4 Due diligence

Overview

The AEOI due diligence procedures are the procedures an RFI is required to undertake to determine whether there are any Reportable Accounts among the Financial Accounts it maintains.

For the CRS, the general due diligence procedures that Australian RFIs must comply with are described in sections II to VII of the CRS itself, as interpreted by the CRS Commentary.

For FATCA, the general due diligence procedures that Australian RFIs must comply with are described in Annex I of the FATCA AgreementExternal Link.

For the CRS, RFIs are required to establish whether a person holding the account is tax resident in any foreign jurisdiction. For FATCA, the RFI must establish whether an account holder is tax resident in the U.S. which, for individuals, also includes determining if they are a citizen of the U.S. irrespective of where they reside.

In addition, both AEOI regimes have further due diligence obligations for entity Account Holders.

An RFI may use third party service providers to carry out some or all of their due diligence. However the RFI ultimately remains responsible for their obligations.

The details of due diligence requirements depend on whether an account is pre-existing or a new account. An account is pre-existing if it was in existence on 30 June 2017 for the CRS or was in existence on 30 June 2014 for FATCA. The required due diligence further depends on whether an account holder is an individual or an entity. For accounts held by individuals, there are further distinctions in procedures for Lower Value Accounts and High Value Accounts (CRS and FATCA) or below a threshold (FATCA).

4.1 AML/KYC procedures

AML/KYC procedures are an integral part of the due diligence procedures for the AEOI regimes. For some identification tasks an RFI may rely solely on information collected and maintained through properly conducted AML/KYC procedures, for other tasks the review of information must cover the AML/KYC information and any other information held on the client.

An RFI may rely solely on their AML/KYC procedures when:

• reasonably determining that an entity is an Active NFE or a financial institution (any entity account)
• identifying the controlling persons of an entity (any entity account, but see section 4.11 of this guidance on procedures relating to settlors of trusts)
• determining whether the Controlling Person or persons of a Passive NFE holding a Pre-existing Account is a Reportable Person, provided that the balance or value does not exceed $1 million.

An RFI must review AML/KYC information and any other information held on the client when:

• confirming the reasonableness of a self-certification for a New Individual Account or a New Entity Account
• determining whether the holder of a pre-existing entity account may be a Reportable Person.

4.2 Alternative procedures and elections

Both the CRS and FATCA allow RFIs to make certain choices in their application of each regime. RFIs are not required to notify the ATO of elections made, but the choice made should be apparent from the records and procedures of the RFI or the carrying out of the RFI's due diligence and reporting obligations.

For the CRS, alternative procedures for due diligence includes:

• applying the due diligence procedures for New Accounts to Pre-existing Accounts
• applying the due diligence procedures for High Value accounts to Lower Value accounts
• excluding pre-existing entity accounts with an aggregate value or balance of $250,000 or less
• treating certain new accounts as Pre-existing Accounts (see section 4.3).

4.3 New account treated as a pre-existing account – the CRS

Under the CRS, a Financial Account is classified either as a Pre-existing Account or New Account depending on the date of opening. That is, whether it was opened on or after 1 July 2017 or whether the account was already in existence prior to that date. Certain New Accounts may be treated as Pre-existing Accounts, subject to four conditions. The conditions are:

• the Account Holder also holds with the RFI (or with a related entity in Australia) a Financial Account that is a Pre-existing Account
• the RFI (and any related entity) treats both accounts, and any other Financial Accounts of the Account Holder that are treated as Pre-existing Accounts, as a single Financial Account for purposes of satisfying the standards of knowledge requirements and determining the balance or value of any of the Financial Accounts when applying any account thresholds
• for a Financial Account that is subject to AML/KYC procedures, the Reporting financial institution is permitted to satisfy such AML/KYC procedures for the Financial Account by relying upon the AML/KYC procedures performed for the Pre-existing Account
• opening the Financial Account does not require the Account Holder to provide new, additional or amended customer information other than for purposes of the CRS.

An entity is a 'related entity' of another entity if either entity controls the other or the two entities are under common control.

Treatment of the accounts as a single account

The second condition above requires an RFI to have internal practices that treat the customer and their accounts holistically in relation to being aware of information that may cause a reasonably prudent person to question Documentary Evidence, self-certifications, or a claim being made by the customer. In order to satisfy this condition the RFI must do two things:

1. Apply standards of knowledge for the correctness or reliability of Documentary Evidence or self-certifications from that Account Holder as if the pre-existing Account or accounts already held by the customer, and the New Account being opened, are a single account. If the RFI has reason to know that the status assigned to one of the accounts is inaccurate, then it has reason to know that the status assigned to all other accounts of the Account Holder is inaccurate.
2. Treat the Financial Account or accounts already held by the customer, and the New Account being opened, as a single account for the purposes of applying any of the account thresholds. For example, where there is a Pre-existing Individual Account and a New Individual Account being opened, the RFI's internal policies and procedures must account for the year-end account balances of both accounts when monitoring whether those aggregated accounts exceed $1 million at the end of that year and future years. If it exceeds $1 million it will trigger the High Value Account due diligence procedures. The RFI's policies and procedures would also need to take into account in this aggregation the knowledge that any relationship managers (of an account) possess for financial accounts held with the RFI or with a related entity.

New, additional or amended customer information

Customer information refers to information on the identity, characteristics or profile of the customer as a person or entity. It does not cover the nature or characteristics of the account or investment – for example, altering the mix of investments within an account. On its own, the act of accepting terms and conditions for the account or authorising a credit check is not the provision of customer information.

An option to provide new, additional or amended customer information at the time of opening the new account does not cause the fourth condition to be failed, as the option to do so is not a requirement. For example, the ability for the customer to update their address when opening a new account does not reach the threshold of being a requirement.

A requirement to confirm existing information as remaining current is also not a requirement to provide new, additional or amended information.

A requirement to provide new, additional or amended customer information refers to a requirement for the Account Holder to provide the information to the RFI. It would not cover a requirement to provide information to another person. For example, where a customer is considering entering into a wealth-related product, their adviser may need to conduct or confirm a needs analysis and issue a statement of advice. If the adviser is unrelated to the RFI that will issue the new in scope account (additional to an existing account with that customer), it does not cause the fourth condition to be failed.

As a general guide and without altering the principles described above, passive actions (or inaction) by or with a customer are to be contrasted with occasions of active engagement between the customer and the RFI. The latter is more likely to present an opportunity to seek and obtain a self-certification or other information needed for complying with the CRS.

It is noted that a customer treated as a pre-existing customer may be subject to KYC refresh under AML obligations and change of circumstances due diligence under the AEOI regimes.

Joint account holders opening a new account

Where a New Account is opened with an RFI and one of the Account Holders has a Pre-existing Account and the other does not, the RFI may treat the New Account as a Pre-existing Account for the Pre-existing Account holder. In this situation, the RFI may carry out due diligence on the Account Holder of the Pre-existing Account in line with the Pre-existing Account due diligence procedures. For the joint holder who is a new customer and does not hold a Pre-existing account, the RFI must carry out New Account due diligence on that person as a new Account Holder.

4.4 Identifying the account holder of a financial account

The due diligence procedures in the AEOI regimes are generally aimed at determining whether the Account Holder is a Reportable Person or has a Controlling Person who is a Reportable Person in the case of Passive NFEs, so that the RFI can report the respective accounts to the ATO as Reportable Accounts.

Accordingly, identifying the Account Holder is a key requirement of the due diligence procedures. In most cases, identifying the holder of a Financial Account is straightforward and the Account Holder is the person listed or identified by the RFI who maintains the account as the holder of the account.

However, RFIs must consider the type of account and the capacity in which it is held. 'Account Holder' is defined in the AEOI regimes such that where a person, other than a financial institution, holds a Financial Account for the benefit or account of another person as an agent, custodian, nominee, signatory, investment adviser or intermediary, then that other person is the Account Holder.

An RFI may rely on information in its possession (including information collected in line with AML/KYC procedures), based on which it can reasonably determine if a person is acting for the benefit or account of another person.

An Account Holder of a Financial Account may be an individual or an entity. As noted in section 2, an entity is a legal person or a legal arrangement. An entity covers any legal arrangement, whether or not a separate legal entity is created, so covers companies, associations, joint ventures, partnerships, limited partnerships, and trusts (including unit trusts and discretionary trusts). These types of entities are the Account Holders of the accounts that they hold.

Accounts held by trusts, estates, partnerships and other legal arrangements treated as entity accounts

The Account Holder is the person listed or identified as the holder of a Financial Account by the financial institution maintaining the account, regardless of whether such person is a flow-through entity. If a trust, estate or partnership is listed or identified as the holder of a Financial Account, the trust, estate or partnership is treated as the Account Holder rather than any owner, beneficiary, partner or otherwise). This does not remove the requirement to identify the Controlling Persons of the trust, estate or partnership where the entity is a Passive NFE/NFFE.

A trust that is identified by an RFI as holding a Financial Account is treated as the Account Holder even if, as a matter of law, it is the trust's trustee that appears listed or recorded as the holder of the Financial Account in the RFI's systems.

Joint accounts

Where an account is jointly held, each of the joint holders is an Account Holder. An account is reportable if any Account Holder is a Reportable Person (under the CRS), a Specified U.S. Person (under FATCA) or a Passive NFE with one or more Controlling Persons who is a Reportable Person or Specified U.S. Person. The balance or value of the account is to be attributed in full to each Account Holder and this applies for both aggregation and reporting purposes. Where an account is jointly held by an individual and an entity, RFIs will need to apply both the individual and entity due diligence requirements to the account.

Children's accounts

Some financial institutions have account products specifically designed for children, where the child may transact on the account, perhaps in a limited way or after reaching a certain age. If a parent or grandparent (or similar figure) opens a children's account in the child's name, the child is the Account Holder, even if there is no trust deed or other formal arrangement. Any necessary self-certification may be done by a person with legal capacity to sign on behalf of the child.

RFIs may rely on information collected on children's accounts (for example, collected from a parent) in line with current AML/KYC procedures to apply AEOI due diligence procedures to assess if the child is reportable or to confirm the reasonableness of a self-certification. An RFI does not have reason to know that a child is the Account Holder if, in applying the AEOI and AML/KYC due diligence procedures, there is no indication to that effect.

4.5 Due diligence – pre-existing individual accounts, lower value accounts

A Lower Value Account for CRS purposes is an individual account with an aggregate balance or value that did not exceed $1 million on 30 June 2017. It will remain a Lower Value Account as long as the balance or value has not exceeded $1 million on 31 December 2017 or 31 December of all subsequent years.

A Lower Value Account for FATCA purposes is an individual account with an aggregate balance or value that did not exceed $1 million on 30 June 2014. It will remain a Lower Value Account as long as the balance or value has not exceeded $1 million on 31 December 2015 or 31 December of all subsequent years.

Due diligence on Lower Value Accounts for FATCA was required through electronic record search and was required to have been completed by 30 June 2016.

The remainder of this section focuses on CRS procedures only.

An RFI can apply either:

• a residence address test (provided conditions are met – see below) or
• an electronic record search.

An RFI can apply the residence address test to all Lower Value Accounts or, separately to any clearly identified group of accounts such as those maintained by a particular business line of the RFI, or in a particular location by the RFI.

Residence address test

The due diligence requirements for a Pre-existing Individual account allow for a residence address test procedure for a Lower Value Account (an account with an aggregate account balance or value as of 30 June 2017 that did not exceed $1 million). Subject to conditions, the RFI may treat the individual account holder as resident for tax purposes of the country where their current residence address is located.

The current residence address for these purposes is the residential address recorded by the RFI for the Account Holder. A residential address is one where the RFI understands or presumes the account holder resides. A 'care of' or post office box address would not generally be presumed to be the residential address (except in special circumstances such as that of military personnel).

The address must be current. It will not be current if it has been used for mailing purposes by the RFI and the mail was returned as undeliverable (other than due to an error). However, a residence address associated with an account (other than an annuity contract) classified as a dormant account (see section 3.14) may be considered current, even though mail was returned as undeliverable during the dormancy period.

The current residence address must be substantiated by evidence. The type of acceptable evidence depends on the circumstances. In this section of our guidance, for the purpose of aiding understanding, specific terminology is used in describing three types of evidence:

• Documentary Evidence – the evidence specified in paragraph E(6) of Section VIII of the CRS. Broadly, it covers certain documents issued by an authorised government body, an audited financial statement, third party credit report, bankruptcy filing or securities regulator’s report
• supporting documentation – a document issued by an authorised government body or a utility company
• general documentation – any of the above, and any other government or formal commercial document (for example, a trust deed or company certificate).

The current residence is substantiated if the RFIs policies and procedures ensure the currently recorded address is the same as, or in the same jurisdiction as a residential address shown in Documentary Evidence.

If the RFI is unable to match the current resident address to Documentary Evidence as above, the current residence is substantiated if the RFIs policies and procedures ensure the currently recorded address is in the same jurisdiction as the government issuing the Documentary Evidence.

If the RFI is unable to match the current resident address to Documentary Evidence as above, either because Documentary Evidence is absent from the records, or an address is absent, it may rely on recently issued supporting documentation.

Finally, and only in the case of individual accounts opened before the introduction of Documentary Evidence requirements under AML/KYC procedures or in circumstances where AML/KYC was not required to be collected such as in the case of Listed Investment Entities, the substantiation requirement will be satisfied if the current residence address is in the same jurisdiction as both:

• an address on the most recent general documentation; and
• an address most recently reported by the RFI under the Annual Investment Income Reporting (AIIR) to the ATO.

It is not necessary for the RFI to retain a copy of the relevant evidence, as it is sufficient to have made and retained a notation or record of the details from the evidence.

If the residence address test is used to determine the status of an account and the residential address later changes to a foreign address, the account becomes a Reportable Account at that time.

Electronic records search

Where an RFI is unable to establish the residence of an individual with a Lower Value Account with the residence address test, or chooses not to apply the residence address test, it must review its electronically searchable data for indicia of the individual’s residence.

The Account Holder is regarded as a resident of a foreign jurisdiction if any of the indicia following apply:

3. the Account Holder is identified as resident of a foreign jurisdiction or as a US citizen
4. a current mailing or residence address (including a post office box) of the Account Holder is in a foreign jurisdiction
5. there are one or more current telephone numbers in a foreign jurisdiction and no telephone number for the account holder in Australia
6. for non-depository accounts only, that there are current standing instructions to transfer funds to an account maintained in a foreign jurisdiction
7. there is a currently effective power of attorney or signatory authority granted to a person with an address in a foreign jurisdiction
8. an 'in-care-of' address or 'hold mail' instruction in a foreign jurisdiction if the RFI does not have any other address on file for the Account Holder.

If none of these indicia are discovered through an electronic search, no further action is required for Lower Value Accounts unless and until there is a subsequent change of circumstance that results in one or more of these indicia being associated with the account or the Account Holder, or the account becomes a High Value Account.

Effect of finding indicia

Where any of the first four indicia are found or subsequently arise the account becomes a Reportable Account unless the RFI takes action that leads to the indicia being cured. The RFI may (but is not required to) cure the indicia by obtaining both:

• a self-certification (if not already obtained); and
• Documentary Evidence supporting the self-certification to establish the Account Holder's non-reportable status.

Where the only indicium found or arising is item 5 (power of attorney or signatory authority), the account becomes a Reportable Account unless the RFI takes action that cures the indicia. The RFI may (but is not required to) cure the indicia by obtaining either:

• a self-certification (if not already obtained); or
• Documentary Evidence supporting the self-certification to establish the Account Holder's non-reportable status.

In the case where the only indicium is item 6 above (a 'hold mail' instruction or an 'in-care-of' address in a foreign jurisdiction and no other address on file for the Account Holder), the RFI is required to undertake at least one of these actions:

• conduct the paper record search described at section 4.6 to identify any additional foreign indicia, or
• seek a self-certification certification or Documentary Evidence from the account holder to establish their tax residency.

If the paper record search action is chosen and further foreign indicia are found, the account is a Reportable Account unless the RFI takes the appropriate curing action for the indicia. If the paper record search finds an Australian address and no other foreign indicia are found, the account is not a Reportable Account.

For any of these curing procedures in which Documentary Evidence is obtained, the evidence will be sufficient to confirm non-reportable status for CRS purposes if it contains a current Australian residential address.

If the chosen course of action fails to resolve the status of the account the RFI is required to attempt the other course of action. If neither course of action is successful in resolving the status of the account (no address(es) found in the paper record search and no valid self-certification obtained), the RFI must report the account as an undocumented account.

If additional foreign residence indicia were found and not remediated under the options available, the account is a Reportable Account for the indicated jurisdiction(s). The RFI maintaining the account must make reasonable efforts to obtain the account holder's date of birth and TIN if these are not already held, see section 5.5.

An RFI must monitor the balance of Lower Value Pre-existing Individual Accounts on the last day of each year from 2017. On the first occasion the balance exceeds $1 million, the account becomes a High Value Account and the RFI must carry out the enhanced review procedures for High Value accounts in the next calendar year.

4.6 Due diligence – pre-existing individual accounts, high value accounts

For CRS purposes, a High Value Account is an individual account with an aggregate balance or value that exceeded $1 million on 30 June 2017 or on 31 December of that year or any subsequent year.

FATCA also includes the concept of High Value Accounts. For FATCA purposes, an individual account is a High Value Account if it had an aggregated balance or value exceeding USD $1 million on either 30 June 2014 or on 31 December 2015, or exceeds that amount on 31 December of any subsequent year.

Due diligence on accounts that were High Value Accounts at the commencement of either the CRS or FATCA should now be complete. However the guidance in this section remains relevant for any account that has subsequently become a High Value Account for the first time when the balance exceeds $1 million as at 31 December 2017 or later years.

Electronic record search

The RFI must, for both the CRS and FATCA, start with an electronic record search and then continue, where appropriate, with a paper record search and a relationship manager inquiry.

The electronic record search for CRS is a search for the same indicia as described for Lower Value Accounts in section 4.5.

The electronic record search for FATCA means a search for:

• identification of the Account Holder as a U.S. citizen or resident
• unambiguous indication of a U.S. place of birth
• current U.S. mailing or residence address (including a U.S. post office box)
• current U.S. telephone number
• standing instructions to transfer funds to an account maintained in the U.S.
• currently effective power of attorney or signatory authority granted to a person with a U.S. address, or
• a 'hold mail' instruction or an 'in-care-of' address that is the sole address the RFI has on file for the Account Holder. In the case of a Pre-existing Individual Account that is a High Value Account, an 'in-care-of' address or 'hold mail' address are treated as U.S. indicia regardless of whether the address is inside or outside of the U.S.

Paper record search

If the RFI's electronically searchable databases include fields for the indicia included in the electronic record search, and capture all of the information described in those fields, a paper record search is not required for the CRS.

Under the CRS an RFI is required to carry out a paper record search but only to the extent that the required information on an Account Holder is not covered by the electronic search. For example, where the electronically searchable databases contain all the required information except for details of standing instructions to transfer funds, the paper record search will only be required to look for that information.

A more strict paper record search obligation applies for FATCA. An RFI will only be relieved from a paper record search on High Value Accounts if the RFI's electronically searchable information includes all of the following:

• the Account Holder’s nationality or residence status
• the Account Holder’s residence address and mailing address currently on file with the RFI
• the Account Holder’s telephone numbers are currently on file, if any, with the RFI
• whether there are standing instructions to transfer funds in the account to another
• whether there is a current 'in-care-of' address or 'hold mail' instruction for the Account Holder and
• whether there is any power of attorney or signatory authority for the account.

If an RFI cannot meet this condition for FATCA, it must conduct a paper record search for any of the indicia explained earlier in this section for the electronic record search.

For both the CRS and FATCA, a blank field in the electronically searchable information is acceptable if the RFI has policies and procedures in place that mean a field is only left blank when such information is not applicable to the account. For example, a blank field for any standing instructions to transfer means there are no such instructions in any of the RFIs records for the account, or that such a feature is not applicable.

For both the CRS and FATCA the paper record search for indicia should include a review of the current master file and, to the extent that they are not contained in the current master file, the following documents associated with the account and obtained by the financial institution within the last five years:

• the most recent Documentary Evidence collected with respect to the account
• the most recent account opening contract or documentation
• the most recent documentation obtained by the financial institution for AML/KYC procedures or other regulatory purposes
• any power of attorney or signatory authority currently in effect
• any standing instructions to transfer funds currently in effect (in the case of the CRS, instructions for a Depository Account is not a potential indicium).

Relationship manager

A relationship manager inquiry is always required for High Value Accounts if the account or any account aggregated with it has such a manager. The relationship manager inquiry is in addition to the electronic record search and (if appropriate) the paper record search. The RFI must consider whether any relationship manager associated with the account or any accounts aggregated with such an account has actual knowledge that would identify the Account Holder as a Reportable Person.

The RFI must treat a High Value Account as a Reportable Account if a relationship manager has actual knowledge that the Account Holder is a Reportable Person.

A relationship manager is an employee or officer of the RFI who has been assigned responsibility for specific Account Holders on an ongoing basis. A relationship manager would provide advice to Account Holders regarding their accounts as well as recommending and arranging for the provision of financial products, services and other related assistance.

Where an account is aggregated with other accounts for account balance or value purposes, the actual knowledge of a relationship manager of any of those accounts (including accounts of related entities) determines the status of all of those accounts.

Relationship management must be more than ancillary or incidental to a person’s job role. A person with some contact with Account Holders, but whose functions are of a back office, administrative or clerical nature, is not considered to be a relationship manager.

A relationship manager also has an important role in identifying any change of circumstance for a high value individual account.

Effect of finding indicia

For both the CRS and FATCA, if none of the relevant indicia are found in the review of the High Value Account and there is no relationship manager with actual knowledge that the Account Holder is a Reportable Person, no further action is required until there is a change in circumstances resulting in one or more indicia being associated with the account.

For the CRS only, in the special case where the only indicium is an 'in-care-of' address or 'hold mail' instruction in a foreign jurisdiction and there is no other address on file for the Account Holder, the RFI must obtain a self-certification or Documentary Evidence from the account holder to establish their tax residency. If the RFI cannot obtain either of these, it must report the account as an undocumented account – see section 5.7.

Other than the special case mentioned above, for both CRS and FATCA if any indicia are found in the review of the account, or there is a subsequent change in circumstances that results in one or more indicia being associated with the account, the RFI must treat the account as a Reportable Account for each jurisdiction indicated unless it elects to apply certain permitted 'curing' procedures.

Curing procedures for high value accounts

An RFI may 'cure' (disregard) certain indicia for both the CRS and FATCA if it obtains or has previously obtained and recorded a self-certification and Documentary Evidence that establishes the Account Holder's status as non-reportable. The indicia for reporting on a Reportable Jurisdiction. that can be cured in this way are:

• a current mailing or residence address in a Reportable Jurisdiction
• one or more telephone numbers in a Reportable Jurisdiction, and no telephone number in the RFI's jurisdiction (CRS) or no other non-U.S. telephone number (FATCA)
• standing instructions to transfer funds to an account in a Reportable Jurisdiction.

An RFI may cure a currently effective power of attorney or signatory authority granted to a person with a reportable jurisdiction for both the CRS and FATCA if it obtains or has previously obtained and recorded a self-certification or Documentary Evidence that establishes the Account Holder's status as non-reportable.

For FATCA only, an RFI may cure certain indicia if it obtains or has previously obtained and recorded a self-certification or Documentary Evidence that establishes the Account Holder's status as non-reportable. The indicia that can be cured in this way are:

• an 'in-care-of' address or 'hold mail' address that is the sole address identified for the Account Holder
• one or more U.S. telephone numbers and one or more non-U.S. telephone numbers are associated with the account.

Also for FATCA only, an RFI may cure an unambiguous record of a U.S. place of birth if it obtains or has previously obtained and recorded the following documentation:

• a self-certification
• a non-U.S. passport or other government issued identification evidencing the Account Holder's citizenship or nationality for a non-U.S. country; and
• either a copy of the Account Holder's Certificate of Loss of Nationality of the United States or a reasonable explanation of why they do not have such a certificate or did not obtain U.S. citizenship at birth.

4.7 Due diligence – self-certification for new individual accounts

Upon opening of a new individual account, a reporting financial institution must:

• obtain a self-certification that allows the RFI to determine the Account Holder’s residences for tax purposes
• confirm the reasonableness of such self-certification.

An RFI should not materially progress the account opening process without obtaining a valid self-certification. If an account number is provided to the account holder, an RFI is deemed to have materially progressed the account opening unless a block is applied to all transactions on the account, including stopping an initial deposit.  An RFI may only remove the block when a valid self-certification is received.

If the self-certification establishes that the Account Holder is a tax resident of a foreign jurisdiction, the RFI must obtain the Account Holder’s date of birth and for most foreign residence jurisdictions, the taxpayer identification number (TIN) issued by the foreign jurisdiction. See section 5.5 of this guidance for an explanation of TIN and date of birth requirements.

Obtaining a self-certification of residency and, if needed, the date of birth and the foreign TIN is generally a prerequisite to opening an account. The statement of self-certification should cover residency status in all cases and, where foreign tax residency is identified, affirmation by the Account Holder of their date of birth and the TIN provided. The account opening should not proceed if the person seeking the account cannot (or refuses to) provide these items.

An RFI may rely on a valid self-certification previously provided by an individual in connection with an account in meeting due the diligence obligations for another account. For example a self-certification provided for an earlier account can be relied upon for the opening of a new account, so long as the self-certification remains reliable for the older account (no change in circumstances has affected its reliability). If any of the information collected on the opening of the new account conflicts with the existing self-certification, this should be followed up through the change of circumstances process – see section 4.17.

If the Account Holder claims not to have a TIN for the foreign jurisdiction, the self-certification should confirm this. The RFI should seek and record the reason for the lack of a TIN. An RFI may rely on the self-certification and explanation provided there is no reason to believe the statement is false (see also section 5.5 for a discussion of TINs).

If the self-certification establishes that the Account Holder is a foreign tax resident, the RFI must treat the account as a Reportable Account. An account holder may be a tax resident of more than one jurisdiction.

The self-certification would often be part of the account opening documentation. The reasonableness check can be done based on other information obtained by the RFI for the account opening, including any documentation collected using AML/KYC procedures.

Generally RFIs must ensure that valid self-certifications are always obtained for new accounts. There may be a limited number of exceptional circumstances, due to the specificities of a business sector, where it is not possible to obtain a self-certification on ‘day one’ of the account opening process – for example, where an insurance contract was assigned from one person to another, or where an investor acquires shares in an investment trust on the secondary market. The bar for exceptional circumstances is set very high and therefore does not extend to circumstances where it is difficult to obtain a self-certification upon account opening. Where exceptional circumstances are present, the self-certification must be obtained and validated as quickly as feasible, and within 90 days. The RFI must have robust procedures in place to ensure self-certifications are obtained in all cases. If an RFI does not obtain the self-certification including, when required, the date of birth and TIN upon account opening for a New Individual Account, the RFI should not complete the account opening process. If the RFI opens the account in such circumstances, the RFI will not be compliant with the due diligence requirements. A penalty applies for each failure to obtain a self-certification – see section 6.1 of this guidance.

Where a self-certification is obtained at account opening but a reasonableness check of the self-certification cannot be completed because it is a ‘day two’ process undertaken by a back-office function, the reasonableness of the self-certification should be checked within a period of 90 days.

An RFI is considered to have confirmed the reasonableness of a self-certification if, in the course of opening the account and on review of the information obtained when opening the account, it does not know or have reason to know that the self-certification is incorrect or unreliable.

If an RFI later determines that a self-certification is incorrect or unreliable, it must obtain another valid self-certification. Alternatively, it must obtain a reasonable explanation and appropriate documentation that supports the accuracy of the original self-certification. The RFI must retain a copy or notation of such explanation and documentation.

If the RFI cannot obtain a self-certification or cannot obtain an explanation or appropriate documentation to support the validity of a self-certification, it should apply all reasonable measures to compel the Account Holder to comply. In the interim, if an annual reporting deadline occurs it must treat the Account Holder as a resident of the jurisdiction in which the Account Holder originally claimed to be resident as well as any other jurisdiction in which the RFI has indicia that the Account Holder may be resident.

4.8 Due diligence – pre-existing entity account thresholds

A pre-existing entity account is an account that was held by an entity (a non-individual) on 30 June 2017 in the case of the CRS, or that was held on 30 June 2014 in the case of FATCA.

Both AEOI regimes have a $250,000 threshold where the RFI was not required to review accounts that had a balance at or below that threshold on the initial test date. The RFI could have elected to disregard the threshold and review all pre-existing entity accounts. Such an election could be made separately for any clearly identified group of such accounts.

Where an RFI applied the $250,000 threshold to exclude an account on commencement of the CRS or FATCA, the RFI must review the aggregated account balance at 31 December each year to determine if the balance has exceeded the threshold on that date. In the case of the CRS, the first six-month period following 30 June 2017 was a special reporting period and for CRS purposes was treated as being a calendar year. The first review date to test the threshold was therefore 31 December 2017.

In the case of FATCA, the threshold against which an account is tested at 31 December of subsequent years is $1,000,000.

Once the balance has exceeded $250,000 (for the CRS) or $1,000,000 (for FATCA) at a review date, the account becomes reviewable and due diligence must be carried out.

4.9 Due diligence – pre-existing entity accounts

Initial due diligence on pre-existing entity accounts at the commencement of either the CRS or FATCA should now be complete. However the guidance in this section remains relevant for any pre-existing entity account that subsequently becomes in scope through the balance exceeding the relevant threshold for the first time on 31 December of 2017 or a later year.

If an RFI is required to carry out due diligence on a pre-existing entity account, it must follow these procedures to determine if the account is held by one or more entities that are Reportable Persons. The RFI must also establish whether an entity is a Passive NFE or should be treated as a Passive NFE and if so, 'look through' the entity account holder to the Controlling Persons to determine whether they are Reportable Persons.

Account holder as a reportable person

An RFI must review information maintained for regulatory or customer relationship purposes (including information collected for AML/KYC purposes) to determine whether the Account Holder is resident of a foreign jurisdiction. Information indicating that the Account Holder is resident in a foreign jurisdiction includes:

• a place of incorporation or organisation in a foreign jurisdiction
• an address in a foreign jurisdiction.

If the information indicates that the Account Holder is a foreign resident, the RFI must treat the account as a Reportable Account unless, at the RFI's option, it cures this status by:

• obtaining a self-certification to the contrary from the Account Holder (signed by a person with authority to sign on behalf of the entity), or
• reasonably determining based on information in its possession or publicly available that the Account Holder is not a Reportable Person (for example, where such information shows that the entity is a listed public company, an Australian superannuation fund or a Governmental entity).

'Publicly available' information includes information published by a government body, publicly accessible registers and information disclosed on the ASX or other established securities markets. 'Publicly available' information does not include the FFI list published by the IRS.

The RFI should retain a notation of the type of information reviewed and the date reviewed, if such information is relied on to exclude the account.

Account holder as a financial institution

If an Account Holder is a financial institution the account would generally not be a Reportable Account for CRS or FATCA purposes. Because of inaccuracies, the FFI list published by the U.S. IRS should not be relied upon to confirm that an Account Holder is a financial institution.

The general rule that an account held by a financial institution will not be a Reportable Account has an exception under the CRS. Where the financial institution is a type B Investment Entity (see section 2.5) and is resident in a jurisdiction that is not a Participating Jurisdiction, the entity is deemed to be a Passive NFE. In this case, due diligence on the Controlling Persons of the entity is required (see following). If the RFI cannot determine whether this exception applies based on available information, it would need to seek a self-certification from the entity.

There may be small variations in CRS rules across jurisdictions. If an entity is a resident of a foreign jurisdiction that is a Participating Jurisdiction for the CRS, the entity's status as a financial institution for CRS purposes should be resolved under that jurisdiction's laws. If an entity is resident in a jurisdiction that has not implemented the CRS, the standard Australian rules will apply.

Passive NFE controlling persons

The RFI must determine whether the entity is a Passive NFE. If so, the RFI must:

• identify the Controlling Persons of the Passive NFE; and
• determine whether any of those Controlling Persons are Reportable Persons.

For the purposes of determining whether the entity is a Passive NFE, the RFI must request a self-certification unless it has information in its possession or that is publicly available to reasonably determine the status of the Account Holder.

To identify the Controlling Persons, the RFI may rely on information collected and maintained in line with AML/KYC procedures. If the Passive NFE Account Holder is a legal person (for example, a company), a natural person is treated as a Controlling Person if they meet the AML/KYC threshold for ultimate beneficial ownership. If no natural person meets the threshold, the Controlling Person will be the person who holds the position of senior managing official for the entity.

See section 4.11 and 4.12 for further explanation where a Passive NFE Account Holder is a trust.

If a Controlling Person of the Passive NFE is itself an entity, the RFI will need to identify the natural persons that control that entity (and so on, if there is a chain of entities, until the ultimate natural persons with control are determined).

If the account balance or value does not exceed $1 million, the RFI may also rely on information collected and maintained in line with AML/KYC procedures to determine if any of the Controlling Persons are Reportable Persons.

The process to identify whether a Controlling Person is a Reportable Person is a search for indicia as described for individuals in section 4.5. The same curing options are also available as described in that section.

If the account balance or value does exceed $1 million, the RFI must seek a self-certification from either the Account Holder or the Controlling Person to establish whether that Controlling Person is a Reportable Person. This may be provided in or with the same self-certification provided by the Account Holder to determine its own status.

If a self-certification is required but is not received after reasonable efforts to obtain it, the RFI must then rely on an electronic record search for indicia to determine whether any Controlling Persons are Reportable Persons. The electronic record search is that as described in section 4.5. If no indicia are present, no further action is required until there is a change in circumstances that results in foreign tax residence indicia for a Controlling Person linked to the account.

An RFI may rely on a valid self-certification from a Controlling Person that was previously obtained from that person or the entity Account Holder in connection with another account, so long as the self-certification remains reliable for the older account (no change in circumstances has affected its reliability).

4.10 Due diligence – New entity accounts

There is no minimum threshold for due diligence on New Entity Accounts under the CRS – all New Entity Accounts must be reviewed. Generally, there is no threshold for FATCA, but see the special case of credit card accounts and revolving credit facilities explained in section 3.2.

For a New Entity Account, the RFI must determine whether the account is held by one or more entities that are Reportable Persons. The RFI must also establish whether an entity is a Passive NFE or should be treated as a Passive NFE and if so, 'look through' the entity account holder to the Controlling Persons to determine whether they are Reportable Persons.

An RFI may use standard industry codes in its due diligence process of reasonably determining whether an Account Holder is a Financial Institution, a Non-Reporting Financial Institution or an Active or Passive NFE.

Account holder as a reportable person

In order to determine whether an entity Account Holder is a Reportable Person, the RFI must generally obtain a self-certification in the account opening procedure. It must also confirm the reasonableness of the self-certification based on information obtained in connection with the account opening.

An RFI may rely on a valid self-certification provided for one account in meeting the due diligence obligations for another account. For example a self-certification provided by an entity for an existing account can be relied upon for the opening of a new account, so long as the self-certification remains reliable for the older account (no change in circumstances has affected its reliability). The earlier self-certification must also be reasonable when considered against information collected on the opening of the new account.

If the self-certification indicates that the Account Holder is resident in a foreign jurisdiction, the RFI must treat the account as a Reportable Account.

A self-certification is not required where the RFI reasonably determines, based on information in its possession or publicly available, that the Account Holder is clearly not a Reportable Person. For example, where information shows the entity is a listed public company, a Governmental entity or a financial institution (for example, Australian superannuation fund), the RFI may make this reasonable determination as these types of entities are not Reportable Persons under the AEOI regimes.

If an Account Holder is a financial institution the account would generally not be a Reportable Account for CRS or FATCA purposes but see section 4.19 for an explanation of the exception to this general rule.

Generally, an entity is resident for tax purposes in a jurisdiction if it is liable to tax by reason of its domicile, place of management or incorporation or similar criteria under the laws of that jurisdiction. If applicable, dual resident entities may rely on the tiebreaker rules contained in tax conventions.

Passive NFE controlling persons

The RFI must determine whether the entity is a Passive NFE. If so, the RFI must:

• identify the Controlling Persons of the Passive NFE
• determine whether any of those Controlling Persons are Reportable Persons.

For the purposes of determining whether the entity is a Passive NFE, the RFI must request a self-certification unless it has information in its possession or that is publicly available so it can reasonably determine the status of the Account Holder.

To identify the Controlling Persons, the RFI may generally rely on information collected and maintained in line with AML/KYC procedures. If the Passive NFE Account Holder is a legal person (for example, a company), a natural person is treated as a Controlling Person if they meet the AML/KYC threshold for ultimate beneficial ownership. If no natural person meets the threshold, the Controlling Person will be the person who holds the position of senior managing official for the entity.

However, when the Passive NFE is a trust, information collected for AML/KYC purposes may be insufficient for CRS purposes and more may be required. See sections 4.11 and 4.12 of this Guidance.

If a Controlling Person of the Passive NFE is itself an entity, the RFI will need to identify the natural persons that control that entity (and so on, if there is a chain of entities, until the ultimate natural persons with control are determined).

The RFI must seek a self-certification from either the Account Holder or the Controlling Person to establish if any Controlling Persons are Reportable Persons. This may be provided in the same self-certification as that provided by the Account Holder to determine its own status.

As a self-certification is required to establish the status of the Controlling Persons, this may be an opportune time to request or confirm the identity of the Controlling Persons.

The guidance in sections 4.7, 4.14 and 5.5 relating to self-certifications, their reasonableness, validity and requirements for TINs is also relevant to the collection of self-certifications confirming the identity, tax residence status and other required details (including TIN) of the Controlling Persons of a Passive NFE.

4.11 Due diligence – settlors of trusts

For a trust determined to be a Passive NFE, it is necessary to determine the Controlling Persons. The Controlling Persons means:

• the settlor (or settlors)
• the trustee (or trustees)
• the protector (or protectors) (if any)
• the beneficiaries or classes of beneficiaries
• any other natural person (or persons) exercising ultimate effective control over the trust.

It is also necessary to determine whether a Controlling Person is a Reportable Person (a tax resident of a foreign jurisdiction).

Settlors of trusts are always included in the definition of Controlling Person. Whether such a person actually controls the trust is not relevant for AEOI purposes.

When carrying out due diligence on a trust as an account holder, the ability to rely on AML/KYC procedures depends on whether the account is a pre-existing account or a new account.

Pre-existing entity account

The RFI maintaining the account must identify the Controlling Persons of the trust. It may do so based on information collected and maintained in line with AML/KYC procedures that applied to the customer or account at the time that the account was originally opened. If the information required to be collected and maintained under AML/KYC procedures does not include the identity of the settlor and the RFI has not recorded that identity, no further action is required.

Having identified the Controlling Persons to the extent required by the relevant AEOI due diligence procedures, the RFI must determine if the identified Controlling Persons are Reportable Persons. In the case of an account with a balance or value that does not exceed $1 million the RFI may rely on the same information used to identify the Controlling Persons, in line with AML/KYC procedures. If the review of that information did not identify the settlor or identified the settlor but the available information does not indicate their foreign tax residency, the RFI is not required to seek further information.

In the case of an account with a balance or value that exceeds $1 million on 30 June 2017, a self-certification from the Account Holder or Controlling Person should be requested to determine if the identified Controlling Persons are Reportable Persons. The trustee of the trust may provide this self-certification on behalf of the trust as Account Holder.

If an RFI is seeking a self-certification for a pre-existing entity account, either to determine whether it is a Passive NFE or to determine the status of the Controlling Persons (or both), this is an opportunity to request or confirm the details of Controlling Persons. RFIs are encouraged to structure self-certifications for Pre-existing entity accounts to cover all of these purposes.

If the settlor is not identified from information held by the RFI, which at least must include information collected and maintained in line with AML/KYC procedures, the RFI is not required to seek the identity of the settlor in the request for a self-certification.

If the account type does not have related AML/KYC information (for example, because such accounts were not subject to those procedures), the RFI must seek the identity of all Controlling Persons by self-certification.

If the RFI has taken reasonable steps to obtain a self-certification and it was not forthcoming, the RFI must rely on the indicia in its records to determine if a Controlling Person is a Reportable Person. If the RFI has no such indicia, then that Controlling Person is not treated as a Reportable Person. No further action is required for that person until there is a change in circumstances.

New entity account

The RFI maintaining the account must identify the Controlling Persons of the trust. It may do so based on information collected and maintained in line with AML/KYC procedures that apply to the customer or account which are consistent with recommendations 10 and 25 of the FATF Recommendations (as adopted in February 2012).

Australian AML/KYC procedures do not require identification of settlors in all cases. If the identified Controlling Persons do not include the settlor (which may be the case under Australian AML/KYC procedures where the settlor contributed less than $10,000), an RFI will be required to go beyond information collected for AML/KYC purposes and seek the identity of the settlor.

There is no threshold applicable for New Entity Accounts – the due diligence applies to all New Entity Accounts.

4.12 Beneficiaries of trusts – controlling persons

All beneficiaries of a Passive NFE trust are always Controlling Persons. This is consistent with recommendations 10 and 25 of the FATF Recommendations (as adopted in February 2012). In determining the Controlling Persons who are beneficiaries of a trust that is a Passive NFE, an RFI may rely on information collected and maintained through AML/KYC procedures for both Pre-existing and New Entity Accounts.

An RFI must also determine whether the beneficiaries of such a trust identified as Controlling Persons are Reportable Persons. In the case of a pre-existing entity account, the RFI may rely on information collected and maintained through AML/KYC Procedures, provided the aggregate balance or value of the account does not exceed $1 million. This means that for such an account, if there are no indicia of foreign tax residency for an identified beneficiary or class of beneficiaries in that information, no further action is required for that beneficiary or class of beneficiaries.

For any pre-existing entity account with a balance or value exceeding $1 million and any New Entity Accounts (regardless of balance or value), more due diligence is required for a Passive NFE trust account holder in determining whether the identified beneficiaries or any members of a class of beneficiaries are Reportable Persons. A self-certification is required from either the trustee or the beneficiary for each beneficiary. This self-certification requirement may introduce administrative complexity, particularly for discretionary trusts.

One approach that an RFI may take could be to require the trustee to identify all beneficiaries and certify their residency status in the initial due diligence. This practice may be relatively practical for trusts with clearly limited and identified beneficiaries (such as a simple family trust) and would be an acceptable approach.

However, such an approach may be more difficult in the case of trusts with broad classes of beneficiaries. All beneficiaries are potentially, for AEOI purposes, Controlling Persons. This extends to all members of a class of beneficiaries. RFIs must identify the Controlling Persons and identifying them is not dependent on whether a beneficiary controls the trust. Identifying all beneficiaries and their residency status may be onerous or impossible at the time of on-boarding in the case of a class of beneficiaries that is numerous or not capable of identification at that point in time.

To reduce the burden of such a task, RFIs may make the choice mentioned in paragraph 134 of the Commentary on section VIII, to allow RFIs to align the scope of beneficiaries of a trust treated as Controlling Persons with those treated as Reportable Persons of a trust that is a financial institution. Under this approach, a beneficiary will only be treated as a Controlling Person in a year if they receive or become entitled to receive a distribution from the trust. For an RFI that has made the choice mentioned in paragraph 134, a discretionary beneficiary would only need to be identified as a Controlling Person in the initial due diligence self-certification if the beneficiary has received or become entitled to receive a distribution in the year up to the date of signing the certification, or the beneficiary otherwise has actual control of the trust.

In practice, the RFI may make this choice itself by requiring the trustee to provide a self-certification in a particular form, or it may allow the trustee to make the choice in its self-certification statement.

A choice to apply paragraph 134 means the RFI needs to put procedures in place to ensure it is informed of distributions by the trust to foreign tax residents after the initial self-certification, within the time needed to correctly report on the account each year. Possible ways to achieve this are:

• the RFI seeking annual refreshment of the certification – this requires the account holder (the trustee) to re-certify whether any members of the class of beneficiaries who have received distributions since the previous certification are foreign residents
• the RFI requiring the trustee, as a condition of holding the account and on an as needed and a timely basis, to inform the RFI that the trust has made or will make a distribution to a foreign resident beneficiary.

Note that a distribution to a foreign resident beneficiary means a distribution from the trust, which is not necessarily carried out by making a payment from the Financial Account.

4.13 Beneficiaries of a trust that is an RFI – equity interests

A beneficiary of a fixed trust or a mandatory beneficiary of a trust holds an equity interest in the trust if the trust is an RFI. Such a beneficiary will be a pre-existing account holder for AEOI due diligence purposes if they held that equity interest on 30 June 2014 (FATCA) or 30 June 2017 (CRS). A person who is appointed as such a beneficiary or acquires the equity interest after the relevant AEOI date is a new account holder.

An RFI that is a trust may, for FATCA purposes, choose either the definition of equity interest in the FATCA Agreement or the definition of equity interest under the U.S. FATCA Regulations. The difference is significant in determining if a discretionary beneficiary has an equity interest. Under the FATCA Agreement definition, any discretionary beneficiary, or a member of a class of such beneficiaries, has an equity interest. Under the Regulations, a discretionary beneficiary is treated as holding an equity interest only if the beneficiary received a distribution during the calendar year.

A similar choice is available for CRS purposes. An RFI that is a trust may apply the broad definition in the CRS or, as explained in the CRS Commentary, use a narrower meaning which treats a discretionary beneficiary as holding an equity interest only if the beneficiary actually receives a distribution during the calendar year.

The choice of definition for FATCA and CRS are independent. The choice of definition for an AEOI regime may change, as long as the choice is applied to all relevant beneficiaries for a complete reporting period (calendar year). Therefore, to determine if discretionary beneficiaries of an RFI that is a trust are pre-existing account holders, the RFI may determine that all such beneficiaries existing on 30 June 2014 (FATCA) or 30 June 2017 (CRS) are pre-existing account holders. It is then permissible for the RFI to choose the narrower definition of equity interest in the following reporting periods for due diligence and reporting purposes.

4.14 Validity and reasonableness of a self-certification

A self-certification from an Account Holder, or in some cases a Controlling Person of an entity (see sections 4.9 and 4.10) must be signed or otherwise positively affirmed and dated. It must contain the Account Holder's or Controlling Person's:

• name
• address (residential if a natural person)
• jurisdiction(s) of residence for tax purposes.

If the self-certification indicates foreign residence, it must also contain:

• a TIN for each foreign jurisdiction (but see section 5.5 for guidance on when this may not be required and an explanation of the validity and reasonableness of TINs or the absence of a TIN)
• a date of birth (if a natural person).

The self-certification may be provided in any manner and in any form – for example, electronically, by voice recording or by scanned document. The process of obtaining the self-certification must ensure that the person providing the self-certification is the person named in the self-certification or has the proper authority to certify on their behalf, for example having a current power of attorney. The RFI needs to retain a record of the process used.

A self-certification can be completed based on a yes or no response to record the customer’s jurisdictions of tax residence, instead of requiring the completion of a blank field. For example, in order to complete a self-certification the person could be asked whether Australia is the sole tax residence of the person, with additional questions only being asked if the answer is no.

When a self-certification is first obtained as part of the due diligence process for opening an account, the RFI must confirm its reasonableness based on other information held or obtained in connection with the account. This includes documentation collected for AML/KYC purposes. The reasonableness test is met if the RFI does not know or have reason to know that the self-certification is incorrect or unreliable.

An RFI will know or have reason to know that a self-certification is incorrect or unreliable if it identifies a current residential or postal address in a foreign jurisdiction that conflicts with the jurisdictions of tax residence declared in the self-certification.

A claim of foreign tax residency in some foreign jurisdictions may require closer scrutiny of documentation provided. The OECD has highlighted the risks with documentation related to residence and citizenship by investment schemes, see Residence/Citizenship by investment schemesExternal Link for more information.

In the case of a self-certification that appears to fail the reasonableness test (for example, because a foreign residential address conflicts with the jurisdiction where the person claims to be a resident for tax purposes), the RFI is expected to seek either:

• a valid (new) self-certification; or
• a reasonable explanation and appropriate documentation to resolve the apparent conflict and retain a copy or notation of how it was resolved.

The question of what appropriate documentation is depends on the nature of the reasonable explanation. For example, an account holder that explains the presence of a foreign residential address as due to their posting as an Australian diplomat might support the explanation with a diplomatic passport. Appropriate documentation could include documentation already provided if relevant to the reasonable explanation.

Dual resident individuals may rely upon tiebreaker rules contained in tax treaties (if applicable) when providing an explanation aimed at resolving doubts over a self-certification.

An RFI is not expected to carry out an independent legal analysis of relevant tax laws to confirm the reasonableness of a self-certification or the correctness of an explanation provided by an account holder. A reasonably plausible explanation of an indicia inconsistency would generally be acceptable if a currently documented residential address aligns with a tax residence declared in a self-certification.

For example, in the case of a current postal address conflicting with a jurisdiction of tax residence declared in the self-certification, so long as the current residence address aligns with the tax residence, the reasonableness test will be satisfied if a reasonable explanation for the postal address conflict is obtained. No additional documentation is required.

An RFI that has not been able to obtain either a valid new self-certification or a reasonable explanation and documentation supporting the reasonableness of a self-certification must report the account based on any foreign residence status provided in the original self-certification and any other jurisdiction(s) in which there are indications of foreign residence for the reportable person.

An RFI does not know or have reason to know that a self-certification is incorrect or unreliable solely because it discovers a foreign telephone number for the person or entity subject to the self-certification or standing instructions to transfer funds to an account in a foreign jurisdiction, or a current power of attorney or signatory authority to a person with an address in a foreign jurisdiction.

4.15 Validity of Documentary Evidence

Documentary Evidence used in due diligence procedures must be valid. Certain documents remain valid indefinitely:

• documents issued by an authorised government body, such as a passport
• documents that are not generally renewed or amended, such as a certificate of incorporation.

Other Documentary Evidence is valid until the later of the expiration date contained in the document or the last day of the fifth calendar year following the year in which the Documentary Evidence is provided to the RFI.

An RFI may rely on Documentary Evidence provided for one account in meeting the due diligence obligations for another account. For example Documentary Evidence provided by an entity for an existing account can be relied upon for the opening of a new account, so long as the Documentary Evidence remains reliable.

An RFI does not know or have reason to know that Documentary Evidence is incorrect or unreliable solely because it discovers a foreign telephone number for the person or entity associated with the Documentary Evidence or standing instructions to transfer funds to an account in a foreign jurisdiction, or a current power of attorney or signatory authority to a person with an address in a foreign jurisdiction.

4.16 Finalising due diligence before reporting

Reporting is based on the calendar year, with the lodgment of reports due by 31 July in the following calendar year.

In practice, an RFI will need to finalise its due diligence by a time that allows sufficient further time to prepare data for reporting. The time that an RFI selects to "rule off" its records for CRS purposes is a matter for each RFI to decide having regard to its own requirements. The RFI needs to schedule its due diligence program in a way that allows it to complete mandatory procedures by the date it rules off its CRS records.

Due diligence on Pre-existing Accounts may include contact with Account Holders for the purpose of seeking information, documentation or self-certifications. This could be an optional procedure (for example see section 4.5 on curing indicia found for a Lower Value Account) or a mandatory procedure (for example see section 4.9 on obtaining Controlling Person self-certifications for Passive NFEs with account balances over $1 million).

Where contact with an Account Holder is an optional procedure, the RFI may carry this out at any time, or not at all. The RFI is not required to finalise any optional procedures in time to take account of the outcomes when preparing CRS reports.

Where contact with an Account Holder is a mandatory procedure, the RFI would need to schedule these activities at a time that allows a reasonable period to obtain responses to be taken account of when preparing CRS reports. The planned schedule should be documented.

As a guide, a reasonable period of time to obtain and process responses could be 4 to 8 weeks depending on the communication channel. It is acknowledged that some Account Holders may respond late or not at all. In these circumstances the RFI is not required to take account of late responders providing information after the date that the RFI finalises its due diligence for a reporting period.

4.17 Change in circumstances

A change in circumstances relating to an account or information held by the RFI for an account is a change that results in new or additional information relevant to the status of the account for reporting purposes. It includes an addition or change of an account holder. A change in circumstances for an account must be considered for all accounts maintained by the RFI for the account holder to the extent computerised systems allow aggregation of the accounts.

An RFI is expected to have procedures that ensure a change in circumstances is identified by the RFI. These procedures should cover information that comes to a relationship manager of a High Value Account (if there is one).

RFIs should encourage any persons providing a self-certification to notify the RFI of a change in circumstances affecting the validity of the self-certification.

A change in circumstances may require the RFI to report the account or to take action to resolve the status of the account.

Changes in circumstances requiring action or reporting

Account type	Change in circumstance	Action required	Time for action or change in status
Lower Value Pre-existing Individual Accounts where initial due diligence was the residential address test (CRS only)	Change causes documentation supporting original residential address to be incorrect or unreliable	Seek a self-certification and Documentary Evidence to establish tax residence. Electronic record search for indicia if not received	By the last day of calendar year or 90 calendar days from change, whichever is later
Lower Value Pre-existing Individual Accounts where initial due diligence was the electronic record search	Change causes one or more new indicia to be associated with the account, see section 4.5	Account is reportable, unless curing procedure is applied, see section 4.5	RFI has the option to delay treating the account as reportable for up to the last day of the calendar year or 90 calendar days from the change if carrying out curing procedure
Higher Value Pre-existing Individual Accounts	Change causes one or more new indicia to be associated with the account, see section 4.6	Account is reportable, unless curing procedure is applied, see section 4.6	RFI has the option to delay treating the account as reportable for up to 90 calendar days from the change if carrying out curing procedure
New Individual Accounts	Change causes the RFI to know or have reason to know that the self-certification is incorrect or unreliable, see section 4.14	Obtain either a new self-certification or a reasonable explanation with documentation supporting the original self-certification.	RFI has the option to delay treating the account as reportable until the earlier of 90 calendar days from the change, a new self-certificate is obtained or the original is satisfactorily explained
Pre-existing entity accounts	Change causes the RFI to know or have reason to know that a self-certification or other documentation is incorrect or unreliable, see section 4.14	Re-determine the status of the account in accordance with the original due diligence, see below	Carry out the due diligence by the end of the calendar year or 90 calendar days from the discovery of the change, whichever is the later.
New Entity Accounts	Change causes the RFI to know or have reason to know that a self-certification is incorrect or unreliable, see section 4.14	Re-determine the status of the account in accordance with the original due diligence, see below	Carry out the due diligence by the end of the calendar year or 90 calendar days from the discovery of the change, whichever is the later.

Re-determining the status of an entity account

Where a change in circumstances has caused an RFI to know or have reason to know that a self-certification or other documentation used in the original due diligence for the account is unreliable, the RFI must re-determine the status of the account. The re-determination process broadly follows the original due diligence process for the account.

If the change in circumstances has indicated possible tax residence for the Account Holder in a different jurisdiction, the RFI must obtain either:

• a self-certification; or
• a reasonable explanation and documentation (as appropriate) supporting the reasonableness of the previously collected self-certification or document.

If the RFI is unable to obtain either of the above, it must treat the Account Holder as a resident of both the original jurisdiction and the new jurisdiction.

If the change in circumstances has, considering available information, cast doubt on the status of the Account Holder as a financial institution, Active NFE or Passive NFE, the RFI must obtain additional documentation or a self-certification (as appropriate) to establish the Account Holder as an Active NFE or financial institution. If the RFI is unable to do so, it must treat the Account Holder as a Passive NFE.

If the change in circumstances indicates possible tax residence of a Controlling Person in another jurisdiction, the RFI must obtain either:

• a new self-certification; or
• a reasonable explanation and documentation (as appropriate) supporting the reasonableness of the previously collected self-certification or document.

If the RFI is unable to obtain either of the above, it must rely on an electronic indicia search as described in section 4.5 to determine whether a Controlling Person is a Reportable Person.

4.18 Account balance aggregation rule

The aggregate account balance or value is relevant to various due diligence thresholds, for example $1 million in the case of High Value Pre-existing Individual Accounts or $250,000 for pre-existing entity accounts. Other than the special aggregation rule for relationship managers explained below, identical rules apply to aggregation for individual and entity accounts.

An RFI is required to aggregate all Financial Accounts maintained by it or by a related entity, but only to the extent that the financial institution’s computerised systems link the Financial Accounts by reference to a data element such as client number or foreign TIN and allow account balances or values to be aggregated.

Each joint holder of a Financial Account must be attributed the entire balance or value of the account for purposes of applying the aggregation requirements.

Special aggregation rule applicable to relationship managers

In determining the aggregate balance or value of a pre-existing High Value Account, a financial institution is also required to aggregate all accounts held by that person which a relationship manager knows, or has reason to know, are directly or indirectly owned, controlled, or established (other than in a fiduciary capacity) by that person.

4.19 CRS Participating Jurisdictions

The concept of Participating Jurisdiction is important for due diligence procedures under the CRS. An RFI is required to conduct "look-through" due diligence procedures for certain entity account holders resident in countries that are not Participating Jurisdictions. Those look-through procedures apply to entities that are Type B Investment Entities, see section 2.5. Type B Investment Entities who are not resident in a Participating Jurisdiction are treated as Passive NFEs for CRS purposes. Sections 4.8 and 4.9 explain the requirements to identify and determine the status of Controlling Persons of Passive NFEs.

A Participating Jurisdiction under the CRS for Australia means a jurisdiction with both:

• an agreement is in place to exchange CRS information; and
• it is identified in a published list.

Under Australia's law implementing the CRS the Commissioner declared, by legislative instrument, certain jurisdictions to be committed jurisdictions. This is a transitional measure to allow further time for these jurisdictions to become Participating Jurisdictions. The effect of this declaration is to allow RFIs to treat declared jurisdictions as if they were Participating Jurisdictions from 1 July 2017.

Following is a consolidated list of all jurisdictions that have been Participating Jurisdictions (including being treated as such through legislative instrument) since 1 July 2017:

• Antigua & Barbuda, Argentina, Austria, Bahamas, Barbados, Belgium, Belize, Bermuda, Brazil, British Virgin Islands, Bulgaria, Canada, Cayman Islands, China, Colombia, Cook Islands, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hong Kong (China), Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, Nauru, Netherlands, New Zealand, Norway, Panama, Poland, Portugal, Romania, Russia, Saint Kitts & Nevis, Saint Lucia, Saint Vincent & The Grenadines, Samoa, San Marino, Saudi Arabia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Turks & Caicos, United Kingdom, and Uruguay.

Later additions

For the purposes of carrying out CRS due diligence procedures on or after 1 January 2018, the following jurisdictions are Participating Jurisdictions from that time:

• Andorra, Chile and Pakistan.

For the purposes of carrying out CRS due diligence procedures on or after 1 January 2019, the following jurisdictions are Participating Jurisdictions from that time:

• Anguilla, Aruba, Azerbaijan, Bahrain, Brunei Darussalam, Dominica, Grenada, Macau (China), Qatar, Turkey, United Arab Emirates and Vanuatu.

For the purposes of carrying out CRS due diligence procedures on or after 1 January 2020, the following jurisdictions are Participating Jurisdictions from that time:

• Ecuador, Ghana and Peru.

For the purposes of carrying out CRS due diligence procedures on or after 1 January 2021, the following jurisdictions are Participating Jurisdictions from that time:

• Albania, New Caledonia and Nigeria.

For the purposes of carrying out CRS due diligence procedures on or after 1 January 2022, the following jurisdictions are Participating Jurisdictions from that time:

• Jamaica, Kazakhstan, Maldives, Oman and Sint Maarten.

For the purposes of carrying out CRS due diligence procedures on or after 1 January 2023, the following jurisdictions are Participating Jurisdictions from that time:

• Kenya, Thailand.