FATCA and OECD CRS

Subject to the Latvian law and requirements arising from the European Union legislation binding on Latvian Republic international tax conventions, binding on the Latvian Republic and/or the European Union, that aim at strengthening mutual administrative cooperation in the fight against tax fraud and tax evasion, ABLV Bank, AS has a statutory obligation to collect and document data on  tax residency of its clients / clients’ beneficial owners, as well as to provide the Latvian State revenue service the information about the residents of those jurisdictions, administrative cooperation with whom stipulates for exchange of information on financial assets.

Herein the client means any individual and any entity (with a status of a legal entity and without it), to which ABLV Bank, AS, or any its subsidiary provide financial services or which have applied to ABLV Bank, AS or any its subsidiary for provision of the financial services.

Beneficiary (beneficial owner) means any individual (natural person):
a) who owns or directly or indirectly controls at least 25 per cent of the merchant’s fixed capital or the total amount of voting shares, or who controls the merchant’s activity in any other way;
b) who directly or indirectly has the right to property or who directly or indirectly controls at least 25 per cent of a legal entity other than a merchant. A person or a group of persons for whose benefit an establishment has been set up is considered the beneficial owner of the establishment. A political party, partnership or cooperative society is considered the beneficial owner of the relevant political party, partnership and cooperative society,
c) for whose benefit of in whose interests the business relationship is being established, or
d) for whose benefit or in whose interests a certain transaction is being executed without establishing a business relationship.

FATCA

From 1st of July 2014, the regulations of the Foreign Account Tax Compliance Act of the United States of America became applicable to Latvian financial institutions. FATCA regulations came into effect in accordance with the Agreement between the Government of the United States of America and the Government of the Republic of Latvia to Improve International Tax Compliance and to Implement FATCA.

ABLV Bank has undertaken obligations to comply with FATCA; pursuant to the said intergovernmental agreement, FATCA status of ABLV Bank is ‘Reporting Model 1 FFI’. The ABLV Bank Global Intermediary Identification Number is 5G93DV.99999.SL.428.

To comply with FATCA requirements, ABLV Bank, AS can liaise with a client / client’s beneficiary in order to request information or documentary evidences (including the US Internal Revenue Service’s tax certificates), which establishes whether the client / client’s beneficiary is a US person for FATCA purposes, but in case the client is a financial institution — whether the client is participating in FATCA.

A person can be recognized a US person for FATCA purposes if it is:

  • a US citizen;
  • a US resident;
  • an entity, that is established / registered in the United States or in any its State, or District of Columbia, or is operating under the laws of the United States or any its State, or District of Columbia;
  • a trust if 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 one or more US persons have the authority to control all substantial decisions of the trust;
  • an estate of a decedent that is a citizen or resident of the United States.

A person can be recognized a US resident if he/she is:

  • a US citizen / national;
  • a holder of a US passport / ID;
  • an individual born in the United States, the Commonwealth of Puerto Rico, Guam, the US Virgin Islands;
  • an individual, one or both parents of whom is / are US citizen(-s) / nationals;
  • former foreign national who has become a US citizen through naturalization.

A person can be recognized a US resident if he/she is:

  • an individual, who is residing in the U.S. ≥31 days within the current year and ≥183 days within three years, including the current year and 2 preceding years. To comply with requirements of 183 days, all residing days in the U.S. territory in the current year and 1/3 of days within the year proceeding the current year and 1/6 of days within the second year proceeding the current year will be summed up.  Persons, who are temporary residing in the U.S. such as members of foreign state delegations, tutors/students with J/Q/F/M visas, charitable sport event participants / sportsmen may be recognized as non-residents;
  • an individual with valid lawful permanent resident status (Green Card holder).

The term “U.S. Person” for FATCA purposes does not include:

  • a corporation the stock of which is regularly traded on one or more established securities markets;
  • any corporation that is a member of the same expanded affiliated group, as defined in section 1471(e)(2) of the U.S. Internal Revenue Code, the stock of which is regularly traded on one or more established securities markets;
  • the United States or any wholly owned agency or instrumentality thereof;
  • any State of the United States, any U.S. Territory, any political subdivision of any of the foregoing, or any wholly owned agency or instrumentality of any one or more of the foregoing;
  • any organization exempt from taxation under section 501(a) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/501) or an individual retirement plan as defined in section 7701(a)(37) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/7701),
  • any bank as defined in section 581 of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/581);
  • any real estate investment trust as defined in section 856 of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/856);
  • any regulated investment company as defined in section 851 of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/851), or any entity registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-64; www.law.cornell.edu/uscode/text/15/80a-64) ;
  • any common trust fund as defined in section 584(a) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/854),;
  • any trust that is exempt from tax under section 664(c) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/664) or that is described in section 4947(a)(1) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/4947);
  • 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;
  • a broker as defined in section 6045(c) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/6045); or
  • any tax-exempt trust under a plan that is described in section 403(b) (www.law.cornell.edu/uscode/text/26/403) or section 457(g) of the U.S. Internal Revenue Code (www.law.cornell.edu/uscode/text/26/457).

The term “US Person” shall be interpreted in accordance with the U.S. Internal Revenue Code.

The US Internal Revenue Service tax certificates:
1. Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) — W-8BEN, instructions how to fill in here.
2. Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) — W-8BEN-E, instructions how to fill in here.
3. Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting — W-8IMY, instructions how to fill in here.
4. Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States — W-8ECI, instructions how to fill in here.
5. Request for Taxpayer Identification Number and Certification — W-9 and instructions how to fill in.

OECD CRS

OECD CRS is a Common Reporting Standard (hereinafter the “CRS”) — a set of tax compliance rules and regulations aiming at achieving global tax co-operation via an automatic exchange of information, which is sponsored by the Organisation for Economic Co-operation and Development (hereinafter the “OECD”)) and is based on FATCA principles.

Under OECD CRS, Latvia carries out cooperation with CRS-participating countries based on the Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC, whilst  relationships with non-EU countries are ruled by means of multilateral agreements.

To fulfill OECD CRS requirements, Latvia has passed the amendments to the laws on “Taxes and Fees” and “Credit Institutions”, as well as regulations No.20 of 5 January 2016 Procedures for financial institutions on performing due diligence of the financial accounts and submitting information on financial accounts to the State Revenue Service.

The list of participating countries on whose residents Latvian financial institutions must provide information to the State Revenue Service of the Republic of Latvia under automatic exchange of financial account information (OECD CRS):
Albania, Andorra, Antigua and Barbuda, Argentina, Aruba, Australia, Austria, Bahamas, Bahrain, Barbados, Belgium, Belize, Brazil, Brunei Darussalam, Bulgaria, Canada, Chile, China, Colombia, Cook Islands, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Ghana, Gibraltar, Greece, Greenland, Grenada, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Kuwait, Lebanon, Liechtenstein, Lithuania, Luxembourg, Macao (China), Malaysia, Malta, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, Netherlands, New Zealand, Niue, Norway, Panama, Poland, Portugal, Romania, Samoa, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Saudi Arabia, Seychelles, Singapore, Sint Maarten, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Trinidad and Tobago, Turkey, United Kingdom, Uruguay, Vanuatu.

To comply with OECD CRS requirements, ABLV Bank, AS can liaise with a client / client’s beneficial owner in order to request information or documentary evidences, which certifies client’s / client beneficiary’s tax residency, as well as in case the client is a legal entity (or a structure with no corporate status) — client’s classification pursuant to OECD CRS.

Tax residency for the purposes of OECD CRS

OECD CRS does not offer a standard definition of tax residency; therefore, the client / client’s beneficiary while confirming its tax residency, must be governed by the tax laws of its country of residency.

As a general rule, an individual or Entity is considered as the tax resident in a country, where he / it is liable to pay income taxes, he / it permanently resides  / is the citizen (individuals) or resident / / or is established /registered or located its permanent executive body (Entities). However, an individual or Entity is not considered as the tax resident in the country, where under the tax laws of this country an individual or Entity is liable to pay income taxes only on the income from sources in this country or capital in this country.

It is necessary to take into consideration that each country has its own tax residency rules. Additional information about tax residency rules of each OECD CRS participating country is available here. Additional information about rules on determination of Tax Identification Numbers (TINs) is available here.

Please bear in mind that an individual or Entity could be a tax resident in several countries (has dual residency).

In cases Entity has no tax residency in any country, for the purposes of OECD CRS it shall be treated as a tax resident in the country where its permanent executive body is located (address of the permanent executive body).

The address of the permanent executive body is the address where usually the official meetings of the executive body (for example, board of directors, council, board) take place in order to substantially consider and make decisions about key issues regarding governance and main activities of the Entity. The management of the Entity may be effected from several places, however, there could be only one location, where the above-mentioned key issues regarding governance and business activities of the Entity are substantially considered and relevant decisions are made. . In order to determine the address of the permanent executive body it is vital to consider all relevant facts and conditions.

Client’s classification pursuant to OECD CRS

Active nonfinancial organization means any nonfinancial organization (viz entity, that is not a financial institution) that meets any of the following criteria:
1) less than 50 % of the nonfinancial entity’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50 % of the assets held by the nonfinancial entity 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 nonfinancial entity is regularly traded on an established securities market or the nonfinancial entity is a related entity of an entity the stock of which is regularly traded on an established securities market;
3) the nonfinancial entity is a Governmental Entity, an International Organization, a Central Bank, or an Entity wholly owned by one or more of the foregoing;
4) substantially all of the activities of the nonfinancial entity 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 entity does not qualify for this status if the entity 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;
5) the nonfinancial entity 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 nonfinancial entity does not qualify for this exception after the date that is 24 months after the date of the initial organization of the nonfinancial entity;
6) the nonfinancial entity 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;
7) the nonfinancial entity 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; or
8) the nonfinancial entity meets all of the following requirements:
a) in its jurisdiction of residency it is established and operated exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or 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;
b) it is exempt from income tax in its jurisdiction of residency;
c) it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;
d) the applicable laws of the nonfinancial entity’s jurisdiction of residency or its formation documents do not permit any income or assets of the nonfinancial entity 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 nonfinancial entity's charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the nonfinancial entity has purchased; and
e) the applicable laws of the nonfinancial entity's jurisdiction of residency or formation documents require that, upon the nonfinancial entity's liquidation or dissolution, all of its assets be distributed to a Governmental Entity or other non-profit organization, or escheat to the government of the nonfinancial entity's jurisdiction of residency or any political subdivision thereof.

Passive income — a portion of gross income of a passive nonfinancial organization that generally consists of:
1) dividends;
2) interest and income equivalent to interest;
3) rents and royalties, other than rents and royalties derived in the active
conduct of a business conducted, at least in part, by the organization;
4) annuities;
5) income from the sale or exchange of Financial Assets that gives rise to the passive income described in point 1 to 4 above (excluding those derived in the course of professional broker-dealer activities);
6) income from transactions (including futures, forwards,  options, and similar transactions) in any Financial Assets excluding those derived in the course of professional broker-dealer activities);
7) the excess of foreign currency gains over foreign currency losses excluding those derived in the course of professional broker-dealer activities);
8) net income from swaps (excluding those derived in the course of a professional broker-dealer activity);
9) amounts received under Cash Value Insurance Contracts;
10) income economically equivalent to income described in point 1 to 9.

Passive nonfinancial organization means any:
1) nonfinancial entity that is not an Active nonfinancial entity;
2) a specified Investment Entity.

Specified Investment Entity — an Investment entity, the income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets, if this entity is managed by another entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity described in point 1 of the definition of the term “Investment Entity”.

Financial Institution means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.

Custodial Institution means any entity that holds, as a substantial portion of its business, Financial Assets for the account of others.

Depository Institution means any entity that accepts deposits in the ordinary course of a banking business, activities of a credit union, payment services provider, e-money issuer or similar business.

Investment Entity means any entity:
1) which primarily conducts as a business one or more of the following activities or operations for or on behalf of a customer:
a) trading in money market instruments (e.g. cheques, bills, certificates of deposit, derivatives); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;
b) individual and collective investment portfolio management; or
c) otherwise investing, administering, or managing Financial Assets or money on behalf of other persons; or
(b) the income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets, if the entity is managed by another entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity described in point 1 of this definition.
An entity is not considered to be an Investment Entity, if it is an active nonfinancial entity, which satisfies criteria set forth in point 4 to 7 of the definition of the term “Active nonfinancial organization”.

Financial Asset includes a security (for example, a share of stock in a corporation; partnership or beneficial ownership interest in a widely held or publicly traded partnership or trust; note, bond, debenture, or other evidence of indebtedness), partnership interest, commodity, swap (for example, interest rate swaps, currency swaps, basis swaps, interest rate caps, interest rate floors, commodity swaps, equity swaps, equity index swaps, and similar agreements), Insurance Contract or Annuity Contract, or any interest (including a futures or forward contract or option) in a security, partnership interest, commodity, swap, Insurance Contract, or Annuity Contract. The term ‘Financial Asset’ does not include a non-debt, direct interest in real property.

Specified Insurance Company means any entity that is an insurance company (or the holding company of an insurance company) which issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.

Governmental Entity means the government of a jurisdiction, any political subdivision of a jurisdiction (which, for the avoidance of doubt, includes a state, province, county, or municipality), or any wholly owned agency or instrumentality of a jurisdiction or of any one or more of the foregoing.

International Organization means any organization, which satisfies the following criteria:
1) it is comprised primarily of states or their governments;
2) it has in effect a headquarters or substantially similar agreement with any jurisdiction, and
3) the income of it does not inure to the benefit of private persons.
As an international organization to be considered any institution established by the international organization and any agency wholly owned by the international organization.

Detailed information on OECD CRS is available on OECD portal.

The information on FATCA and OECD CRS provided herein is for informational purposes only. The information does not contain, constitute or may be considered as a legal and/or tax analysis, recommendation or consultation. The information is prepared using the sources specified herein, which are deemed reliable, but have not been particularly verified.

ABLV Bank, AS advises clients to examine thoroughly all information in respect of client’s / client beneficial owner’s tax residency and status / clasification under FATCA / OECD CRS, taking into account all individual facts and obstacles, as well as promptly inform ABLV Bank, AS about all conditions and changes in prior supplied information that may influence the client’s / client beneficial owner’s tax residency or status / clasification.

In case of any doubts, please find an opportunity to turn to competent tax authorities and / or professional legal or tax advisers.