Wide Screen Template

Are you prepared for the AEOI requirements in 2021?

KPMG in the Crown Dependencies

Tuesday 2 March 2021 10.00am – 11.00am Introduction

Tony Mancini, Tax Partner Webinar presenters

Tony Mancini Chris Lowe Clare Kelly Tax Partner Tax Director Tax Senior Manager KPMG in the Crown Dependencies KPMG in the Crown Dependencies KPMG in the Crown Dependencies Guernsey Jersey Isle of Man [email protected] [email protected] [email protected] Agenda

— FATCA & CRS overview

— Island specific updates

— Considerations for FIs to demonstrate compliance with the Regulations

— OECD Mandatory Disclosure Rules on CRS Avoidance Arrangements and Opaque Offshore Structures

— How KPMG can help you navigate these challenges

— Thoughts on how the FATCA/CRS rules might evolve in the future

© 2021 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, 4 a private English company limited by guarantee. All rights reserved.

Document Classification: KPMG Public Guernsey update

Tony Mancini, Tax Partner Notable changes to IGOR

— The CRS XML Schema Version 1.0 and User Guide Version 2.0 applicable for all CRS exchanges is replaced by CRS XML Schema Version 2.0 and CRS User Guide Version 3.0.

— Commencing with the 2020 reporting period, the Director will require all Reporting Financial Institutions, within the meaning of the CRS and FATCA Regulations, to classify what type of reporting institution they are.

— Commencing with the reporting of 2020 CRS & FATCA data Financial Institutions will be required to confirm that all reports submitted (inclusive of nil reports) complies with the relevant Regulations by completing a Compliance Statement.

— A report submitted without a Compliance Statement will be identified as an incomplete submission and will require completion of the Compliance Statement.

— There are increased powers by the Guernsey Revenue Service to assess compliance by FIs

© 2021 KPMG Channel Islands Limited, a Jersey company and KPMG LLC, a limited liability company, and member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 6

Document Classification: KPMG Public Bulletin 2021/3

The purpose of this Bulletin is to inform FI's of changes being introduced regarding FATCA reporting obligations and provide an update on the Compliance Statement Assurance points.

Under this Bulletin the following changes will apply for FATCA

— Guernsey FIs are required to obtain and report the US TIN for each specified US person that is an account holder or controlling person

— If for any reason the FI's cannot obtain a TIN, the IRS has developed a series of codes that can be used to populate the TIN data field. It is strongly recommended that these codes be used.

— If a code is not applicable then it is possible to use 9As, however, this may result in an error being notified to the Guernsey FI which will require an explanation and, if necessary, correction of the data thereafter.

Document Classification: KPMG Public Bulletin 2021/3 – Compliance Assurance Statement

The purpose of this Bulletin is to inform FI's of changes being introduced regarding FATCA reporting obligations and provide an update on the Compliance Statement Assurance points.

CRS Compliance Assurance Statement 1. All appropriate policies, procedures and systems were in place in order to comply with the CRS Regulations reporting requirements for all financial accounts which it maintained and established during the reporting period. 2. The evidence used to comply with the Schedule 2 due diligence requirements has been retained and a record of the steps taken when performing due diligence reviews on accounts has been made. 3. The evidence used to comply with the due diligence requirements and a record of the steps taken when performing due diligence reviews on accounts will be retained for a minimum period of 6 years. 4. All appropriate policies, procedures and systems are in place to ensure that the tax residency information of Account Holders has been obtained for all New Accounts. 5. All reportable accounts closed during the period covered by the report have been included in the report and identified as such. 6. Only reportable accounts that comply with the “undocumented” criteria have been reported accordingly. 7. The report is full and complete containing all the required reportable details for all reportable accounts for the reporting period.

Document Classification: KPMG Public Bulletin 2021/3 – Compliance Assurance Statement

FATCA Compliance Assurance Statement 1. All appropriate policies, procedures and systems were in place in order to comply with the FATCA Regulations reporting requirements for all financial accounts which it maintained and established during the reporting period.

2. The evidence used to comply with the due diligence requirements and a record of the steps taken when performing due diligence reviews on accounts will be retained for a minimum period of 6 years.

3. All reportable accounts closed during the reporting period have been included in the report and identified as such.

4. The TIN is in a format consistent with Bulletin 2021/3.

5. The report is full and complete containing all the required reportable details for all reportable accounts for the reporting period.

Document Classification: KPMG Public Isle of Man update

Clare Kelly, Senior Manager Isle of Man Update

ITD’s focus to date Penalties Recommendations — Voluntary approaches — Can be levied at a rate — Check classifications to ITD by FIs of £300 per reportable (especially where you account where there is made “protective — Thematic issues inaccurate reporting – it registrations” with the identified from can get expensive! IRS) submitted returns — Penalties can be — Check foundations on — Review of compliance reduced through: which your reporting is return voluntary disclosure, co- based operation, timely — Follow up on data actions, extent of the — Sense check your requests from other tax error (ie proportionality) reporting back to source jurisdictions documents

Document Classification: KPMG Public Jersey Update

Chris Lowe, Tax Director Jersey update

January 2021 – Version 5 of the practical guidance released for both CRS and FATCA

CRS updates — Only Version 2 of the XML schema can be used — Nil returns expected to be mandatory in 2022 in respect of 2021 accounts. Register all entities?

FATCA updates — Additional validation checks have been installed on the AEOI portal.

Domestic reporting – due to be introduced for banks with the first reporting in 2023 in relation to the 2022 reporting period.

Document Classification: KPMG Public Considerations for FIs to demonstrate compliance with the Regulations

Chris Lowe, Tax Director Why is this important?

— Jurisdictions are under pressure from the OECD.

— Roll out of compliance program by the local Tax Office.

— Shift in approach – emphasis will now be the monitoring of compliance.

— Greater sharing of information with the Commission (connection with DD requirements and AML).

— Guernsey Compliance Assurance Statements – How does the person submitting this form get comfortable the FI is fully compliant?

Document Classification: KPMG Public Overview of the OECD guidance to Tax Authorities

— OECD released an Automatic Exchange of Information ‘Guide on Promoting and Assessing Compliance by Financial Institutions’.

— Identifies Core elements which the OECD expects Financial Institutions to have in place.

— For each Core element, the OECD defines key requirements (‘hallmarks’).

— Sets out sample questions for Tax Authorities to identify potential risk areas.

— Specific guidance for bank, fund and trust industries.

— Emphasis on identification of processes, systems, controls etc

Document Classification: KPMG Public Governance and Implementation

Areas to consider

Roles, responsibilities and Project organisation Stakeholder collaboration accountability Assessing whether the FI is Does the FI have established Documented assessment and organised in a manner to meet meetings to discuss CRS and description of the functions relating to evolving FATCA/CRS obligations. FATCA compliance? Meeting FATCA/CRS (on-boarding, AML/KYC, Does the FI have a risk minutes etc. document validation, reporting, management framework that communications). Does the FI incorporates risks specific to CRS perform impact assessments based and FATCA? on updates to legislative guidance?

Training Documentation and record Covers all training requirements keeping such as initial training, changes in The FI should prepare and keep legislation, staff turnover, updates. documentation of their business Does the FI require mandatory operations, due diligence processes training for stakeholders and and reporting procedures relating to employees who have FATCA and CRS. responsibilities pertaining to the CRS and FATCA?

Document Classification: KPMG Public Due diligence

Areas to consider

Accounts are identified and Compliance with pre-existing Compliance with new accounts monitored accounts (individual and entity) (individual and entity) —Account balance thresholds —Residence address test, —Obtaining and validating self electronic record search, paper certifications (reasonableness test —Excluded and dormant accounts record search – evidence of following up if —Change of circumstances —If the account exceeds threshold discrepancies) procedures ($250k for entities) – obtain self —Review of self certifications – do —Relationship managers certification and for each CP if they obtain all required PNFE and over $1m information? —Reliance on AML/KYC procedures

Document Classification: KPMG Public Recording systems and procedures

Areas to consider

Reporting systems Data extraction Submission of reports Managing amendments and How is the data relating to —Data validation checks —There should be a error notifications FATCA/CRS maintained? should performed to help documented approval —What procedures are in ensure that all reportable process with set checks place to address the root If multiple systems what information has been performed. Is there a cause of issues to prevent controls are in place to correctly transposed from segregation of duties similar occurrences? reconcile data to source data? the FI’s internal systems between the preparers and reviewers? —How do you ensure the accuracy of the data being —What internal checks are extracted (analytical performed and approvals reviews, exception obtained prior to testing?) submission?

Document Classification: KPMG Public External Service Providers

The guide has a specific section on external service provider because at all times the compliance obligations remain with the FI.

External service providers

— Does the FI document their use of external service providers and the context of such services?

— Do you inform or obtain assurance from your external provide that legislative updates which impacts their functions have been taken into consideration?

— Where in the Statement of Work (“SOW”) are the external service providers roles, duties and responsibilities laid out?

— What are your due diligence procedures to ensure the external service provider is performing its role in the capacity agreed upon

Document Classification: KPMG Public Key points for consideration

Documentation should include:

Policy, procedures and processes, Risk Management Framework, Service agreements.

Can you demonstrate the following:

— Onboarding process, proof of validation of self cert, reasonableness test performed.

— Ongoing monitoring of accounts.

— Process for identifying changes to legislation, incorporating changes to the processes, training to staff etc.

— The review of services performed by external service providers.

— Procedure for reviewing reports prior to submission.

— Lessons learnt processes.

— Have you performed an internal compliance review?

Document Document Document!!

Document Classification: KPMG Public OECD MDR for CRS avoidance arrangements & opaque offshore structures

Chris Lowe, Tax Director OECD MDR in a nutshell

Background Introduces — OECD had reports that professional — an obligation to disclose “certain advisers and other intermediaries arrangements to the local tax authority” design, market or assist in the — the means for tax administrations to implementation of offshore exchange the information. structures and arrangements that can be used by non-compliant taxpayers to circumvent reporting. OECD mandatory disclosure Who is affected? rules — Promoter – any person responsible for the design or marketing of a CRS avoidance arrangement or opaque offshore structure. Reporting obligations — Intermediary – a promoter or a — Promoter must report any arrangement service provider that provides a implemented on or after 29 October 2014 relevant service in respect of a but before the MDR comes into force no CRS avoidance arrangement or later than 180 days after the MDR comes opaque offshore structure where it into force. would be ‘reasonably expected to — Intermediary must disclose within 30 days know’ that the arrangement is a after supplying relevant services . CRS avoidance arrangement of an opaque offshore structure

Document Classification: KPMG Public What is a ‘CRS avoidance arrangement’?

Any arrangement for which it is “reasonable to conclude” that it is designed to circumvent, or has the effect of, circumventing the CRS Regulations including:

— The use of an account or investment that is not a Financial Account (“FA”)but has features similar to those of a Financial Account;

— The transfer of a FA or monies/Financial Assets held in a FA to a Non Reporting FI or to a jurisdiction that does not exchange CRS information with all jurisdictions of tax residence of a reportable tax payer;

— The conversion or transfer of a FA or the monies/FA to a FA that is not a reportable account;

— The conversion of a FI into a Non Reporting FI or into an FI that is resident in a jurisdiction that does not report CRS information to all jurisdictions of tax residence of a reportable tax payer;

— Undermining or exploiting weakness in the due diligence procedures used by an FI to correctly identify the account holder/controlling persons or all the jurisdictions of tax residence of an account holder or controlling person;

— Allowing an entity, or purporting to allow i) an entity to qualify as an Active NFE ii) an investment through an entity without triggering a reporting obligation under CRS iii) a person to avoid being treated as a Controlling Person; or

— Classifying a payment made for the benefit of an account holder or controlling person as a payment that is not reportable under CRS

Further guidance is needed to determine the scenarios that will be reportable

Document Classification: KPMG Public What is an ‘opaque offshore structure’?

A passive offshore vehicle that is held through an opaque structure. A “passive offshore vehicle” means a legal person or legal arrangement that does not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises in the jurisdiction where it is established or is tax resident.

An “opaque structure” is a structure for which it is reasonable to conclude that it – (a) is designed to have; (b) is marketed as having; or (c) has the effect of allowing, a natural person to be a beneficial owner of a passive offshore vehicle while acting in a way described below.

Acting in a way mentioned above means not allowing the accurate determination of the natural person’s beneficial ownership, or creating the appearance that that person is not a beneficial owner including by or through:

— the use of nominee shareholders with undisclosed nominators; — the use of means of indirect control beyond formal ownership; — the use of arrangements that provide a reportable taxpayer with access to assets held by, or income derived from, the structure without being identified as a beneficial owner of such structure; — the use of legal persons in a jurisdiction where there is – (i) no requirement to keep, or mechanism to obtain, basic information and beneficial owner information, as defined in the latest Financial Action Task Force Recommendations, on such legal persons that is accurate and up to date, (ii) no obligation on shareholders or members to disclose the names of persons on whose behalf shares are held, or (iii) no obligation on, or mechanism for, shareholders or members of such legal persons to notify the legal person of any changes in ownership or control; and — the use of legal arrangements organised under the laws of a jurisdiction that do not require the trustees (or in case of a legal arrangement other than a trust, the persons in equivalent or similar positions as the trustee of a trust) to hold, or be able to obtain, adequate, accurate and current beneficial ownership information regarding the legal arrangement.

Document Classification: KPMG Public Information to be disclosed

The name, address, jurisdiction and tax identification number of tax residence of: — the intermediary making the disclosure; — any client of that intermediary in respect of the disclosed arrangement or structure. Any client that is a reportable taxpayer must be identified separately, including their date of birth ; — any actual user of a CRS avoidance arrangement or beneficial owner of an opaque offshore structure; and — any person that is an intermediary with respect to that arrangement or structure (other than the person making the disclosure).

Details of the scheme including: — A factual description of those features of a CRS arrangement that are designed to circumvent, marketed as having, or have the effect of, circumventing the CRS Regulations; and — A factual description of those features of an opaque offshore structure that have the effect of not allowing the accurate determination of the reportable taxpayer’s beneficial ownership or creating the appearance that the reportable taxpayer is not a beneficial owner of the passive offshore vehicle.

Document Classification: KPMG Public How KPMG can help you navigate these challenges? How can KPMG help?

— AEOI Health Check

— AEOI Training

— FATCA/CRS Entity Classification Analysis

— KPMG AEOI Reporting Tool* — Managed Service — Software Solution — Subscription to KPMG’s Automatic Exchange of Information (AEOI) Updates and Tracking Service** — Subscription to KPMG’s Tax News Flash***

* Find out more about KPMG’s AEOI Reporting Tool - (https://assets.kpmg/content/dam/kpmg/ch/pdf/aeoi-reportingt-tool.pdf) ** Subscribe to KPMG’s Automatic Exchange of Information (AEOI) Updates and Tracking Service - To find out more about how our KPMG AEOI Updates & Tracking Service can help your business, contact the local Tax Services practice or your KPMG adviser. *** Subscribe to KPMG’s Tax News Flash - (https://tax.kpmg.us/forms/subscribe-taxnewsflash-tax-developments.html)

© 2021 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, 28 a private English company limited by guarantee. All rights reserved.

Document Classification: KPMG Public Thoughts for the future Thoughts for the future

Government audit reviews

Update to CRS Reporting requirements: — Identification of New Accounts — Controlling person identification mandatory — Joint accounts – identify the number of holders

Possible changes to CRS definitions to be more in line with FATCA

With the CRS compliance statements announced in Guernsey and the Cayman CRS compliance form, could this become the norm?

© 2021 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, 30 a private English company limited by guarantee. All rights reserved.

Document Classification: KPMG Public Final thoughts

— It is increasingly important to have all AEOI risk framework, policies and procedures in place.

— Guernsey FIs needs to be comfortable all elements of the regulations have been complied before signing the compliance statement.

— Increased scrutiny and therefore the FI needs to be ready in case they have a compliance review.

— Reporting Deadlines are fast approaching.

KPMG are here to help!

© 2021 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, 31 a private English company limited by guarantee. All rights reserved.

Document Classification: KPMG Public Questions? Thank you for joining us The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Document Classification: KPMG Confidential