|
Where a Financial Institution acquires accounts by way of a merger or bulk acquisition, the Financial Institution can rely on the status of account holders as determined by the predecessor Reporting Model 1 Financial Institution, US withholding agent, or a Participating Financial Institution, provided that the predecessor Financial Institution had met its due diligence obligations. The Financial Institution may continue to rely on the status of the account holder as long as it has no reasonable cause to believe that the status is unreliable or incorrect. HMRC would expect that the Financial Institution undertake a sample review of the acquired accounts to determine that the account holders’ status, assigned by the predecessor Financial Institution, is reliable. An account holder’s status will need to be verified by the acquiring Financial Institution following the due diligence procedures should the acquirer have reason to know that it is incorrect or if there is a change in circumstance. Where a Deemed Compliant Financial Institution becomes part of a group as the result of a merger or acquisition, the status of any account maintained by the Deemed Compliant Financial Institution can be relied upon unless there is a change in circumstance in relation to the account. The UK Financial Institution may treat accounts acquired in a merger or bulk acquisition that takes place after 30 June 2014 as preexisting accounts for applying the identification and documentation procedures by treating the accounts as if they had been acquired on 30 June 2014. Mergers of Investment Entities Mergers of Investment Entities can be different to mergers of Custodial Institutions or Depository Institutions. The Financial Accounts of Investment Entities are its Equity and Debt Interest, so the merger of two such entities creates a series of New Accounts in the surviving entity. Mergers of Investment Entities will normally involve a surviving fund taking over the assets of the merging fund in exchange for issuing shares or units to the investors of the merging fund. The shares or units in the merging fund are then extinguished. The new shares in the surviving fund will be New Accounts except where both funds are sponsored by the same sponsor – see below. So that fund mergers are not impeded, or held up by the requirement to perform due diligence on a series of New Accounts, special rules apply to the documentation of New Accounts on a merger of Investment Entities. There are a number of potential scenarios depending upon whether the merging fund (the investors of which will create the New Accounts in the surviving fund) is a UK Financial Institution and whether it is a Reporting or Participating Financial Institution Deemed Compliant Financial Institution or Non-Participating Financial Institution. These are considered below. More than one fund sponsored by the same UK sponsor Where both funds are sponsored UK funds with the same UK sponsor, no New Accounts are created. This is because for Sponsored Financial Institutions, whether a Financial Account is a New Account or not is determined by reference to whether it is new to the sponsor (for example the fund manager), and not whether it is new to the Sponsored Financial Institution (the fund). Merging fund is a Reporting Financial Institution Where the merging fund is a Reporting Financial Institution (including a Sponsored Financial Institution, but where the funds do not share the same sponsor), a FATCA Partner Jurisdiction Financial Institution or a Participating Foreign Financial Institution, the surviving fund can rely on the account identification and documentation performed by the merging fund and will not need to undertake any further account due diligence to comply with its FATCA obligations. The surviving fund can continue to use the same account classification as the merging fund until there is a change in circumstances for the Financial Account. Merging fund is not a Reporting Financial Institution Where the merging fund is not a Reporting Financial Institution, a FATCA Partner Jurisdiction Financial Institution or a Participating Foreign Financial Institution (because it is a Deemed Compliant fund, a Non-Participating UK Financial Institution or a Non-Participating Foreign Financial Institution), the surviving fund will need to undertake account identification procedures on the New Accounts. However, in these circumstances the account identification procedures will be limited to those that are required for Pre-existing Accounts (See Sections 5 and 7) and should be carried out at the latest by the 31 December following the date of the merger or 31 December of the year following the year of the merger, if the merger takes place after 30 September of any calendar year. Mergers and Acquisitions in relation to Pre-existing Cash Value Insurance Contracts It is fairly common for Insurance Companies in the UK to sell off “backbooks” of business to another company, especially when the Insurance Company no longer sells that type of business. Where this relates to Pre-existing Accounts, the transferor can continue to rely on the original identification of the transferee company. Therefore provided the transferee company was prohibited from selling the business into the US (See Section 5.1) the policies will remain out of scope, and the transferor company does not need to undertake any further due diligence checks. |
FATCA & CRS Training. Advice. Consultancy. 