FFIs and What is a Specified U.S. Person?

FATCA Compliance FATCA and What is a Specified US Person[/caption]One of the other main elements of the FATCA due diligence procedures is the concept of ―Specified U.S. Person. These persons are the key target of FATCA.

Colloquially, the objective of FATCA is to reduce and deter U.S. tax evasion by U.S. citizens. However, not all U.S. citizens and tax residents are within FATCA’s scope. This is because certain U.S. Persons are considered to pose a low risk of U.S. tax evasion (e.g. accounts held by the U.S. Government and any wholly owned agency or instrumentality, are not reportable accounts).7 These “low risk” persons are defined in the IGA as being U.S. Persons that are not Specified U.S. Persons. In order to reduce the scope of FATCA, it targets for review (due diligence) and reporting, financial accounts maintained by Reporting NZFIs that are held by ―Specified U.S. Persons and certain non-U.S. entities controlled by such persons. These are U.S. Reportable Accounts. In summary, a Specified U.S. person, is a U.S. Person (also defined in the IGA), other than certain listed persons.

More specifically the term “Specified U.S. Person” means a U.S. person other than the following:

  • a corporation the stock of which is regularly traded on one or more
    established securities markets [For the purposes of the IGA, interests are
    “regularly traded” if there is a meaningful volume of trading with respect to the interests on an on-going basis, and an “established securities market” means an exchange that is officially recognized and supervised by a governmental authority in which the market is located and that has a meaningful annual value of shares traded on the exchange];
  • any corporation that is a member of the same expanded affiliated group as a
    corporation the stock of which is regularly traded (see above) on one or more established securities markets;
  • the U.S. or any wholly owned agency or instrumentality thereof;
  • any State of the U.S, 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 regulated investment company as defined in section 851 of the U.S.
    Internal Revenue Code 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);
  • 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 U.S. or any State;
  • any one of the following as specifically defined in the U.S. Internal Revenue Code: certain organizations exempt from taxation (including certain trusts that are tax exempt or that are otherwise described in the U.S. Internal
    Revenue Code), certain individual retirement plans, certain banks, certain real estate investment trusts, any common trust fund, certain brokers.

A U.S. Person means:

  • a U.S. citizen or resident individual;
  • a partnership or corporation organized in the U.S. or under the U.S. law
  • a trust if it is subject to U.S. law in terms of its administration and is
    controlled by a U.S. person;
  • the estate of a deceased U.S. citizen or resident.

For a more complete version of the definitions of “U.S. Person” and “Specified U.S. Person”, the reader should refer to either the IGA or the list of definitions at the end of these guidance notes.

Example 1
ABC Limited is a U.S. corporation organized in the U.S. It is listed on and is a
regularly traded stock on the New York Stock Exchange (“NYSE”). There is a meaningful volume of trading with respect to the ABC Limited’s interests on an on- going basis.

Is ABC Limited a Specified US Person?
No. ABC Limited is a corporation that is organized in the U.S. Therefore, it is a U.S. Person. However, it is not a Specified U.S. Person. This is because a Specified U.S. Person does not include a U.S. corporation whose stock or shares are regularly traded on one or more established securities markets. NYSE is an officially recognized and supervised by a governmental authority in which the market is located and that has a meaningful annual value of shares traded on the exchange. Therefore, the NYSE is an established securities market. There is also a meaningful volume of trading with respect to the ABC Limited’s interests on an on-going basis. This means that ABC Limited is a corporation the stock of which is regularly traded on an established securities market. Therefore, ABC Limited is excluded from the definition of Specified U.S. Person.

Example 2
BCD Incorporated is organized in the U.S. (a U.S. Person). It is not a trust (or corporate trustee). Its stock (and the stock of the members of its affiliated group) is not regularly traded on any established securities market. It is not a wholly owned agency or instrumentality of the U.S., any State of the U.S., any U.S. Territory or any political subdivision. It is not tax exempt under the U.S. Internal Revenue Code. It is not an individual retirement plan. It is not a bank, real estate investment trust, or regulated investment company as defined in the US Internal Revenue Code or an entity registered with the U.S. Securities and Exchange Commission. It is not a common trust fund. It is not 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 or the U.S. or any State. It is also not a broker as defined in the U.S. Internal Revenue Code.

Is BCD incorporated a Specified U.S. Person?
Yes. BCD is a US Person that is a Specified U.S. Person.

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