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The Expanded Affiliated Group (EAG) under FATCA

A trust administered in a non-IGA jurisdiction that was classified as Custodial Institution-type FFI for purpose of FATCA should incur no direct consequences from its NPFFI (non participating foreign financial institution) status.

Thus, an FFI governed by the Treasury Regulations may freely opt to adopt the NPFFI status without any direct sanctions so long as it does not receive any withholdable payments.

There are those who believe that the NPFFI status will, however, limit the compliance options of the entities affiliated with the NPFFI. FATCA uses the concept of an Expanded Affiliated Group (EAG) to thwart efforts to avoid registration/reporting by some members of a group through a “one bad apple” approach.

An Expanded Affiliated Group (EAG) is defined under Code section 1504(a) and Treas. Reg. §1.1471-5(i). It generally means one or more chains of entities connected through ownership by a common parent. Normally, the parent must directly own more than 50% of another member’s stock or equity interests.

In FATCA, the EAG rules are designed to prevent avoidance of reporting obligations. The “one bad apple” rule applies—if any member of the group is a non-participating FFI, then no member can claim participating FFI status.

While the definition is based on corporate ownership, trusts or partnerships can be part of an EAG if they elect to be treated as such under Treas. Reg. §1.1471-5(i)(10). This makes it possible for a trust to act as the common parent of an EAG, provided the proper election is made.

So when it comes to a Svalbard Trust eg, what are the implications?

Look at attached EAG i§1.1471-5.

(10) Partnerships, trusts, and other non-corporate entities. For purposes of determining the composition of an expanded affiliated group, an entity other than a corporation may elect to be treated as the common parent entity.  Taxpayers following this approach may not, in a later year, follow the rule described in paragraph (i)(2) of this section without the approval of the Commissioner. See also paragraph (e)(5)(i)(C) of this section.

Confirmation that a non-corporate must elect to be treated as the common parent entity of an EAG, otherwise it is not.

Table of Contents: The Expanded Affiliated Group (EAG) under FATCA

Derren works with International Entrepreneurs, Expats and Investors who are exposed to multiple jurisdictions. Tax optimization. Asset Protection. Compliance Obligations. Strategies include second citizenships, second residencies, trusts, foundations, insurance wrappers and other offshore structures.

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