IEIM404710: Charities: Introduction
The definitions and terminology of the AEOI regimes do not easily translate to the structures, processes and terminology used by charities. This guidance brings together material from the manual that is relevant to charities, and puts it into terminology that is similar to that used by the sector. It is not intended to replace the full guidance or override any part of it. These sections should be read in conjunction with the full guidance, and charities and their advisers should refer to the more detailed guidance and OECD CRS and Commentary where necessary.
Under the various AEOI regimes all entities are classified as either Financial Institutions or Non-Financial Entities. Charities may be Financial Institutions where they come within the definition of Investment Entity [see IEIM400770]. Where they are Financial Institutions they have the same due diligence and reporting requirements that apply to other Financial Institutions.
Charities that are not Financial Institutions will be Non-Financial Entities. Non-Financial Entities have no reporting requirements under the AEOI regimes.
The Wider Approach and Data Protection
The ‘wider approach’ enables charities that are Reporting Financial Institutions to capture and maintain information on the tax residence of Account Holders irrespective of whether or not that Account Holder is a reportable person for any given reportable period. The due diligence procedures in the agreements governing automatic exchange are designed to identify accounts which are held by the residents of the jurisdictions with which the UK is committed to exchange information. However, the number of these jurisdictions is not fixed and there is an expectation that under the CRS more jurisdictions will reach agreement with the UK over time. As a result, the regulations applying the due diligence rules have been designed to adopt a wider approach to recording the territory in which a person is tax resident irrespective of whether that territory is a Reportable Jurisdiction at the time that the regulations come into force.
Financial Institutions are required to identify the territory in which an Account Holder or a Controlling Person is resident for income tax or corporation tax purposes, or for the purposes of any other tax of a similar character that has been imposed by that territory, and to maintain this information for a period of 5 years from the end of the period in which the information is reported to HMRC or the due diligence is relied on not to report the Account Holder.
The main concern is to provide Financial Institutions with the legal cover they require in the context of data protection law. The regulations impose an obligation on Financial Institutions without any discretion on their part to collect this information. In such circumstances it is the legislator that must consider the question of proportionality for Data Protection Act purposes. The obligation to identify the territory in which an Account Holder is tax resident and to maintain that information for 5 years from the end of the year in which the information is reported to HMRC or the due diligence is relied on not to report the Account Holder provides the necessary data protection cover for Financial Institutions to comply with their obligations. Financial Institutions are permitted to apply the same due diligence standards that are required to be applied to Account Holders resident in a reportable CRS jurisdiction to all Account Holders regardless of country of residence. This includes collecting information on country of residence and TINs for Account Holders, and entity classification, if relevant.