- How are US laws affecting other jurisdictions around the world? - The changing concept of international tax laws: rethinking territoriality of tax laws Lorraine White, MD, Head of EMEA Securities Tax and US Tax Services, BNY Mellon

1. Information Classification: Confidential
CHANGES IN US TAX LAWS AND THE INFLUENCE THIS HAS HAD ON INTERNATIONAL TAX PRACTICES
Presented by Lorraine White. Head of EMEA Custody Tax and US Tax Services
19thNovember 2014

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Information Classification: Confidential
Agenda
1.Tax Evolution –Taxation without borders
2.FATCA and where are we now?
3.Global FATCA -The latest updates from the OECD and the EU
4.Base Erosion and Profit Shifting –the link

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Information Classification: Confidential
Taxation Without Borders
•Fiscal pressures
•Governments need to raise revenue
•Pursuit of individual and corporate taxation
•Use of legal instruments was not enough
•Treaty access
•Perception of treaty abuse
•Financial transaction tax
•Political will?
•Increased government to government co-operation
•Mutual Assistance
•Fiscal Intermediaries
•The role of financial institutions
But one border remains –Treaty Access!!!!

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Information Classification: Confidential
2017
2016
2015
2014
2013
2012
Unprecedented Tax Changes within Financial Services
Fundamental Tax developments in Financial Services: Investor Tax Reporting, FATCA, European Financial Transaction Taxes, Automatic Exchange of Tax Information, Tax Transparent Funds, European Savings Directive, Qualified Intermediary (QI) regimes, Common Reporting Standards, Cost Basis reporting, Capital Gains Tax developments, continuous increase on Tax Documentation, etc.
G20 LEADERS SUMMIT AUSTRALIA 2014 -AGENDA FOR GROWTH AND RESILIENCE:
“delivering on the financial regulation reforms and modernizing the international tax system”
Italian
FTT
G8 support of
Automatic Exchange of Tax information
Italian
FTT
German ITR changes
UK
TTF
EU FTT –commitment from 10 of 11 participating member states to implement EU FTT
UK Reporting Overseas Territories
Argentinian
CGT
FATCA
Reporting
Pass Through Payments / WHT
French
FTT
New Rules for Denmark ITR rules
Austrian
ITR changes
UK ITR changes
Swiss ITR
changes
FATCA Registration
ECJ Santander Case
Columbian CGT changes
Ireland rules for ITR
Expected EUSD expansion (to be aligned with OECD AEOI)
Japan and Korean WHT
Tax changes
OECD publishes Common Reporting Standard (CRS)
Implementation of the OECD Model Treaty for funds
US Cost Basis reporting
OECD CRS start date (merging of UK FATCA with CRS)
BEPS action
points review
EU DAC incorporating CRS
FATCA/UK FATCA
start date
Investor
Tax
French
FTT
Conclusion of BEPS review

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US FATCA Overview
•The (US) Foreign Account Tax Compliance Act (FATCA) aims to combat tax evasion by US residents using foreign accounts
•Requires Financial Institutions (FIs) outside the US to pass information about their US customers to the US tax authorities and includes provisions on withholding taxes
•A model intergovernmental agreement (IGA) was developed in 2012 to enable FIs to comply with FATCA without breaching jurisdiction data protection laws
•A number of countries have now signed IGAs with the US

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Current Issues
•“Umbrella” funds with underlying sub-funds (e.g. Luxembourg SICAV)
•If sub-funds have segregated assets and liabilities (i.e. “ring fenced”), they may be considered a distinct/separate entity and B.O. from a US tax perspective
Historically, most “ring-fenced” sub-funds provided a W-8BEN reflecting the name of the sub-fund in Line 1 (B.O.), with the nameof the umbrella fund on the reference line
•W-8BEN-E categories are governed by US tax law, while IGAs are governed by local law; in many countries the sub-funds have no separate legal identity or independent status
There is uncertainty whether the umbrella or each underlying sub-fund(s) will need to obtain a GIIN
Many umbrella funds believe they are required to register at the umbrella level under their IGA (that umbrella will be assigned a GIIN)
•As a result, there is an inconsistent approach in how W-8BEN-Es are being executed
The name reflected on Line 1 (umbrella or sub-fund) can create validation/mismatch issues; accounts are opened in the sub-fund name and the GIIN is generally verified to the Line 1 name
•BNY Mellon raised a question to the IRS (via the AGC) to clarify whether a W-8BEN-E can be executed as either:
Line 1 reflecting sub-fund name (umbrella name added as reference) with GIIN of sub-fund, or
Line 1 reflecting umbrella fund name (sub-fund name added as reference) with GIIN of umbrella

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Information Classification: Confidential
Current Issues (Continued)
•Disregarded Entities (DREs)
•In general, if a DRE is in the100% owner’s country of residence they will utilise one GIIN
The IRS instructions for W-8BEN-E and W-8IMY indicate that specific FATCA information is only required for DREs outside the parent’s country of residence (as it will be obtaining its own GIIN)
•However, DREs resident in Model 1 IGA jurisdictions will register as entities separate from its owner and will receive their ownGIIN
As a result, there are DREs resident in the same country as their parent (e.g. Luxembourg and the Cayman Islands) that will havetheir own specific FATCA classification and GIIN
The IRS Instructions for W-8BEN-E and W-8IMY do not take this scenario into account
•Due to the lack of clear guidance there is inconsistency in how W-8BEN-E and W-8IMY are completed by DREs in their 100% owner’s country of residence that is a Model 1 IGA jurisdiction
It is unclear if the DRE is required to provide their GIIN and specific FATCA information (e.g. classification as a “Reporting Model 1 FFI”), and the owner only provides minimal information
•BNY Mellon is currently working with a Big 4 Accounting Firm to define the requirements and create a consistent policy for this scenario

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Information Classification: Confidential
Current Issues (Continued)
•Downloading Copies of W-series from Websites
•US withholding agents are under client pressure to download scanned copies of W-8s and W-9s from websites (either belonging to clients or maintained by third-parties)
•BNY Mellon has heard from multiple sources that the IRS has strong concerns about this practice
•As a result, BNY Mellon has raised this question and issue to the IRS
The specific scenario requested to be reviewed was whether it is permissible to accept copies of wet-ink signature forms from the client’s website (or third-party website) at the specific direction of a client
•Until the IRS provides definitive guidance and clarification, downloading copies of W-8s and W-9s for direct accounts from websites is currently not permissible

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Copies vs. Originals
•Effective 1stJuly 2014 : copies of Forms W-8 (*.pdf or fax) can be accepted
•However, an original is required in the following situation:
Retroactive affidavit is provided, and
It is being used to cover payments before 1stJuly 2014
•The reasoning behind this requirement is that the IRS Regulations permitting copies apply to payments made on or after 1stJuly 2014
•Summary of Rules:
Original required: retroactive affidavit prior to 1stJuly 2014
Copy (*.pdf or fax) acceptable: Signed after 1stJuly 2014 or retroactive affidavit effective after 1stJuly 2014

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Information Classification: Confidential
FATCA Evolution -Growth in the crackdown on tax evasion
Automatic exchange requirements have expanded rapidly and the Common Reporting Standard (CRS) is set to continue this growing trend
US FATCA
UK FATCA
OECD GLOBAL FATCA
•Annual reporting by non-US Financial Institutions (FIs) on accounts held by specified US Persons
•First reporting 2015
The reportable account population is expected to be small
•Annual reporting by UK FIs on CD and Gibraltar accounts
•Annual reporting by CDOT* Financial Institutions on UK account holders
•First reporting 2016
It is expected that the reportable account population will increase
•Global initiative led by the OECD member states and G20 governments to increase tax transparency
•Annual reporting by FIs on accounts resident in partner jurisdictions
•First reporting 2017
Significant increase in the number of reportable accounts
Increased geographical impact brings many practical challenges
•Filing multiple information returns covering reportable accounts and managing multiple relationships with tax authorities
•Monitoring developments, local country guidanceand legislation. Complying with data privacy laws
•Aligning reporting output with existing regimes. Do you develop tactical or strategic solutions
*Guernsey, Isle of Man, Jersey, Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos Islands

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Information Classification: Confidential
What is AEOI and what are the benefits to governments
AUTOMATIC EXCHANGE OF INFORMATION INVOLVES THE SYSTEMATIC AND PERIODIC TRANSMISSION OF BULK TAX PAYER INFORMATION BY THE SOURCE COUNTRY OF INCOME TO THE COUNTRY OF RESIDENCE OF THE TAXPAYER IT CAN:
•provide timely information on non-compliance where tax has been evaded on either an investment return or the underlying capital.
•help detect cases of non tax compliance where tax authorities have not had any previous indication of non tax compliance
•increase voluntary compliance, encouraging taxpayers to report all relevant information
•It may also help with educating tax payers in their reporting obligations, increasing tax revenues and helping to ensure tax payers pay their fair share of tax in the right place at the right time.
•Conceptually some countries may be able to integrate the information received automatically with their own systems – leading to pre-filled tax returns.

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Information Classification: Confidential
Latest from the OECD -The Common Reporting Standard
Common Reporting Standard (CRS) is an OECD-lead initiative on the global automatic exchange (AEOI) of financial account information, sometimes referred as “Global FATCA”. It is supported by the G8, G20 and the EU
•Published on 13thFebruary 2014, and formally endorsed by the G20 leaders on 23rdFebruary, the OECD’s model Competent Authority Agreement (CAA) and Common Reporting Standard (CRS) is designed to be a standardised and cost effective model for the multi- lateral exchange of tax payer information
•21stJuly the OECD published commentaries on the CRS and CAA models
Commentaries are designed to assist both governments and business to implement the standard consistently
They provide detail on the practical implementation of the standard:
>Including detailed model agreements
>Standards for harmonised technology solutions
>and a format for the secure transmission of data
•On the 29thOctober a total of 51 countries and jurisdictions -known as the Early Adopters Group -have now committed to a common implementation timetable which will see the first exchange of information in 2017 in respect of accounts open at the end of 2015and new accounts from 2016.
•A further 34 countries have committed to implement the new global standard by 2018.
Presenting the new standard, the OECD Secretary-General Angel Gurría said:
“This is a real game changer. Globalisation of the world’s financial system has made it increasingly simple for people to make, hold and manage investments outside their country of residence. This new standard on automatic exchange of information will ramp up international tax cooperation, putting governments back on a more even footing as they seek to protect the integrity of theirtax systems and fight tax evasion.”

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Information Classification: Confidential
The latest from the EU –Common Reporting Standards take 2
•On 3rdOctober 2014 EU Commission published its proposals to amend Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (DAC).
•Specifically Article 8 of Directive 2011/16/EU will be extended to include the same information covered by the OECD Model CAA and CRS. The aim is to ensure that the expanded scope of automatic exchange of information within the EU is in line with international developments.
•While it follows the CRS as much as possible some changes exist to take account of EU law. For example no deferment of gross proceeds reporting.
•Political agreement on the draft amended Administrative Cooperation Directive, integrating the CRS into this Directive, was reached during the ECOFIN of 14 October 2014, and will introduce the CRS reporting amongst all EU Member States as from 1 January 2016 (Austria may benefit from an extension of this deadline up to 1 January 2017)
•Member States will be required to implement rules to require their financial institutions to implement reporting and due diligence rules which are fully consistent with those included in the CRS.
•It is therefore likely that the last reporting under the EU Savings Directive will be due in 2016 relatingtocalendar year 2015, since the much broader CRS reporting will be due in 2017 regarding calendar year 2016.
•All EU Member States signed a multilateral agreement to implement the CRS on the 29thOctober

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Information Classification: Confidential
Latest from the OECD –Base Erosion and Profit Shifting
•At the request of the G20, the OECD developed an Action Plan to tackle base erosion and profit shifting (BEPS) in a comprehensive manner.
•The BEPS Action Plan, which was published and endorsed by the G20 Finance leaders on 19 July 2013 and endorsed by the G20 Leaders at their meeting on 5-6 September 2013.
•The action plan provides for 15 actions to be undertaken in the context of the OECD/G20 BEPS Project, to which all non-OECD G20 countries (Argentina, Brazil, China, India, Indonesia, Russia, Saudi Arabia and South Africa) participate on an equal footingwith OECD countries.
•The timeline of the OECD/G20 BEPS Project is extremely ambitious.
•Initial output made in September 2014
•completion of the project anticipated by the end of 2015.
•The OECDs Base Erosion and Profit Shifting (BEPS) project is broadly focused on multi-nationals utilising tax planning strategies, exploiting gaps and mismatches in overseas tax systems to mitigate their exposure to local corporation taxes.
•In the context of cross border portfolio investment it was not generally considered to be of potential impact but two of them, if included in the OECD recommendations and implemented by governments, could have a bearing on the ability of cross border investors to accesstreaty relief. These actions are:
Action 2 –Neutralise the effects of hybrid mismatches
Action 6 –Prevent treaty abuse
If these proposals were implemented collecting tax Treaty entitlements could be further hampered, as they move further away fromthe streamlined tax relief at source system contained in the TRACE IP.

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CRS overview
The CRS encompasses several key elements which form the legal basis for exchange between jurisdictions and as well as outlining the requirements for Financial Institutions (FIs)
Model Competent Authority Agreement (CAA)
The Competent Authority Agreement (CAA) is a bilateral agreement where it is intended that governments will conclude bilateral or multilateral agreements to automatically exchange information (AEOI)and establishes a legal basis for (AEOI) between tax authorities. It has no direct legal force and will therefore need to be translated into local laws before it can be implemented.
Common Reporting Standard (CRS)
The Common Reporting Standard (CRS) outlines the information to be reported by financial institutions and exchanged between residence jurisdictions, outlining:
•The scope of financial information to be reported
•The scope of accountholders subject to reporting
•The scope of financial institutions required to report
CRS Schema and User Guide
Provides a standardised approach for transmittinginformation electronically by reporting FIs to Competent Authorities
CRS Commentary
These commentaries are designed to assist both governments and business to implement the standard consistently. They provide additional detail on the practical implementation of the standard including detailed model agreements, standards for harmonised technology solutions and aformat for the secure transmission of data.
CRS

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Signatories of a Multilateral Competent Authority Agreement 29thOctober 2014
Over 60 jurisdictions have committed to implementing the CRS and of these 51 jurisdictions “ the so called Early Adopters Group” have agreed to a common implementation timetable.
•Albania *
•Austria *
•Belgium
•Croatia
•Cyprus
•Czech Republic
•Denmark
•Estonia
•Faroe Islands
•Finland
•France
•Germany
•Gibraltar
•Greece
•Hungary
•Iceland
•Ireland
•Italy
•Latvia
•Liechtenstein
•Lithuania
•Luxembourg
•Malta
•Netherlands
•Norway
•Poland
•Portugal
•Romania
•San Marino
•Slovakia
•Slovenia
•South Africa
•Spain
•Sweden
•UK Crown Dependencies
•United Kingdom
EMEA
•Anguilla
•Argentina
•Aruba*
•Bermuda
•British Virgin Islands
•Cayman Islands
•Colombia
•Curacao
•Mexico
•Montserrat
•Turks & Caicos Islands
AMERICAS
APAC
•Korea, South
•Mauritius
* Signatory of the Multilateral CAA –First Information exchange September 2018
As of 29thOctober 2014

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CRS Implementation Timing
Early adopters’ statement in March 2014 described the proposed timetable as “ambitious but realistic”, and reiterated that theiraim is “rapidly creating a truly global system of automatic information which leaves no hiding places for tax evasion”. Consistent withthe G8 and G20 statements, there is strong political motivation to abide by proposed dates
1stJuly 2014
UK and US FATCA ‘Go Live’
2017
2015
2016
2014
2018
31stJuly 2014
Consultation– HMRC publishes CRS consultation document
July –October 2014
HMRC Consultation –HMRC requests comments from industry on local implementation
31stDecember 2015
Snapshot– CRS “Pre-existing Accounts” are those in existence at this date
1stJanuary 2016
CRS ‘Go Live’ – Enhanced on-boarding required from this date
31stDecember 2016
Remediation – Complete due diligence for entity accounts and certain “high value” individual “Pre-existing Accounts”
31stDecember 2017
Remediation– Complete due diligence for all other “Pre-existing Accounts”
September 2017
Reporting – First exchange of information under CRS
27thOctober -EAG signing ceremony
Jan 2015
UK Guidance
Expected Q1 2015 on CRS implementation

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Information Classification: Confidential
Implications to AML/KYC -Is the CRS really a tax issue?
•CRS due diligence is closely aligned with AML/KYC procedures. It requires identification of reportable persons, their tax residency and CRS category when on-boarding any new account. The expectation is that a customer self certification is collected at time of commencement of a new customer relationship.
•There is an expectation that the self certification will be validated against the documentation collected as part of the AML/KYCProcedures.
•Determining what is a new account -The UK IGA approach is that a pre-existing account holder of the same FI that opens a new account is not treated as a new account. Local implementing rules will vary on this.
•A new account will generally not be consistent with the approach taken for AML/KYC purposes. For example for AML/KYC , once the client has been appropriately documented at the initial account opening stage they can generally open new accounts or products without further AML/KYC checks. This could potentially require FIs to obtain a self certification each time a new product or account is opened.
•This reasonableness test will require robust cross referencing process to AML/KYC
•There are limits on the reason to know test which refer back to current documentation held on file for AML/KYC purposes
•The CRS commentary notes that adopting countries may:
implement penalties for failure to provide a self certification
or make the provision of a self certification conditional at the point of account opening. This can cause particular concernswhere third parties are involved in any compliance process.
Tax and AML must be closely aligned -How will you manage compliance

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Conclusions
•For the CRS the due diligence to determine customers under the requirements of US FATCA and the UK CDOT agreements (UK FATCA) will need to be re-run against the requirements of the CRS.
•The CRS however does not include a ‘standard self certification form’ FATCA forms (W8/W9) are not able to capture the informationrequired under CRS there will be some added complexity as FATCA and CRS run in parallel.
•And finally the CAA and CRS set a minimum standard for information to be exchanged; governments may choose to exchange information beyond this minimum.
•Need to shift focus from FATCA go-live requirements and look to assess the impact of CRS on existing implementation plans
•For BEPs feed into local lobbying groups make sure you contribute to consultations and consider impact to your business.
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Registration Onboarding Remediation
Agree and implement reporting solution
Identify reportable accounts
Submit annual reports
FATCA
CRS
Impact Assessment
Identify future proofing requirements
Implementation
BEPS
Impact Assessment
Implementation

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Disclosures
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