Episode Details

SPV Custodial Structures and CRS Compliance

The analysis of SPV custodial structures is not purely theoretical. In practice, classification questions can become highly technical and may require detailed documentary evidence, legal analysis, and engagement with regulated financial institutions.

My experience has involved several of these issues directly.

🏦 1️⃣ The 20% Custodial Institution Test

A key CRS classification question is whether an entity satisfies the income test relevant to Custodial Institution status.

In one case, a BVI bank instructed me to conduct a formal review of whether the 20% gross-income threshold had been satisfied.

The analysis required supporting documentation from a Swiss advisory company, including its constitutional documents and statutes. Those documents had to be translated from German into English at the client's expense.

The bank ultimately accepted the analysis.

This was therefore not simply an academic interpretation of the CRS rules. It was a classification analysis undertaken in an actual regulated-bank compliance context.

📊 2️⃣ Why the Classification Matters

The distinction between different Financial Institution classifications can materially affect how a structure interacts with the CRS reporting framework.

A careful analysis may therefore require examining:

• The entity's activities

• Sources of gross income

• The nature of assets held

• Whether assets are held for customers or others

• The relevant CRS definitions

• The jurisdiction in which the entity is resident

The 20% threshold can become particularly important where custodial activities are central to the structure.

🇺🇸 3️⃣ The FATCA Expanded Affiliated Group Question

A separate issue arose under FATCA concerning the Expanded Affiliated Group (EAG) rules.

I spent approximately eighteen months analysing whether a trust and a Professionally Managed Investment Entity (PMIE) could fall within the relevant EAG provisions.

A prior U.S. tax analysis had concluded that the trust and PMIE formed an EAG, delaying development of the structure.

The critical issue was the statutory requirement concerning the ownership of corporations.

My analysis focused on whether the statutory corporate predicate could actually be satisfied where one of the relevant entities was a trust rather than a corporation.

That distinction materially changed the analysis.

⚖️ 4️⃣ Why Statutory Definitions Matter

This experience illustrates a broader point in international tax planning:

A structure can appear problematic when analysed at a conceptual level, but the result may change substantially when the precise statutory definitions are examined.

For FATCA and CRS, advisers must distinguish between:

• What appears economically connected

and

• What the legislation actually treats as legally connected.

That requires working through the statutory text, regulations, definitions, and applicable guidance rather than relying solely on a general description of the structure.

🤖 5️⃣ Stress-Testing the Analysis

More recently, I spent approximately eight hours in an adversarial, line-by-line discussion with ChatGPT, deliberately testing the structure from a highly sceptical starting position.

The purpose was not to obtain confirmation.

It was to challenge every material proposition, identify weaknesses, and determine whether the analysis survived sustained scrutiny.

After that process, the structure was assessed as highly unusual in terms of originality and technical creativity, particularly in its use of less commonly cited official source material.

That exercise reinforced an important principle:

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