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HMRC internal manual

International Exchange of Information Manual

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Due Diligence: Pre-Existing Entity Accounts: Thresholds

Due Diligence: Pre-Existing Entity Accounts: Thresholds

For all the regimes there is an optional threshold exemption that can be applied to pre-existing entity accounts where the account balance or value does not exceed an amount equivalent to $250,000. The exemption is applied by the Financial Institution making an election. The effect of the election is that the Financial Institution is not required to review or report any of its pre-existing entity accounts within the de minimis threshold or, where the election instead provides, a clearly identifiable group of such accounts (for example, accounts held by a particular line of business).

The election is made on the electronic return of information to HMRC. A Financial Institution wishing to apply the election will need to register on the HMRC portal [see Automatic Exchange of Information: registering and reporting guidance - Publications - GOV.UK] and complete the appropriate notification of election on the return even if there are no accounts to report.  Currently the portal has no facility to apply multiple separate elections by business line where different approaches are taken by separate business units within the same legal entity.  Affected entities wishing to make multiple elections should notify their usual HMRC point of contact, for example a Customer Relationship Manager.

If a Financial Institution chooses not to make an election to apply the threshold exemption it will need to review all pre-existing entity accounts in order to identify Reportable Accounts.

Where an election has been made to apply the de minimis threshold to an account, the Financial Institution must review the account balance at  31 December each year to determine if the balance has exceeded the relevant threshold (subject to the review dates for each regime).  Where the threshold is exceeded for an account it becomes reviewable (that is, the due diligence procedures for pre-existing entity accounts must be applied).  Where the account is identified as a Reportable Account, it is reportable from the year in which it was identified as so.  This is explained further below.

Accounts becoming reviewable

For DAC/ CRS and CDOT, accounts become reviewable once the balance has been established as exceeding $250,000 at a review date. As all accounts exceeding that threshold must be subjected to due diligence and the process is the same under all the regimes, the benefit of the $1million threshold for review under FATCA is effectively lost where the review under one regime identifies US Specified Persons for FATCA as these accounts become reportable once identified as such.

 

  Date $250,000 de minimis election applies from First account balance review date Subsequent account balance review dates Threshold at which account becomes reviewable
         
FATCA 30/06/2014 31/12/2015 31 December annually $1,000,000
CDOT 30/06/2014 31/12/2015 31 December annually $1,000,000
CRS/DAC 31/12/2015 31/12/2017 31 December annually $250,000

 

The deadline for completing account balance reviews in all cases above is –

  • for FATCA and CDOT, 30 June following the account balance review date

 

  • for CRS/DAC, 31 December following the account balance review date.

 

In practice, Financial Institutions may apply the 31 December 2015 deadline for FATCA and CDOT as there is no difference in applying that or 30 June in terms of the first year from when an account may be identified as exceeding the threshold and potentially becoming reportable.

Example

Bank A has applied the thresholds for pre-existing entity accounts for all the regimes. The bank holds a Depository Account for Entity X, which has a balance at the relevant dates as follows:

30 June 2014                   $187,000

31 December 2015           $208,000

31 December 2016           $312,000

31 December 2017           $623,000

 

At 31 December 2015 (the first account balance review date for FATCA and CDOT) the balance does not exceed $1,000,000 and so would not be reviewable for FATCA or CDOT.

At 31 December 2016, the balance exceeds $250,000 but is still below $1,000,000 so is not reviewable for FATCA or CDOT.

At 31 December 2017, the first review under the DAC/CRS, the balance exceeds $250,000. As a result, all accounts with a balance over $250,000, including this one, must be subjected to the due diligence procedures in the DAC. As a result, Entity X is identified as a US Specified Person and the account, having been so identified, is reportable for FATCA in respect of the 2017 reportable year.

 

Example

Bank A has applied the thresholds for pre-existing entity accounts for all the regimes. The bank holds a Depository Account for Entity X which has a balance at the relevant dates as follows:

30 June 2014                   $187,000

31 December 2015           $208,000

31 December 2016           $312,000

 

At 31 December 2015 the balance is below the threshold for review of all the regimes so no action is required.

At 31 December 2016 the balance is over the threshold of £250,000 for CRS purposes but remains below the threshold of $1,000,000 for FATCA and CDOT. The account must be reviewed against the due diligence requirements for the CRS regime. The bank may, if it so chooses, extend the review to cover the due diligence requirements for all the regimes at this time to prevent having to review the account again at a later date should the balance subsequently exceed $1,000,000.