TIN from their account

holders as soon as the account is identified as a

reportable account

Account holders have 90 days to apply for a TIN

and 15 days to provide it to their FI unless their

jurisdiction of residence does not issue TIN

A $500 penalty may be imposed on account

holders who fail to comply16

CRA guidance & self-certification forms

Draft released to the Financial Institution

Associations on October 14, 2016

60-day consultation period

Based on proposed legislation

Final guidance and self-certification forms to be

published after the legislation received Royal

Assent

17

Self-certification forms

Self-certification forms to assist financial institutions that are required

to comply with Part XIX:

• RC520: Tax Residency Self-Certification for Individuals – Part XIX of the Income

Tax Act

• RC521: Tax Residency Self-Certification for Entities – Part XIX of the Income Tax

Act

Combined self-certification forms to assist financial institutions that

are required to comply with both Part XVIII and Part XIX:

• RC518: Tax Residency Self-Certification for Individuals – Part XVIII and Part XIX

of the Income Tax Act

• RC519: Tax Residency Self-Certification for Entities – Part XVIII and Part XIX of

the Income Tax Act18

Legislative proposals to amend Part XVIII of the ITA Paragraph 265(2)(c) is replaced by the following:

• for new individual accounts, other than accounts described in paragraph A of section III of Annex I to the agreement, the procedures described in paragraph B of section III of Annex I to the agreement.

Paragraph 265(3)(b) is replaced by the following:• if the account is a new individual account described in

paragraph A of section III of Annex I to the agreement,

• the procedures described in paragraph B of section III of Annex I to the agreement.

Effective July 1, 201719

What does it mean?

From July 1, 2014 to June 30, 2017, a financial institution can determine the status of a new account holder using either the self-certification or the documentary evidence procedures.

It is proposed that effective July 1, 2017, paragraphs 265(2)(c) and (3)(b) of the ITA will be amended to eliminate the ability to use the documentary evidence procedures.

If a new financial account is opened between June 30, 2014 and July 1, 2017, and the documentary evidence procedures is applied at that time to determine the status of the account holder, the financial institution can continue to rely on that determination for the account, until a change in circumstances occurs.

20

Information reporting

SimilarDue diligence

BN RZ, accesses and authorizations

Prepare the information return summary and slips

File electronically with Internet file transfer (XML) or with

Web forms – No paper

File by May 1st – Late filing penalty

Exchange by end of Sept.Receiving jurisdiction validations

Notifications21

Information reporting

ParticularsUnique DocRefIDs for each record

CRA validations

Download incomplete records – EmailCSV file on My Business Account/Represent a Client

File amended return if applicable

Change

Destination? Multiple jurisdictions vs. a single country

Increased complexity sorting records to exchange with

multiple jurisdictions and higher volume

Cancelling records for removal before the exchange? File them ASAP (before July)

22

Part XIX – Same DocRefIDs structure

Concerned about the same DocRefID for Part XVIII and Part XIX returns?

2 of the last 9 digits can identify respective return types or any other preferred methods – The uniqueness is at the form type level, e.g., CA–17–123456789RZ0001–SL–180000001; or

CA–17–123456789RZ0001–SL–190000001

CRA uses the summary element “Part [XVIII or XIX] Type Code” to validate uniqueness of DocRefIDs for respective returns “F” value for Part XVIII

“CRS” value for Part XIX23

Part XIX – Up to date contact information

Timeline Filing by May

Exchange before the end of Sept.

Notifications for missing or invalid information from the receiving jurisdictions in the fall, then posted on My Business Account for corrections

All contacts Filer contact on the return and RC509

My Business Account and authorized representatives to Represent a Client

T619 contact information when using Internet file transfer (XML) – successful submission/filing

Valid email addresses and phone number24

Part XIX – Required fields

Required and no value? May be rejected

Residence Country code = which jurisdiction(s) CRA may send the information Part XVIII records were exchanged with a single destination

Exceptions Failed attempts to cure the account and hold mail instructions

Undocumented may result in flexibility for certain “required” tags

e.g., certain TIN fields, DOB, Residence Country Code

OECD Validation fields Recipient jurisdictions will validate and notify sender jurisdiction

XML: Boolean input type25

Part XIX – Optional fields

Not identified as “Required”?

XML tag and its value should be included if applicable

If there is no value to report, you may omit the XML tag

or you could leave it blank

Concern – interpreting “Optional” in XML specifications

as if it is practical to report

“Required” and “Optional” will be clarified in future

versions of the XML specifications

26

Part XIX – Changes

No Sponsor record

The “Filer Account Number” field in the

summary is the Reporting FI’s BN RZ

Reason for no TIN

Self-certification form e.g., jurisdiction does not collect/issue TINs, no response to

curing the account, …

Validations

27

Part XIX – Name type

Name under which a party does business

e.g., 'dba' a short name for the entity, or a name that is used for

public acquaintance instead of the official business name, etc.

For an entity or individual account holder or a Controlling

person (CP) record

OECD202 to OECD208 = indiv, alias, nick, aka, dba, legal,

atbirth

If you only request legal names, report as such. Other types

may be collected and used by receiving jurisdictions

For the Reporting FI record

OECD206 for dba and OECD207 for legal28

Part XIX – Types

Controlling person type

CRS801 to CRS813

CP of legal person:

Ownership, other means or senior managing official?

CP of legal arrangement: trust or other? and

Settlor, trustee, protector, beneficiary, other?

Other

CRS802 = CP of legal person-other mean

CRS813 = CP of legal arrangement-other-other-equivalent

Unknown? Could be considered in a future release

Address type

OECD301 to OECD305 for residential or business, residential, business, registered office or unspecified

29

Part XIX – Account

Account Number Type Code* Choice of values 1 to 5 in XML or a drop-down list in Web forms

International Bank Account Number (IBAN),

Other bank account number (OBAN),

International Securities Information Number (ISIN),

Other Securities Information Number (OSIN), or

Other (for any other type of account number, e.g., insurance contract)

Closed Account* – Required “Y” or “N” value

Undocumented Account – Required “Y” or “N” value Pre-existing accounts with hold mail or care of address in a

reportable jurisdiction

No other address and no other indicia

Self-certification or documentary evidence has not been received

Hold mail “CA” in the ResidenceCountryCode

Dormant Account – Required “Y” or “N” value

30

Part XIX – Document and notificationsDocument Type Code for the Reporting FI

record

R = Resend for ReportingFI record only if no changes to the ReportingFI record, and

reuse the same DocRefID – no need for a CorrDocRefID

C = Cancel if all slips related to that ReportingFI record have been deleted

Automated notifications

From Download incomplete records toDownload notifications from My Business Account/ Represent a Client services

31

Part XIX – File amended or cancelled? Complexity

Controlling persons (CPs) with multiple jurisdictions

All CPs from jurisdictions other than the entity’s jurisdiction

Cancel For any removal or addition of CPs

For change of Residence Country code of the entity account holder or any CP

File cancelled records ASAP – more prep for multiple jurisdictions/destinations

Amending an amended

Web forms pre-populates some data Retrieve

Delete on Web forms = removing the selected records from the retrieved records ≠ filing a cancelled record

32

Part XIX – Changes for records with CPCancel and refile an original – Do not amend

Addition or removal of CP

Change of jurisdiction of entity or any CP

33

Part XVIII

CRA validation of GIINs in 2017

Invalid GIINs: o, I, 1, non-sponsor GIINS in sponsor records

“.SP.” in the GIIN if registered as a Sponsor with the IRS

Invalid GIIN = rejected from IRS = Notification

Cancel all records and refile all as “Original”

When sending amended returns to the IRS, ReportingFI/Sponsor records with no changes need a CorrDocRefID

Domestic aligned with CRS (before Resend was adopted)

All Document type codes must be the same (all originals, all amended, all cancelled)

CRA will recommend to use “A” for amended despite no change

IRS aligning with the CRS – Two new tags in 2017:

Account Number Type

Closed Account

34

Need help?

Search “CRA FATCA” on the Web:

Enhanced financial account information reporting

For due diligence, reporting obligations, how to complete and file the return

(summary and slips), XML schema and specifications, and more

Subscribe our mailing list to receive an email notice when new or updated

information is posted to our website at http://www.cra-arc.gc.ca/esrvc-

srvce/mllst/sbscrbfncl-rprtng-eng.html

Many links are available from the Web page (search “Part XVIII”):

How to complete and file a Part XVIII Information Return … slips and summary:

E-services Helpdesk for businesses or call 1-877-322-7849 for help on filing

information returns electronically (Internet file transfer (XML) or Web Forms, My

Business Account or Represent a Client)

Enquiries for businesses for help to complete your Part XVIII Information Return

Web pages for Part XIX are being developed

Email Part XVIII mailbox at [email protected]

35