Investment Entity includes two types of entities:
- an entity that primarily conducts as a business one or more of the following activities or operations for or on behalf of a customer:
- Trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;
- Individual and collective portfolio management; or
- Otherwise investing, administering, or managing financial assets or money on behalf of other persons.
Such activities or operations do not include rendering non-binding investment advice to a customer.
- the second type of “Investment Entity”, also known as an “Investment Entity managed by another Financial Institution”, is any entity where its gross income is primarily attributable to investing, reinvesting, or trading in financial assets where the entity is managed by another entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or the first type of Investment Entity.
Investment Entity located in a Non-Participating Jurisdiction and managed by another Financial Institution
Any entity where its gross income is primarily attributable to investing, reinvesting, or trading in Financial Assets if the entity is:
- managed by a Financial Institution; and
- not a Participating Jurisdiction Financial Institution.
Any entity that is not a Financial Institution.
An Active NFE is a NFE that meets any of the criteria summarised below:
- active NFEs by reason of income and assets – less than 50% of the NFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the NFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income;
- publicly traded NFEs – the stock of the NFE is regularly traded on an established securities market or the NFE is a related entity of an entity the stock of which is regularly traded on an established securities market;
- Governmental entities, international organisations, central banks, or their wholly owned entities;
- holding NFEs that are members of a non-financial group;
- start-up NFEs;
- NFEs that are liquidating or emerging from bankruptcy;
- treasury centres that are members of a non-financial group; or
- non-profit NFEs
Passive income refers to income such as:
- Rents and royalties
- Capital gains / losses on investments
- The excess of gains over losses from the sale or exchange of property that gives rise to passive income described above
- Amounts received under cash value insurance contracts
- Amounts earned by an insurance company in connection with its reserves for insurance and annuity contracts
A jurisdiction with which an agreement is in place pursuant to which it will provide the information required on the automatic exchange of financial account information set out in the Common Reporting Standard and that is identified in a published list. Refer to the OECD automatic exchange of information portal (CRS by jurisdiction).
Participating Jurisdiction Financial Institution
Participating Jurisdiction Financial Institution means (i) any Financial Institution that is tax resident in a Participating Jurisdiction, but excludes any branch of that Financial Institution that is located outside of that jurisdiction, and (ii) any branch of a Financial Institution that is not tax resident in a Participating Jurisdiction, if that branch is located in such Participating Jurisdiction.
Under the CRS, a Passive NFE means any NFE that is not an Active NFE. An Investment Entity located in a Non-Participating Jurisdiction and managed by another Financial Institution is also treated as a Passive NFE for purposes of the CRS.
Resident for tax purposes
Each jurisdiction has its own rules for defining tax residence, and jurisdictions have provided information on how to determine whether an entity is tax resident in the jurisdiction on the OECD automatic exchange of information portal (tax residency). Generally, an entity will be resident for tax purposes in a jurisdiction if, under the laws of that jurisdiction (including tax conventions), it pays or should be paying tax therein by reason of his domicile, residence, place of management or incorporation, or any other criterion of a similar nature, and not only from sources in that jurisdiction. Dual resident entities may rely on the tiebreaker rules contained in tax conventions (if applicable) to solve cases of double residence for determining their residence for tax purposes. An entity such as a partnership, limited liability partnership or similar legal arrangement that has no residence for tax purposes shall be treated as resident in the jurisdiction in which its place of effective management is situated. For additional information on tax residence, please talk to your tax adviser.
TIN” (including “functional equivalent”)
The term “TIN” means Taxpayer Identification Number or a functional equivalent in the absence of a TIN. A TIN is a unique combination of letters or numbers assigned by a jurisdiction to an individual or an entity and used to identify the individual or entity for the purposes of administering the tax laws of such jurisdiction. Further details of acceptable TINs can be found at the OECD automatic exchange of information portal (tax identification numbers).
Some jurisdictions do not issue a TIN. However, these jurisdictions often utilise some other high integrity number with an equivalent level of identification (a “functional equivalent”). Examples of that type of number include, for entities, a business/company registration code/number.