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Guernsey issues new draft guidance for FATCA-based reporting

Carey Olson Trust and Fiduciary Team, Guernsey, 27 November 2014

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The States of Guernsey have published bulletin 2014/1 to update the most recent iteration of the draft guidance notes issued jointly by the Crown Dependencies on 28 July 2014 regarding the implementation under domestic law of reporting in accordance with the US Foreign Account Tax Compliance Act.

The States of Guernsey have published bulletin 2014/1 to update the most recent iteration of the draft guidance notes issued jointly by the Crown Dependencies on 28 July 2014 regarding the implementation under domestic law of reporting in accordance with the US Foreign Account Tax Compliance Act.

The bulletin provides clarification in response to specific questions and comments received from industry by inserting additional text into existing draft guidance notes. It covers:

• dual reporting for institutions that are treated as resident in a Crown Dependency and another jurisdiction for FATCA-based reporting;
• the treatment of interests under employee benefit trusts;
• a clarification of the meaning of “regularly traded” and “established securities market”, in the context of whether interests in listed vehicles are to be treated as financial accounts for the purposes of reporting; and
• the format and submission of reports.

Generally speaking, equity or debt interests of an investment entity that are “regularly traded” on an “established securities market” are not Financial Accounts for the purposes of the inter-governmental agreements or IGAs. Each IGA puts its own gloss on the phrases “regularly traded” and “an established securities market” and introduces a series of tests, all of which must be satisfied in order to meet the definitions of those terms under the respective IGA. However, the ways in which these tests apply differs between the UK-Guernsey IGA and the US-Guernsey IGA. The latter is stricter than the former, requiring evidence of trading (and a meaningful volume of trading) in those shares and a meaningful value of shares being traded on the exchange as a whole, whereas listing on an established securities market is enough under the UK-Guernsey IGA.

In the case of the UK-Guernsey IGA, there are two tests.
* Equity or Debt Interests are “regularly traded” if they are listed or quoted and/or available for trading on an established securities market.
* An “established securities market” means an exchange that is officially recognised and supervised by a governmental authority in which the market is located. The bulletin says that such an exchange can be considered to take its meaning from the list of stock exchanges that are recognised by the Registrar of Companies in Guernsey as set out in the Companies (Recognised Stock Exchanges) Regulations, 2009, which includes the Channel Island Securities Exchange (the “CISE”), which was established in 2013 and is the successor exchange to the Channel Islands Stock Exchange, and any regulated market as defined by the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”).

However, the bulletin also adds a general anti-avoidance provision to deal with the possibility that an entity could circumvent the appropriate IGA reporting by seeking a listing when there is no intention of interests in the investment vehicle being widely available in practice.

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