Essential Tax Guide for Custodians

NeMa (Europe) June 2015@Ross KMcGill

Tax Relief, Recovery & Reporting Worldwide

Relief & Recovery Update The tax landscape – tectonic changes

Reporting Update QI FATCA & GATCA

5,700Permutations of tax treaties

with increasing disclosure and claim info requirements.

<10%Claims actually made. Low

industry response

30%Statutory Withholding Tax

Rates trending upwards while treaty rates are stagnant

505Tax reporting becoming more

commonly associated with claims processing (IGAs +

AEOI)

Partnering‘Financial institutions cannot meet these challenges alone’

WFC2015

5.8m>100% Rise in tax relief and

standard reclaims at GlobeTax in last twelve months

$1.2TnTax entitlements extant at any

one time

040

506

07

03

02

01

7 Things to Know about withholding tax

IssuersLimited interest in automationHolder disclosure & reporting increasingIncreasing need to finance growth

Depositaries & DepositoriesInvestment in new technologies

(T2S)Looking for value added services

Custodians & BrokersLegacy systems, regulatory overload,Bundled fees, omnibus and nominee accts, complex network management, manual tax processing, variable scale and scope of offeringAsset Managers, CIVs &

Private BanksIncreasing pressure for performance

Increased compliance spend for no benefit

InvestorsTransparency fuelling pressure for claims.Low yields fuelling pressure for claimsFiduciary duties becoming relevant

The Pyramid of Tax IntermediationWhy network management needs more engagement

Not even aware

Refusal to disclose ownership

Omnibus or nominee accounts

Custodian offers limited tax services

Prime Brokers do not offer tax services

Standard refund conditions not met

Relief at Source or QR not available or conditions not met

Total number of investors entitled to tax relief 100%

All entitled

Process limitations

Proving criteria

Business model

Resources

Chain of intermediation

Perception

Awareness

PerformanceWhy is it so low?

811USERS

4,606

14.9 m

41Bn

EVENTS

CLAIMS

SHARES

69%NO DOCS

19MARKETS

Electronic Submission Portal

Source: ESP Reports 2008-2015

Reporting Update

QI vs NQI

W-8 VALIDATION AND RELIEF AT SOURCE – Y OR N?OMNI, RATE POOL OR CLIENT SEGREGATED ACCOUNTS?PRIMARY BACKUP WITHHOLDING (28%) ON UNDOCUMENTED US ACCOUNTS?CONNECTION TO FATCA WITHHOLDING?

application withholding

FATCA OR QI REPORTING OF US ACOUNTS?POOLED FOR DIRECTS BUT NOT FOR INDIRECTS?ADOPTION OF REPORTING FOR DISCLOSED CUSTOMERS OF FI CLIENTS?

RESPONSIBLE OFFICER & PERSONAL LIABILITY?PERIODIC REVIEWS AND CERTIFICATIONS OF ADEQUATE CONTROLS?NEW: ADEQUATE RESOURCES AND ADEQUATE TRAINING?

PRIMARY WITHHOLDING QI OR NON-WITHHOLDING QI?PRIMARY BACKUP WITHHOLDING (28%) ON US?MAP OF US EXPOSURE AND KYC?

THINGS

oversightreporting

28%

W-84 TO TELL YOUR CUSTOMERS ABOUT QI

Actual GIINs

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct-1

4

Nov-1

4

Dec-1

4

Jan-

15

Feb-

15

Mar

-15

Apr-1

5

May

-15

0

40000

80000

120000

160000

GIINs vs eligible population

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct-1

4

Nov-1

4

Dec-1

4

Jan-

15

Feb-

15

Mar

-15

Apr-1

5

May

-15

0

200000

400000

600000

800000

1000000

1200000

Luxembourg 7,766 (5%)

Switzerland 4,877 (3%)

France 4,473 (3%)

Germany 3,967 (2%)

Brazil 5,265 (3%)

Cayman 29,630 (18%)

UK 23,019 (14%)

IRS GIINs issuedMay 2015(includes branches)

56% of all GIINs in just 10 markets

Netherlands 3,336 (2%)

Guernsey 4,930 (3%)Jersey 4,421 (3%)

No IGAM2 In Substance

M1 In Substance

M2 SignedM1 Signed

IGAs

755

34 (30/6/2014)

9(30/11/2014)

6 (30/6/2014)

1

(30/11/2014)

139

As at 02/06/2015

IGA Growth

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 320

20

40

60

80

100

120

20132012 2014 2015

The Global FATCA Model

AEoI Bilateral agreements under Art.26 of the OECD Model Tax

Convention Multilateral Convention on Mutual Assistance in Tax Matters

(2011) Requires changes in domestic law Competent Authority Agreements (CAA) provide the link

between CRS and legal basis of exchange CRS

Definitions of account types Rules for due diligence:

Pre-existing individual and new individual account types Pre-existing entity and new entity account types

Scope of account holders subject to reporting Scope of financial institutions required to report

Non Compliance enforced under domestic laws Data transfer via domestic regulator Transfer in xml format

Competent Authority

Agreements

DocumentationReporting

AgreementP-FFI

Documentation

[W-8, W-9, US Indicia]

FATCA Withholding

[30% Penalty]

Reporting[US account

holders, Recalcitrants

& NP-FFIs]

Control & Oversight

[ROs, Periodic Review,

Certification]

GATCAAEoI + CRS

FATCAFFIs & NFFEs

Reporting US ‘Foreign’ Assets

NoneCommittedSigned

AEoI

4652

153

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