No more kings with fatca & crs

My Thoughts (Draft) …
Your Thoughts in Comments or mifheili@gmail.com
There is a lot more to FATCA & CRS than Law Makers Care To Admit!

I, Mohammad Fheili, do solemnly swear that I am a Citizen of the Republic of Lebanon, and a
law‐abiding citizen with Tax Residency solely in Lebanon. CAN I GO? Despite that, since you are
dealing with the Fiscal Authorities on this one, not the Monetary Authorities, you are guilty
until I (the tax authority) give up trying to prove that you are guilty!
Say Goodbye to “Customer is King!”

The rules of engagement between FIs and the various arms of the central government is very
much the product of Central Bank Independence. Financial Institutions (FIs) are supervised by,
and, in general, are accountable to the Monetary Authority (i.e., Central Bank). In addition, they
serve a very effective Conduit of Monetary Policies. However, they (FIs) seldom (to never) are
asked to assist law enforcement in the identification of drug traffickers, arms dealers, tax
evaders, etc… as is the case in Anti Money Laundering (AML) Regulations including Foreign
Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS).

Independence has been granted to central
banks in order to shield them from short‐term
political influence when fulfilling their mandate
of ensuring financial stability. However, in the
post financial crisis era, Central Banks in many
countries have been entrusted with powers
and responsibilities going beyond their
traditional monetary policy mandates. Central
banks have, for example, started acting in the
areas of macro‐ and micro‐prudential
supervision and crisis management. Also, while
remaining within their monetary policy mandate, some central banks adopted unconventional
monetary policy measures. Critical voices claim that central banks have been over‐stretching
their mandates, blurring or even crossing the line into fiscal and economic policy. Central banks
are accused of influencing the distribution of income and wealth and subsidizing the financial
sector at the expense of society as a whole –
policy areas which traditionally require more
democratic legitimacy and control. This has re‐
opened the debate surrounding the legitimacy,
and the precise scope, of central bank
independence.

Could there be a ‘Get Even’ Conspiracy behind
the increasing and blatant intervention of the
Fiscal Authorities in the business of Financial
Institutions (FIs) starting from the most recent
CRS and moving back to FATCA and to the times

when banks’ mandate included a strong flavor of Law Enforcement under AML Regulations! This
recently acquired ‘Fiscal Contamination’ to the ‘Monetary DNA’ of financial institutions has
dramatically changed the ‘rules of engagement’ between Financial Institutions and Government.

Modern financial regulations and Technological breakthroughs encouraged disruptive innovation and
rendered the world increasingly globalized. Cross‐border activities, as a result, became the norm
instead of the exceptions! These transformational changes introduced heightened degrees of
complexities in financial transactions, and rendered the job of tax administrations near
impossible in terms of identifying taxpayers’ size of tax liability and the right jurisdiction this tax
liability is owed to! This reality added one more to the existing many layers of compliance that
Banks and other FIs must deal with. However, what is different this time is that the load of newly
mandated laws & regulations have been coming from the fiscal authorities with an unrivaled
impact on the financial landscape.

Be it intended of otherwise, banks and other FIs were forced to bear a big part of the burden of
failures of law enforcement and Tax Authorities in spotting law non‐abiding citizens. A key aspect
for making tax administrations ready for the challenges of the 21st century is equipping them
with the necessary legal, administrative and IT tools for verifying compliance of their taxpayers.
Against that background, the Foreign Account Tax Compliance Act (FATCA) of the US Tax
Authorities made first landing on the Financial Sector Landscape, and the Common Reporting
Standard (CRS) of the fiscal authorities in the Organization for Economic Cooperation &
Development (OECD) followed.

It is worth noting that despite the involvement of and heavy responsibilities bestowed upon
financial institutions in FATCA and CRS, and the implications on the financial sector clients and
institutions, Central Banks have chosen to stay out‐of‐the‐game except in the Commitment that
financial institutions shall not be serving as tax heavens to tax evaders.

Although FATCA and CRS are the product of compatible Tax Administrations, there are key
differences between FATCA and CRS which require specific onboarding, remediation, and
reporting enhancements and processes. For example:
 The scope of CRS is broader than FATCA as it aims to identify tax residents in any of the 95‐
plusjurisdictions participating in CRS.
 The account scope may be significantly greater than FATCA's because most thresholds
applicable under FATCA are not applicable within CRS,
 The categories of entities that have to provide information on controlling persons are
broader under CRS.
 IRS forms (e.g., Forms W‐8 and W‐9) are generally not acceptable under CRS, and
reporting financial institutions will need to collect specific self‐certifications covering the
CRS requirements (e.g., CRS self‐certifications need to allow the account holders to certify
multiple tax residencies or provide CRS classifications that differ from FATCA).
 CRS legal entity classifications can vary significantly from FATCA legal entity classifications.
This difference may require a significant effort in the financial and nonfinancial services
industries as they will need to confirm the classification of entities within their affiliated

group, substantially increasing the cost of legal management of classifications
and documentation.
 Unlike FATCA, CRS does not impose a withholding requirement. Instead, CRS enforcement
will be handled by each of the jurisdictions adopting CRS that will be required to establish
an audit and penalty regime for lack of compliance with the rules.

One important challenge associated with CRS is that even though the standard intends to impose
uniform requirements across the jurisdictions adopting this new global information reporting
regime, the reality is that each jurisdiction is entitled to exercise different options and expand
the minimum requirements established in the standard. In addition, the residency definitions and
data privacy and protection rules can vary from country to country. As a result, stakeholders will
need to monitor the rules, guidance, approach, reporting forms, etc., that each
jurisdiction releases.

What You Need To Know About The Common Reporting Standard (CRS)
Today, governments around the world are looking at ways in which they can exchange
information in order to fight tax evasion and protect the integrity of tax systems. This has resulted
in the development by the Organization for Economic Co‐Operation and Development (OECD) of
a system for the automatic exchange of information between member states relating to tax
payers within the OECD. This system is commonly referred to as the "Common Reporting
Standard" ‐ CRS. Many governments within the OECD will adopt the CRS under new local laws.
These local laws will mean that from the beginning of January 2017, governments will start
requiring all banks and other Financial Institutions (FIs) to ask customers for information with a
view to determining where they are resident for tax purposes. Lebanon, a participating
jurisdiction, and the local financial community are committed to protecting the integrity of tax
systems and preventing financial crime of all types and will fully comply with these new laws.
Therefore, from the beginning of 2017 onwards, FIs will be contacting their customers to collect
information related to their tax status.
On May 12th
, 2017, the Organization for Economic Cooperation and Development (OECD)
announced that representatives of the government of Lebanon (Mr. Ghady El Khoury, Chargé
d’affaires of the Embassy of Lebanon in France) signed the common reporting standard (CRS)
multilateral competent authority agreement (CRS MCAA), thereby re‐confirming Lebanon’s
commitment to implementing the automatic exchange of financial account information pursuant
to the OECD/G20 CRS in time to commence exchanges in 2018. Lebanon is the 89th jurisdiction
to sign the CRS MCAA. Lebanon also signed the multilateral convention on mutual administrative
assistance in tax matters, bringing the number of jurisdictions to join the agreement to 111.

The CRS convention is the most powerful instrument for international tax cooperation. It
provides for all forms of administrative assistance in tax matters: exchange of information on
request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous
tax examinations and assistance in tax collection. It guarantees extensive safeguards for the
protection of taxpayers' rights. The convention's impact grows with each new signatory; it also
serves as the premier instrument for implementing the Standard for Automatic Exchange of
Financial Account Information in Tax Matters developed by the OECD and G20 countries. The

Convention will enable Lebanon to fulfil its commitment to begin the first of such exchanges by
2018.

Multilateral Competent Authority Agreement, 2014‐present
As of October 2014, 51 countries had signed up to the Multilateral Competent Authority
Agreement, to automatically exchange information based on Article 6 of the Convention on
Mutual Administrative Assistance in Tax Matters The agreement specifies the details of what
information will be exchanged and when, as set out in the Standard.
As of July 2015, 53 jurisdictions had signed the agreement to automatically exchange
information; as of July 2016 83 jurisdictions had signed the agreement.
All EU countries, China, India, Hong Kong, Russia and 109 countries altogether have agreed to
become signatories. Yet many countries will not participate in the automatic information
exchange. Many of those that have not signed are small countries.

The information and its format are governed by a hugely detailed standard, whose details are
listed in a rule book hundreds of pages long. Each participating country (i.e., jurisdiction) will
annually automatically exchange with the other country the below information in the case of
Jurisdiction A with respect to each Jurisdiction B reportable account, and in the case of
Jurisdiction B with respect to each Jurisdiction A reportable account:
 Name, address, Taxpayer Identification Number and date and place of birth of each
Reportable Person.
 Account number
 Name and identifying number of the reporting financial institution;
 Account balance or value as of the end of the relevant calendar or at its closure, if the
account was closed.

OECD allows the participating countries to determine what accounts are reportable. "The term
"Reportable Account" means a [Jurisdiction A] reportable account or a [Jurisdiction B] reportable
account, depending on the context, provided it has been identified as such pursuant to due
diligence procedures in place in [Jurisdiction A] or [Jurisdiction B]." This means that either
jurisdiction may negotiate and determine its own reportable accounts in its agreement.

A Taxpayer Identification Number (TIN) is an identifying number used for tax purposes. It is also
known as a Tax Identification Number or Taxpayer Identification Number. A TIN may be
assigned by the Social Security Administration or by the country’s tax authority.
A TIN may be:
 a Social Security Number (SSN)
 an Individual Taxpayer Identification Number (ITIN)
 an Employer Identification Number (EIN)

The Common Reporting Standard (CRS) is the standard for automatic exchange of financial
account information (AEOI) developed by the Organization for Economic Co‐operation and
Development (OECD). CRS is a broad reporting regime that draws extensively on the
intergovernmental approach to the implementation of the Foreign Account Tax Compliance Act

(FATCA), and, similar to FATCA, CRS requires financial institutions resident in participating
jurisdictions to implement due‐diligence procedures, to document and identify reportable
accounts, and to establish a wide‐ranging reporting process.
On July 21, 2014, the OECD released the first version of the Standard for Automatic Exchange of
Financial Account Information in Tax Matters, which contained the different model competent
authority agreements (MCAAs) to be signed by the participating jurisdictions (including a
multilateral MCAA, a bilateral MCAA, and a nonreciprocal MCAA); the CRS itself, which provided
the documentation and due‐diligence rules applicable to the financial institutions; as well as
commentaries on the provisions of the MCAA and the CRS user guide. By December 2015, over
95 jurisdictions signed or were committed to sign the CRS. More than 50 jurisdictions are
considered "early adopters," which means that they will exchange information on financial
accounts automatically starting in 2017. The rest of the jurisdictions have committed to
automatically exchange information starting in 2018.
The information to be exchanged corresponds to the prior year. Therefore, financial institutions
that fall within the definition of a reporting financial institution in any of the early‐
adopter jurisdictions will need to implement CRS onboarding and due‐diligence requirements
starting January 1st
, 2016, to ensure that they are capturing the information needed to perform
the reporting in 2017, thereby allowing their jurisdiction to send information before September
2017 to the jurisdictions with which it has agreed to automatically exchange information.
With respect to preexisting accounts, reporting financial institutions in early‐adopter jurisdictions
need to complete the review of their high‐value individual accounts by December 31st
, 2016.
Therefore, reporting financial institutions in these jurisdictions will be required to report, at a
minimum, new individual and entity financial accounts identified as reportable as well as high‐
value preexisting accounts identified as reportable. For the remaining preexisting accounts (i.e.,
preexisting lower‐value individual accounts and preexisting entity accounts), the review will need
to be completed by December 31st
, 2017, and the accounts will be reported in 2018 for the
first time. Distracted
Reporting financial institutions in non‐early‐adopter jurisdictions, where Lebanon is, generally
will need to implement CRS requirements starting January 1st
, 2017, to collect the information
that will be exchanged by their jurisdiction in 2018. Likewise, they will need to complete the
review process for preexisting accounts one year later.


The CRS look through rule requires reporting financial institutions to treat an account holder that
is an investment entity managed by another financial institution (including by an investment
adviser or an investment manager) that is not a participating jurisdiction financial institution as a
passive nonfinancial entity (NFE) and to document and report the controlling persons of the
entity that are reportable persons.
It is specifically recognized in the CRS Commentaries that collective investment vehicles may
qualify as passive NFEs with controlling persons that are reportable persons. It should also be
noted that according to the CRS Commentaries, each of these controlling persons needs to sign
(or positively affirm) its own information. This directive may be interpreted to mean that those
U.S. investment vehicles and investment funds will likely need to provide CRS Self‐
Certifications from their controlling persons.

The standard also seeks to attract investment entities incorporated in nonparticipating
jurisdictions into participating jurisdictions, by indicating that a nonparticipating entity that is
managed or controlled by an entity in a participating jurisdiction will be treated as a participating
entity.
In addition, financial institutions (other than trusts) that do not have a residence for tax purposes
or are located in a jurisdiction that does not have an income tax are considered to be subject to
the jurisdiction of a participating jurisdiction (and, therefore, are considered reporting financial
institutions in that jurisdiction) if either (1) they are incorporated under the laws of a participating
jurisdiction, or (2) they have their place of management in (including effective management), or
are subject to supervision in, a participating jurisdiction.
Due to the complexity of these rules, financial institutions incorporated inside and outside the
United States should assess the CRS rules and determine how they are affected. Knowledge of
how other countries have adopted the standard may allow financial management professionals
to provide beneficial guidance to their clients and their operations team on how to follow
reporting and compliance rules in participating jurisdictions.

Clearly, the Organization for Economic Co‐operation and Development (OECD) introduced the
Common Reporting Standard (CRS) in order to improve cross‐border tax compliance and to
combat tax evasion. CRS is a global standard for the Automatic Exchange Of Financial Information
(AEOI) between participating jurisdictions that have agreed to adopt it. Compliance is mandatory
under local law in each participating jurisdiction, including Lebanon. As a responsible
international citizen and a leading Financial Centre, Lebanon has committed to implementing
AEOI and commencing the first information exchanges by end of 2018. Clearly, Lebanon is not an
early adopter of the CRS.

As part of the Bank’s legal obligations after Lebanon officially signed the Multilateral Convention
on Mutual Administrative Assistance in Tax Matters (in Paris on May 12th
, 2017, therewith
becoming the 111th
jurisdiction to join), they are required to collect certain tax information to
establish the country/ies of tax residence of their account holders. The Bank may be further
obliged to report, on an annual basis, information regarding financial accounts held by its account
holders who are tax residents in other reportable jurisdictions, to the local tax authorities where
these financial accounts are maintained.
Completing the CRS Self‐Certification form will ensure that the Bank holds accurate and up to
date information about the client’s country of tax residence. Should the client’s circumstances
change and any of the information provided in this form become incorrect, it is the client’s
obligations to let the Bank(s) know within thirty days of the change, and provide an updated CRS
Self‐Certification form.

Clients that hold financial accounts with the Bank will be subject to CRS required due diligence
procedures. Clients affected include individuals (whether banking directly or indirectly through
an entity), sole proprietors and entities such as corporations, partnerships and trusts. Generally,
clients that are identified as reportable persons, i.e., tax residents of reportable jurisdictions that
have signed AEOI agreements with Lebanon, will be subject to reporting. Therefore, customers
whose jurisdiction of tax residence is Lebanon only are not subject to reporting for CRS purposes.

Tax residence is a Jurisdiction of Residence,
which means a territory of which an individual or
entity is a resident for tax purposes. In general,
whether or not an individual or entity is a tax
resident of a jurisdiction is determined by having
regard to the person’s physical presence or stay
in a place (say, for example, whether a person
has stayed over 183 days in the same place
within a tax year) or, in the case of a company,
the place of incorporation or where the central
management and control of the entity lies. That
a person has paid taxes charged by a jurisdiction (say, value‐added tax, withholding tax or capital
gains tax) does not automatically render that person a tax resident of that jurisdiction. For
assistance in determining your country (or countries) of tax residence, please seek professional
tax or legal advice. Neither the Bank nor any of its employees are able to assist in this matter.

Clients are responsible for providing their countries tax residence when opening Financial
Accounts with any of the Banks operating in Lebanon. They must provide personal data and a
certification of their countries of tax residence to the Bank when opening accounts, and for
certain entities, the information on their controlling person(s). It is the responsibility of the
client(s) to provide true, correct and complete information in the CRS Self‐Certification to the
best of their knowledge and belief. Clients should also provide the Bank with a new updated CRS
Self‐Certification form within 30 days of any changes in circumstance that would render the
information in the form inaccurate or incorrect.

The Bank has a legal obligation to perform
due diligence and to, if required, report
clients who hold reportable accounts. The
Bank is not in a position to provide clients
with tax advice, assist clients in the
determination of their countries of the tax
residence or assist clients in completing the
CRS Self‐Certification form. It is the
responsibility of the clients to provide true,
correct and complete information in the CRS Self‐Certification to the best of their knowledge and
belief.

If you (or for certain types of entities, your Controlling Persons) are tax resident in a jurisdiction
outside Lebanon which has entered into an AEOI agreement with Lebanon, then the Bank is
required to report your (or your Controlling Persons) account information including the name,
address, date of birth, jurisdiction of residence, tax identification number (TIN), account number,
account balances and certain income, etc. to the concerned Department in the Ministry of
Finance. The Ministry of Finance will then exchange the information with the tax authorities of
the relevant reportable jurisdictions.

If Lebanon is the sole tax residence of the account holder, his/her financial account information
will not be reported to the Ministry of Finance for CRS reporting purposes.

The Bank may be obligated to decline any requests for new accounts, decline to enter into any
further transactions for existing clients that do not provide a completed CRS Self‐Certification
form and applicable documentations. Generally, all new clients are expected to provide the
relevant CRS form to open any new financial account with the Bank. If they (new clients) do not
respond to the Bank’s request for a CRS self‐certification and depending on the details on their
records, the Bank may need to treat their account as a reportable account.

No more kings with fatca & crs

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