HMRC has published guidance on its views on the automatic exchange of information relating to holding companies and treasury companies for the purposes of the UK’s agreements with the USA, Crown Dependencies, Gibraltar and EU member states (the latter under Council Directive 2011/16/EU).

There are four categories of financial institution common to each of the agreements:

  • custodial Institution
  • depository Institution
  • investment Entity
  • specified Insurance Company.

The International Tax Compliance Regulations (SI2015/878) implemented Council Directive 2011/16/EU in the UK, and incorporated regulations arising from the UK/US agreement. This change means that UK financial institutions are no longer required to file nil returns it also removed “relevant holding company” and a “treasury company” as categories of financial institution.

This change aligns the UK position with that of most other countries and clarifies the position of holding companies and finance companies for non-financial groups and should lead to a reduced compliance burden for some businesses. There may be instances where some holding company members have registered with the IRS as the lead financial institution of an Expanded Affiliated Group under the previous regulations. As changing this status is likely to prove onerous, HMRC has indicated that in circumstances where an entity registered as a lead financial institution also comes within the definition of a financial institution under one of the remaining four categories they will continue to be defined and treated as a financial institution in the UK.

Where this is not the case, HMRC has indicated that it is content for an entity to choose to use the extended definition of financial institution found in the US Treasury regulations (which include “relevant holding companies” and “treasury centres of financial groups”), should they wish.

Company groups may need to review the status of their holding companies and treasury centres in the light of HMRC’s guidance, in particular, whether the activities they undertake mean that they are financial institutions as now defined.

The guidance can be found here.