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Part 6: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Breaking open the Family Trust one country at a time

Part 5 of this series introduced the idea of the “Great FATCA Entity Hunt”. The key is to seek “USness” hiding behind ANY entity anywhere in the world.
Not even the lowly family trust is safe from suspicion of a possible U.S. connection. In fact, FATCA is “breaking open” family trust outside the USA. Gotta make sure that there is NO U.S. involvement. Really, you can’t make this kind of intrusiveness up.
In each of the following two examples, notice how is is local accountants who are carrying the search for “U.S. persons”. All “entities” throughout the world are under suspicion of being American.
First, let’s begin with a family trust in the U.K.

The post referenced in the above tweet includes:

The first Charles and Margaret Stewart knew about FATCA was when, earlier this month, a letter arrived from their accountant, Grant Thornton, warning that a “review” was required into a trust they had established for their daughter in 2004. The letter said: “There are certain steps you need to take. The starting point will be to carry out a detailed review…” It estimated the initial costs would be £350 plus VAT, possibly more, “based upon the time spent on the matter”.
The Stewarts established the trust 10 years ago to buy a property for their adult, dependant daughter, in order to safeguard the property as her home for as long as she needs to live there. The property, near Charles’s and Margaret’s own home in Leicestershire, generates no income. None of Mr Stewart, 74, pictured, his wife Margaret, or their daughter has any US connections.
Although it was established for wholly innocent reasons, this trust along with an estimated 100,000 others now falls within the far-reaching scope of FATCA.
Once the review is undertaken, if the accountant is satisfied the trust does not need to fulfil any further obligations under FATCA, there are no further costs – and no information will be passed on to HMRC or the American authorities. “This whole process seems extraordinary,” said Mr Stewart. “The trust just has a property inside that is not providing any income so I don’t understand why it needs to be reviewed, simply to satisfy regulation introduced by another country.”
In its letter, Grant Thornton is mildly apologetic, saying it “regrets having to write about new compliance requirements and related costs” but adds “this is something that will have to be dealt with.”
It is not alone as other accountancy firms are also carrying out reviews and are charging for their services, with “initial review” fees ranging from £200 to £500. Although most high-profile firms refuse to publicly criticise FATCA, in private they condemn the measures as “indiscriminate” and “blunt”.
Gary Heynes, a tax partner at rival accountant Baker Tilly, said the firm had started mailing affected clients over the past week. Mr Heynes said: “It is extraordinary that a trust with no US assets and no US beneficiaries can be subject to these US reporting requirements and need to be reviewed.”
Ronnie Ludwig, of accountancy firm Saffery Champness, said: “These US regulations are a complete nightmare for trustees to get their heads around. We will be spending a lot of our time reviewing each of our client’s trusts between now and the end of October.”

Second, they have trusts in New Zealand too

The article referenced in the above tweet includes:

FATCA (the Foreign Account Tax Compliance Act) came into force in July 2014. It is far-reaching and may impose a compliance burden on the trustees of New Zealand family trusts, even if no US persons are involved.
IRD has recently issued further draft guidance on the application of FATCA to trusts and in particular, on the circumstances when New Zealand family trusts will be financial institutions for FATCA purposes.
FATCA is a US initiative designed to target US taxpayers who evade US tax by hiding assets offshore. It requires foreign (i.e. non-US) financial institutions (FFIs) to register with the US Internal Revenue Service (IRS) and undertake due diligence to identify and report on accounts that US persons hold with them. FFIs that do not comply are subject to a 30% withholding on US-sourced income.
Under the Intergovernmental Agreement (IGA) signed between New Zealand and the US, New Zealand agreed to implement rules to require and enable all New Zealand FFIs to comply with their FATCA obligations and, in exchange, the US agreed to treat all New Zealand FFIs as deemed compliant.
All FFIs were required to register with the IRS by 31 December 2014. However, notwithstanding this, there has been considerable uncertainty in relation to whether, and if so, how, FATCA applies to New Zealand family trusts that on their face may have no obvious US connection.

It’s the job of trusts around the world to:
1. Review the trust
2. Identify any U.S. persons
3. Report those U.S. persons to the appropriate authorities.
Every person and every entity is under suspicion of being a “U.S. Person” now! In the new FATCA world, it is no longer possible to have any “trust” in your “trust”.

Part 5: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons") – The FATCA IGA and the "Entity Inquisition"

Introduction …
The difference between “Individual” and “Entity” accounts
If you read Annex 1 of the IGA (starting on page 20) you will that it distinguishes between “Individual Accounts” (held by a living breathing individual person) and “Entity Accounts” (an account held NOT by an individual), but by something that is NOT an individual. An example of an “Entity” would be a corporation. An account held in the name of a corporation will NOT reveal who the shareholders are. As Robert Wood recently wrote:

A key element in many tax prosecutions is the use of shell entities and hidden names. Although celebrities have their own reasons to make their financial affairs opaque, some governments now want to infer tax avoidance. In that sense, secrecy itself is under attack. For example, the U.K. has moved to make company ownership entirely transparent. The topic of company ownership transparency is being discussed in Brussels too.
Nominee ownership used to be common. Nominees are straw-men listed as owners or directors of a company, but who are acting on behalf of someone else. This once common device is now often seen as a problem that triggers others. From Spanish and other authorities, the message has been a stern one. Whatever happens in Spain, secrecy and willfulness may be linked like never before.

To put it simply: in order to know who are the real owners of an “Entity” (for example corporations in Delaware, Nevada and South Dakota and other noted tax havens) one must take specific steps to learn who the real owners are. (Yes, one of the effects of FATCA is to protect the United States from competition in the “Tax Haven Industry”.)
Following the IGA …
Annex 1 of the IGA describes exactly what needs to be done to search for “USness” for both “individual” and “entity” accounts.
The rules are found as follows (you may want to keep the IGA in front of this while you read):
Pre-existing Individual Accounts – page 20
New Individual Accounts – page 26
Pre-existing Entity Accounts – page 28
New Entity Accounts – page 31
In the case of “Individual Accounts” the named individual is presumed to be the owner. In the case of “Entity Accounts” further inquiries must be made (“smoking them out”) to determine who the beneficial/real owners are.
When it comes to an “Entity Account”, the question is:
Q. Are or have the “real/beneficial” owners ever been U.S. persons?
A. Only the accountants, lawyers and shareholders know for sure.
These inquires are made by the bank, to a representative of the “Entity”. The representative of the “Entity” will respond by obtaining the requested information and THEN informing the bank.
The Worldwide “FATCA Rollout” began with “The Great Hunt For USness In Individual Accounts” search.
The Worldwide “FATCA Rollout” continues with the “The Great Hunt For USness In Entity Accounts” search. This will be a FAR MORE intrusive search than the search for individual accounts ever was. From the U.K. PTA, to the New Zealand law firm, to the Canadian Controlled Private Corporation ALL the world is now being asked to identify “USness” associated with its entities. A “U.S. Person” in Canada is far more likely to receive a “FATCA Letter” because he is associated with an “entity”, than because he is suspected of being a “U.S. Person”.
The “FATCA Entity Hunt” is such that, that ordinary people have been deputized to assist the United States in its relentless “Hunt” for “U.S. Persons”.

FATCA Inquisition Stage 1 – Review, Identify and Report – “Individual Accounts”
Canada Day 2014 – “FATCA Hunt” Officially Began …
On July 1, 2014 “FATCA Hunt” – the hunt for those with a U.S. birthplace officially began. “FATCA Hunt” is an important initiative in the 21st century. It was a small step for man, but a large step for mankind.
That said, the rollout is coming in different stages.

The focus has been on the possible U.S. status of the individual who was named on the account. The banks have been focusing their attention on the person whose name was on the account.
In the beginning, the banks, brokerage companies, financial managers and the rest of the Foreign Financial Institutions (“FFIs”) focused (and continue to) on their existing customer base of “Individual Accounts”. In addition, all those who opened new accounts were asked about their “U.S. status”. Most of the pain has been felt in relation to the “pre-existing accounts”. Large numbers of people have been forced to “Self-certify” that they are NOT “U.S. persons”. Canadians (with only a small number of exceptions) have not been subject to “account closures”. Canadians have been able (in contrast to their European counterparts) to retain access to bank accounts in general and their bank accounts in particular.
The situation in Europe has been different. There has been evidence of bank account closures. Their is evidence of banks that are unwilling to deal with “U.S. persons” (do you blame them?).
FATCA Inquisition Stage 2 – Review, Identify and Report on Entity Accounts – The search for the owners of “Entity Accounts” – Are they or have they ever been a U.S. person?
The focus is on the possible U.S. status of the individual, who is a beneficial owner, but who is NOT named on an Entity account. The bank is focusing its attention on the “Entity” whose name was on the account. The bank will require an individual who is the representative of the “Entity” to inform the bank of the “U.S. status” (or not) of the beneficial owner(s). To put it another way: In Stage 2 of the FATCA Inquisition, some Canadians are being asked to disclose any “U.S. person” ownership to the bank. This is a clear escalation of FATCA Hunt. Your business partners are now clearly part of the FATCA Inquisition.
You probably think that this is all an exaggeration …
What follows is a “FATCA Letter” from TD Waterhouse sent to the address on file for an “Entity Brokerage Account”. In other words, imagine that a corporation has a brokerage account. Imagine that the names of the shareholders are not in the file. It’s important for TD Waterhouse to know whether the beneficial owners are “U.S. persons”.
Take a moment to read this letter. Take a moment to read the forms (if you can understand it all). But, of above all else:
take note of the requirement to make inquiries about the possible “USness” of those associated with the entity.
Leaving aside its intent. Leaving aside its intrusiveness. Leaving aside the immorality of “Hunting” people based on the immutable characteristic of “place of birth”, consider the following question:
How could anybody even begin to understand this letter without the benefit of specialized counselling? It’s simply not possible. Therefore, the first thing one must do is bring the  “Entity Inquisition Letter” to an adviser. Expect to pay and expect to pay dearly.
What the adviser must determine is:
1. Does the beneficial ownership of the “Entity” include “U.S. Persons”. On this point I note that the definition of “U.S. person” is determined in accordance with the Internal Revenue Code. Note also that this is a “shifting definition”. That said, “Congress has spoken”.
2. What kind of “Entity” is it anyway? Is it an “FI” or a “NFFE”Remember that the U.S. Internal Revenue Code punishes: (1) all things foreign and (2) all things that involve deferral.
3. If the “Entity” is a “NFFE”, is it “active” or is it “passive”?
If it is either a “FI” or a “passive NFFE”, any U.S. beneficial owners MUST be reported. Those Canadians who use Canadian Controlled Private Corporations (which is one of the primary purposes of the CCPC) to accumulate earnings need to be particularly careful. The investment income in the corporation is reportable on your U.S. tax return

Think of it! It’s bad enough having the banks hunting for “U.S. persons”. The “FATCA Entity Inquisition” means that one group of Canadians will now hunt another group of Canadians to uncover those with a “U.S. place of birth”.

Note that the “FATCA Entity Letter” is sent regardless of whether THERE IS ANY REASON WHATSOEVER TO SUSPECT “USness”. The United States is requiring or reserving the right to make inquiries of ANY entity in the world:
Are you, or have you ever been or associated with a U.S. Person?
It is just an example of the how the United States of American is hunting the world for “U.S. persons”.
The FATCA Entity Inquisition is NOT being carried on directly by governments. The FATCA Entity Inquisition IS being carried by one group of Canadians searching for another group of Canadians that happen to (for the most part) been born in the USA!
To put it simply:
In the new world order, “If you are a “U.S. Person”, you are reportable! You lost the “birth lottery”.
Now, that’s change you can believe in.

Part 1: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on "U.S. Persons") – "Entity Edition"

Prologue – All non-U.S. “Entities are subject to the FATCA inquisition” …

How the U.K. IGA affects the U.K. PTA …
The online discussion referenced in the above tweet is about a U.K. PTA account. How can FATCA, (like the recent passport revocation bill which is one of the many “Revenue Offshore Provisions” used to target Americans abroad), included to finance the costs of the 2010 HIRE Act, possibly intrude into a U.K. PTA? To be clear, a U.K. PTA is similar to a U.S. PTA. Full details on a UK PTA are here. The information (maybe U.S. Treasury doesn’t believe it) is that a U.K. PTA is a charity and is described as:

A PTA is an excellent way to bring together parents, teachers and your local community to raise money and to support the school. It provides an opportunity for everyone to work together towards a common goal. All parents, teachers and school staff can get involved even if they only have a small amount of time available. Whatever type of association you decide to form, your school will benefit from the additional funds it will raise and the increased opportunity for parents to be more involved in school life.

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