• CRS: Trust Protectors are Per Se “Account Holders?” Maybe Not!

    By Virginia La Torre Jeker J.D.

    09-11-2016

    It may be recalled from my earlier blog post that in June 2016, the Organization for Economic Co-operation and Development (OECD) released a series of FAQs about the Common Reporting Standard (CRS).

    OECD FAQ

    Part D (Reportable Account) on page 15 of the FAQs has caused a lot of anxiety among Trust Protectors as well as considered discourse among tax professionals.

    The FAQ provides:

    Question: "Are protectors of a trust that is a Reporting Financial Institution considered to be Account Holders of the trust in all instances or only in circumstances where their powers are such that they could be regarded as exercising control over the trust?"

    Answer: "The protector must be treated as an Account Holder irrespective of whether it has effective control over the trust."

    The FAQ applies only to trusts that are treated as Reporting Financial Institutions (RFI). Generally, for CRS purposes, many trusts will be treated as RFIs falling under the "Investment Entity" category (that is, having gross income primarily attributable to investing, reinvesting, or trading in financial assets and being professionally managed; e.g., the trust has a professional corporate trustee that primarily invests, administers or manages assets for clients).

    The million dollar question is whether the Protector of such a trust should automatically be treated as an "account holder" as indicated in the FAQ. As relevant here, an "account holder" is any person having an "equity" or "debt" interest in the trust.

    To keep things in perspective, this issue is important because as a RFI, the trust is required to report on any "account" that is held by a "reportable person", making it a "reportable account". A "reportable person" is any entity or individual who is a resident in a CRS signatory country. Once a "reportable account" is identified, the information to be reported will include the "reportable person's" name, address, tax identification number, date and place of birth, total gross amount paid or credited to the "account" for the relevant reporting period, the account balance as at the end of that period as well as the closure of any "account" held by a "reportable person".

    I can just see the confusion that would ensue as a result of treating all RFI trust protectors as per se "Account Holders". For example, what is the value of the Protector's "account" that is to be reported?

    Has the OECD Lost the Plot?

    Let's return to the issue of whether a trust protector should per se be treated as an "account holder" as indicated in the FAQ. My earlier blog post stated that it stretches the imagination to say that a "protector" has an "equity" or "debt" interest in the trust merely by virtue of being a protector regardless whether the particular protector has effective control over the trust. I pointed out in my blog that the FAQ's seem to go well beyond the CRS in both its plain meaning and intent.

    Now, CRS and FATCA guru Peter Cotorceanu has gone further. Here's a taste of what Peter has to say about the CRS FAQ concerning Trust Protectors:

    "This FAQ does not pass the laugh test. The OECD's own definition in the [CRS] of an Account Holder in a trust that is a Financial Institution is a person who holds a so-called "equity or debt interest" in the trust. A "debt interest" Account Holder is not defined, and debt interests are in any event not relevant to this blog. But 'equity interest' Account Holders are defined in the CRS. Specifically, they are held by 'a settlor or beneficiary of all or a portion of the trust, or any other natural person exercising ultimate effective control over the trust.' Since the word 'Protector' is not mentioned in that definition, the only way a Protector could—even arguably—be an equity interest Account Holder in a trust is if it satisfied the language at the end of the definition, i.e., if it were a natural person 'exercising ultimate effective control over the trust.' But look back at the FAQ—it says a Protector must be treated as an Account Holder 'irrespective of whether it has effective control over the trust.' This is truly nuts and directly contrary to the OECD's own definition of an equity interest Account Holder in a trust.

    Now let's dig a little deeper....."

    Please feel free to 'dig a little deeper' by reading Peter's entire blog post CRS and Protectors: The OECD Has Lost the Plot.

    Can We Ignore the OECD?

    In a follow-up blog post, Peter takes the OECD bull by its horns and challengingly asks whether any FAQ promulgated by the OECD or even the "CRS Implementation Handbook" should be followed if they contradict the CRS and its Commentary. Peter believes that "anything the OECD says that contradicts the plain language of the CRS and Commentaries themselves should be ignored" unless local law requires a different result, which will rarely be the case.

    You can read more on this controversial issue at Peter's blog post Why, and When, the OECD's CRS Implementation Handbook and FAQs Should be Ignored.

    Fiduciaries needing help with FATCA and CRS might wish to further examine the helpful tools available at gatcaandtrusts.com More here.

    Back to Articles Back to Virginia La Torre Jeker J.D.
  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Virginia La Torre Jeker J.D.

Virginia La Torre Jeker J.D., is based in Dubai. Virginia has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has over 30 years of experience specializing in the international aspects of US tax, including FATCA. She has been quoted in the New York Times and Newsweek, and is regularly quoted in many local news articles and publications."

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