FATCA – Definitions

FATCA stands for the Foreign Account Tax Compliance Act. It adds a new chapter in the Internal Revenue Code (IRS) which aims at increased transparency with respect to US persons that may invest in accounts outside the US and certain non-US entities with US owners.

For more information please visit www.irs.gov

Financial Institution

Financial Institution means any of the following:

  • A Custodial Institution;

Any Entity that holds, as a substantial portion of its business, financial assets for the account of others. An Entity holds financial assets for the account of others as a substantial portion of its business if the entity’s gross income attributable to the holding of financial assets and related financial services equals or exceeds 20% of the entity’s gross income during the shorter of: (i) the three-year period that ends on December 31 (or the final day of a non-calendar year accounting period) prior to the year in which the determination is being made or (ii) the period during which the entity has been in existence.

  • A Depository Institution

Any entity that accepts deposits in the ordinary course of a banking or similar business.

  • An Investment Entity:
    Any entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations for or on behalf of a customer:
  1. Trading in money market instruments (cheques, bills, certificates of deposit, derivatives etc); Foreign exchange; Exchange, interest rate and index instruments; Transferable securities; Or commodity futures trading.
  2. Individual and collective portfolio management.
  3. Otherwise investing, administering, or managing funds or money on behalf of other persons

This term shall be interpreted in a manner consistent with similar language set forth in the definition of “Financial Institution” in the Financial Action Task Force recommendations.


US Person

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US Person means the following:

  1. A US citizen or resident individual,
  2. A partnership or corporation organised in the United States or under the laws of the United States or any State thereof
  3. A trust if (i) a court within the United States would have authority under applicable law to render orders or judgments concerning substantially all issues regarding administration of the trust and (ii) one or more US persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the United States.

Specified US Person

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Specified US Person means a US persons as defined above, but does not include the following:

  1. A corporation the stock of which is regularly traded on one or more established securities markets
  2. Any corporation that is a member of the same expanded affiliated group, as defined in section 1471(e)(2) of the US Internal Revenue Code, as a corporation described in clause (i) above
  3. The United States or any wholly owned agency or instrumentality thereof
  4. Any State of the United States, any US Territory, any political subdivision of any one or more of the foregoing
  5. Any organisation exempt from taxation under section 501(a) of the US Internal Revenue Code or an individual retirement plan as defined in section 7701(a)(37) of the US Internal Revenue Code
  6. Any bank as defined in section 581 of the US Internal Revenue Code
  7. Any real estate investment trust as defined in section 856 of the US Internal Revenue Code
  8. Any regulated investment company as defined in section 851 of the US Internal Revenue Code or any entity registered with the US Securities and Exchange Commission under the Investment Company Act of 19401 (15 U.S.C. 80a-64)
  9. Any common trust fund as defined in section 584(a) of the u Internal Revenue Code
  10. Any trust that is exempt from tax under section 664(c) of the US Internal Revenue Code or that is described in section 4947(a)(1) of the US Internal Revenue Code
  11. A dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards and options) that is registered as such under the laws of the United States or any State
  12. A broker as defined in section 6045(c) of the US Internal Revenue Code
  13. Any tax-exempt trust under a plan that is described in section 403(b) or section 457(g) of the US Internal Revenue Code

Controlling Persons

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Controlling Persons means the natural persons who exercise control over an Entity. Exercise of control means, a person who owns, or is considered as owning, 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such entity.

In the case of a trust, such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. The term “Controlling Persons” shall be interpreted in a manner consistent with the Financial Action Task Force Recommendations.

NFFE:

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NFFE means any Non-US entity that is not a Foreign Financial Institution as defined in relevant US Treasury Regulations or is an Excepted NFFE and also includes any Non-US Entity that is established in Cyprus or another FATCA Partner Jurisdiction and that is not a Financial Institution.

Active NFFE

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Active NFFE means any NFFE that meets any of the following criteria:

  1. Less than 50 percent of the NFFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50 percent of the assets held by the NFFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income
  2. The stock of the NFFE is regularly traded on an established securities market or the NFFE is a Related Entity of an Entity the stock of which is regularly traded on an established securities market
  3. The NFFE is organized in a US Territory and all of the owners of the payee are bona fide residents of that US Territory
  4. The NFFE is a government (other than the US government), a political subdivision of such government (which, for the avoidance of doubt, includes a state, province, county, or municipality), or a public body performing a function of such government or a political subdivision thereof, a government of a US Territory, an international organization, a non-US central bank of issue, or an Entity wholly owned by one or more of the foregoing
  5. Substantially all of the activities of the NFFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a Financial Institution, except that an NFFE shall not qualify for this status if the NFFE functions (or holds itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes
  6. The NFFE is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a Financial Institution, provided that the NFFE shall not qualify for this exception after the date that is 24 months after the date of the initial organization of the NFFE
  7. The NFFE was not a Financial Institution in the past five years, and is in the process of liquidating its assets or is reorganizing with the intent to continue or recommence operations in a business other than that of a Financial Institution
  8. The NFFE primarily engages in financing and hedging transactions with, or for, Related Entities that are not Financial Institutions, and does not provide financing or hedging services to any Entity that is not a Related Entity, provided that the group of any such Related Entities is primarily engaged in a business other than that of a Financial Institution
  9. The NFFE is an excepted NFFE as described in relevant US Treasury Regulations or
  10. The NFFE meets all of the following requirements:
  • It is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organization, business league, chamber of commerce, labor organization, agricultural or horticultural organization, civic league or an organization operated exclusively for the promotion of social welfare
  • It is exempt from income tax in its jurisdiction of residence
  • It has no shareholders or members who have a proprietary or beneficial interest in its income or assets
  • The applicable laws of the NFFE’s jurisdiction of residence or the NFFE’s formation documents do not permit any income or assets of the NFFE to be distributed to, or applied for the benefit of, a private person or non-charitable Entity other than pursuant to the conduct of the NFFE’s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the NFFE has purchased and
  • The applicable laws of the NFFE’s jurisdiction of residence or the NFFE’s formation documents require that, upon the NFFE’s formation documents require that, upon the NFFE’s liquidation or dissolution, all of its assets be distributed to a government entity or other non-profit organization, or escheat to the government of the NFFE’s jurisdiction of residence or any political subdivision thereof.

Passive NFFE

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Passive NFFE means any NFFE that is not (i) an Active NFFE, or (ii) a withholding foreign partnership or withholding foreign trust pursuant to relevant US treasury Regulations.

Passive Income

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Passive income means the portion of gross income that consists of:

  1. Dividends, including substitute dividend amounts
  2. Interest
  3. Income equivalent to interest, including substitute interest and amounts received from or with respect to a pool of insurance contracts if the amounts received depend in whole or part upon the performance of the pool
  4. Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the NFFE
  5. Annuities
  6. The excess of gains over losses from the sale or exchange of property that gives rise to passive income described in items 1 to 5
  7. The Excess of gains over losses from transactions (including futures, forwards, and similar transactions) in any commodities, but not including

    – Any commodity hedging transaction described in section 954(c)(5)(A) of the US Revenue Code, determined by treating the entity as a controlled foreign corporation; or

    – Active business gains or losses from the sale of commodities, but only if substantially all the foreign entity’s commodities are property described in paragraph (1), (2) or (8) of section 1221(a) of the US Revenue Code

  8. The excess of foreign currency gains over foreign currency losses
  9. Net income from “notional principle contracts”. These are financial instruments that provide for the payment of amounts by one party to another at specified intervals calculated by reference to a specified index upon a notional principal amount in exchange for specified consideration or a promise to pay similar amounts (i.e a swap)
  10. Amounts received under cash value insurance contracts or
  11. Amounts earned by an insurance company in connection with its reserves for insurance and annuity contracts

However, the following amounts are excluded from any calculation of Passive Income.

  1. Any income from interest, dividends, rents, or royalties that is received or accrued from a related person to the extent such amount is property allocable to income of such related person that is not passive income. For purposes of this section, a person is a related person with respect to the NFFE if

– Such person is an individual, corporation, partnership, trust, or estate which controls, or is controlled by, the NFFE, or

– Such person is a corporation, partnership, trust, or estate which is controlled by the same person or persons which control the NFFE

  • In the case of an NFFE that regularly acts as a dealer in property described in item 6 above of this section (referring to the sale or exchange of property that gives rise to passive income), forward contracts, option contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities)

    – Any item of income or gain (other than any dividends or interest) from any transaction (including hedging transactions and transactions involving physical settlement) entered into in the ordinary course of such dealer’s trade or business as such a dealer; and

    – If such dealer is a dealer in securities, any income from any transaction entered into in the ordinary course of such trade or business as a dealer in securities

Direct Reporting NFFE

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Direct Reporting NFFE means an NFFE that elects to report on Form 8966 directly to the IRS certain information about its direct or indirect substantial US owners, in lieu of providing such information to withholding agents or participating FFIs with which the NFFE holds a financial account

TIN

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TIN is the Tax Identification Number