Questions and answers about FATCA and CRS

FATCA is the US Foreign Account Tax Compliance Act intended to counter tax evasion in the US. The Nordic countries have all agreed to implement the FATCA requirements into local law, including provisions stipulating that financial institutions must identify US Reportable Persons among their customers. Similar agreements have been entered into by a significant number of countries worldwide.

FATCA has or will be implemented into local law in all Nordic and Baltic countries.

As a result of FATCA, financial institutions are under an obligation to identify those of their customers that are US persons and subsequently report information about financial accounts held by these customers, directly or indirectly, on an annual basis. The financial institutions report to the local tax authorities in their respective countries (except in some countries where they report directly to the IRS).

Since FATCA has or will be implemented into local law in each Nordea country except Russia (where Nordea has signed an agreement of compliance directly with the IRS), Nordea must be fully compliant in each country and must therefore review all current customers, and all customers coming into the bank, to confirm their FATCA status. Where necessary, Nordea will contact customers for further information.

Nordea must also withhold on US source FDAP payments to certain financial institutions that do not comply with FATCA.

No, all financial institutions are required to comply with the requirements of FATCA, however, their approach may differ from the one taken by Nordea.

Financial institutions may have different approaches to how they collect information from customers in order to verify their FATCA status; therefore the forms may differ between banks. Nordea cannot advise you on your FATCA classification or US tax status; so if you need further support, you should consult a tax professional.

No, FATCA (the laws implemented locally) only regulates the customer due diligence and reporting that financial institutions must perform. It does not affect the tax laws you as a person must consider.

Nordea recommends you to consult a tax professional if you have any questions regarding tax rules.

The information to be submitted includes name, address and US taxpayer identification number as well as account numbers and balances.

Am I only affected if I’m a US citizen?
No, the law specifies a number of criteria that financial institutions must look for in respect of all customer accounts in order to determine if someone may be a US person. Customers with accounts that meet any of these criteria may be contacted in order to obtain further information.

• US citizenship or residence
  
• US place of birth
  
• Work permits (“Green Cards”)
  
• Persons who spend a significant number of days in the US each year
  
• US address on file
  
• US telephone number on file
  
• Recurring payments to an account maintained in the US
  
• Powers of attorney or signatory authority granted to a person with a US address
  
• Instances where a “care of” address is the sole address on file

Note that financial institutions are required to search their customer bases for indications of US persons and may therefore contact customers who are in fact not US persons.

I am a US person. How am I affected?
If you are a US person, Nordea may contact you in order to obtain further documentation. You may also wish to determine if you are required to submit any other information to the US authorities.
Note that Nordea cannot give you any advice on this, so please contact a professional tax advisor.
Nordea is required to report information about you and your accounts to the local tax authorities annually, except in Russia and Switzerland where Nordea reports directly to the IRS annually.

I am not a US person. How am I affected?
Most customers who are not US persons will see a minimal impact and will not be required to act. However, Nordea may contact you to confirm your status as a non-US person if there is reason to believe that you may be a US person for FATCA purposes.
Note that if you have a joint account with a US person, this account will be treated as being subject to the FATCA regulations.

Are only US companies affected?
No, FATCA has a wider impact that goes beyond just US companies. Nordea will contact many customers worldwide to determine their FATCA status in order to be able to classify each customer. This may take place using Nordea forms or US tax forms, depending on what information is needed.

I am a US person and own a large part of the shares in a company – how am I affected?
Since you own a large part of the shares in a company, you are most likely a beneficial owner/controlling person in that company. Nordea may be required to report information about you, but that depends on the business your company is conducting. 

If your company’s business is “passive”, Nordea must report information about you if you are a beneficial owner/controlling person in that company. A company may be seen as passive if for instance more than 50 percent of the income of the company consists of interest or dividends.

Nordea will contact affected customers and provide full details as to what information is needed and what forms must be completed for FATCA purposes. 

Yes, when Nordea contacts a customer, we will either include the relevant forms or provide links to a website from which they may be downloaded.

Under the FATCA regulations, financial institutions are under an obligation to treat customers who do not provide the information requested as US reportable persons. This means that Nordea will report the same information about such customers to the local tax authorities as it will about those having provided documentation confirming their status as US persons.

In some exceptional circumstances, financial institutions may be required to withhold tax on certain US source payments coming into accounts held by customers who have not provided the information requested.

Nordea must:

• Conduct a review of existing and new customers to identify those that are US reportable under FATCA. 
• Report information to the local tax authorities (except in Russia and Switzerland where Nordea reports directly to the IRS) about all accounts held directly or indirectly by US persons. Nordea will also have to report information about accounts held by customers who do not respond to questions regarding their US status.
  
• Withhold on US source FDAP payments to certain financial institutions that do not comply with FATCA.

CRS ("Common Reporting Standard") is a global standard for the automatic exchange of information on financial accounts. The standard requires financial institutions to identify financial accounts held by customers with a tax residence in another state or jurisdiction other than its own. The objective of CRS is to fight international tax evasion.

CRS entered into force on the 1st of January 2016. All financial institutions must by then:

• identify new individual and entity customers’ tax residencies (including customers that only have a domestic tax residency),
• review existing individual and entity customers in order to identify customers with a tax residency outside the bank country (end date 31 Dec 2018),
• identify certain corporate/entity customers, and their beneficial owners/controlling persons who have a tax residency other the bank country, and
• report the customers with other tax residency/-ies than the bank country to the local Tax Authority.

The CRS regulation is based on the FATCA regulations, but CRS also differs in significant aspects in comparison with FATCA. The main difference is that CRS encompasses numerous countries and customers compared to FATCA which only covered the United States and account holders who have a tax residency in the United States.

All EU Member States are participating in CRS and have signed an agreement on automatic exchange of financial information (the DAC II directive).

CRS affects individuals and corporates/entities that are tax resident in any country other than the bank country, and who holds a product in scope for the CRS.

The term ‘tax residence’ means that a person is resident in a country (tax residence) for tax purposes in accordance with internal law.

3.1.Corporate/Entity
Generally, an entity will be resident for tax purposes in a jurisdiction if, under the laws of that jurisdiction, it pays or should be paying tax therein by reason of its domicile, residence, place of management or incorporation, or other criterion of a similar nature.

Subsidiaries/Branches of entities:
The tax residence of the branch of an entity is normally only in the country of tax residence of the entity to which the branch belongs. Example: a Swedish subsidiary/branch of a Danish company normally only have tax residence in Denmark.

When is an entity tax resident in another country?   
The domestic laws of the other countries lay down the conditions under which an entity is to be treated as tax resident. They cover various forms of attachment to a country which, in the domestic tax laws, form the basis of a comprehensive taxation (full tax liability).

3.2. Individuals
In general, tax residence is the country in which you live. Special circumstances (such as studying abroad, working overseas, or extended travel) may cause you to be resident elsewhere or resident in more than one country at the same time.

When is an individual tax resident in another country?
In general, the tax residence is the same as the permanent residence or whereabouts. However, each country has its own set of rules for determining tax residence.
For more information about tax residency rules in a certain jurisdiction, please visit the OECD Automatic Exchange Portal. Åpnes i nytt vindu

Banks and other financial institutions such as securities institutions, fund management companies, investment companies and life insurance companies are obliged to identify all of their customers according to the CRS regulation. Further these institutions must report customers and their customers’ financial assets to the tax authorities. 

The tax authorities will in turn send the data to the tax authorities in other CRS-countries.

The CRS as well as FATCA is part of the common customer due diligence procedures. Nordea will ask new questions to customers when they, for example, open a new account, when investing in financial assets or when amounts are paid or credited from life insurance benefits/contracts.
With the help of the answers, Nordea can identify the customers that Nordea should report to the tax authority.

The customer needs to answer the questions asked by the bank/other financial institutions. If the customer is liable to tax in one or more countries other than the bank country, we might ask the customer to fill out a self-certification. In this self-certification the customer should provide their tax residencies and TIN(s) ("Taxpayer Identification Number").

The term Taxpayer Identification Number (TIN), or similar, is a unique combination of letters or numbers assigned by a jurisdiction to an individual or an entity for tax administration purposes.

Some jurisdictions do not issue a TIN. If so, the customer must state so. However, most countries issue TIN and if that is the case, the customer must provide its TIN.
Please note that the customer in certain situations may not have a TIN and must in such cases apply for a TIN according to local regulations.
See further detailsÅpnes i nytt vindu on jurisdiction specific TIN formats.

Nordea will start collecting information relating to CRS in the beginning of 2016. The first time Nordea will report under CRS is in 2017.

With respect to the year 2016 and onwards on an annual basis, the Nordea will report the following information starting in 2017:

• balance/value on depository accounts, custodial accounts, insurances and fund accounts
• information about interest, dividends and other returns
• gross proceeds and gross amounts (for example from sale of securities and equity and/or funds), and redemption payments.

For "Passive Non-Financial Entities", we will also report the beneficial owners/controlling persons that have a tax residency other than the bank country.

The following accounts are considered to be Excluded accounts (no reporting):

• pension related insurances and pension savings accounts which meet certain criteria
• accounts held by estate, 
• escrow accounts and,
• accounts held by publicly traded corporations or a related entity of such publicly traded corporation

A customer who is liable to submit a tax return where he/she has a tax residency but has not submitted a tax return, should submit a tax return afterwards.

If a person voluntarily submits a tax return via a posteriori (self-correcting), any penalties are normally lighter compared to if a tax authority discovers any failure to submit a tax return and pay taxes.

Credit of tax, to avoid double taxation, may in some cases be allowed for income taxed in another country. This depends on whether there is a double taxation treaty between the countries in question.

We should recommend the customer to contact a tax advisor in case the customer needs assistance with correcting a tax return or has questions how this procedure works. Generally, we may recommend any of the major accounting firms (PwC, EY, Deloitte, KPMG) as they usually have local contacts in all countries and can handle any issues that may come up because of the tax liability in another country.

A company (other than a financial institution) is considered active if the company’s:

1. income to more than 50% comes from sales of goods and services and
2. whose assets more than 50% is attributable to business activities relating to the sale of goods and services

Active companies includes, for example:

• A company whose revenue to more than 50% derives from manufacturing and/or sale of goods and/or services. 
• A listed company or a related company (subsidiary/affiliate) of a listed company 
• Governmental entities/units and international organizations and companies owned exclusively by such entities 
• Foundations, non-profit organizations, registered religious communities and other legal entities that are exempt from tax under Chapter 7. 3-17 §§ in the Swedish Income Tax Law

A company (which is not a financial company) is considered passive if:

• more than 50% of its income is passive
• or more than 50% of its assets are those that generate passive income.

Passive income can be, for example, dividends and interest. It can also be rent and royalties if the company does not have employees. Further, it may be annuities (often related to life insurances), capital gains/profits on the sale of assets/property that can produce passive income, certain insurance return or payment/redemption.

A financial institution is a company which is a depositary institution (typically companies that manage depository accounts), custodial institutions (companies offering custodial accounts or similar to customers), investment entities (typically investment funds) or an insurance company which offers savings products such as an endowment insurance.

The term beneficial owner/controlling person mean the natural persons who exercise control over an entity. For this purpose control includes direct or indirect ownership of more than 25 per cent of the entity’s financial assets.

A passive NFE must state whether it has any beneficial owner(s) who are resident in a country other than the bank country.
 
In case there is a beneficial owner with a tax residence in another country than the bank country, Nordea is obliged to report the legal entity and the beneficial owner to the tax authorities.