The case

Under the CRS the term “Financial Asset” does not address either cash (see flash of 08.11.2017) or “gold”, whereas under FATCA, cash is expressly categorized as “financial asset”, though “gold” is not mentioned either. This may result in some entities being classified as Passive Non-Financial Entity (pNFE) under CRS rather than as investment entities; e.g. a company that holds e.g. physical gold and no other assets would be considered pNFE.

In the absence of clear guidelines issued by the OECD on gold treatment it is up to the respective country (e.g. Switzerland) and the financial industry to issue policies (e.g. Swiss AEoI Guidelines). These policies may lead to fewer FI classifications and decreased reporting.

Should gold be reported in accordance with the Swiss Guidelines?
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A securities account held at an FI is a typical example of a Custodial Account: The term “Custodial Account” defines an account (other than an insurance contract or Annuity Contract) that holds assets for the benefit of a third person, i.e. in particular securities, options, structured products, swaps and insurance or pension contracts. See Point 5.1 Swiss AEoI Guideline (2019) for the exact meaning of the term “financial assets.

Lockers or safes provided by an FI to its customers based on a rental agreement for the safekeeping of physical assets and/or securities are not considered Custodial Accounts. However, the case is different if the rental agreement is linked to other contractual arrangements, provided that only the financial assets obtained from or through the lessor may be kept in the safety deposit box. In such a case, the rental agreement as such is secondary and, based on an overall assessment of the legal relationship, the existence of a Custodial Account should be presumed. However, the mere storage of precious metals in a safe deposit box rented by the customer from an FI generally does not create a Custodial Account. The same applies to precious metal stocks held collectively or individually in the vault of the financial institution, see Example 45 and 46 respectively of the new AEoI Guidelines.

Example 44: On day X an individual resident in a Reportable Jurisdiction buys a 1-kg physical gold bar that is deposited in a safety-deposit box rented from FI B (a reporting Swiss FI) on the same day. The safe-keeping of the gold bar in the safety-deposit box rented from FI B does not constitute a Custodial Account of A maintained by FI B. Therefore, FI B has no obligation to report on the gold deposited in the safety-deposit box rented by A.

Example 45: Same situation as in Example 44, but the physical gold is credited to a so-called precious metals deposit held by A at FI B. In the case of a precious metals deposit, a bank holds the investor’s gold holdings in its safe vault, either separately from the holdings of other investors (single individual safekeeping) or together with such other holdings (collective or global safekeeping custody). Since A remains the owner (in individual custody safe-keeping) or a co-owner (in collective or global safekeeping custody) of the gold holdings during the period of the custody, and because physical gold is not a financial asset within the meaning of the CRS, the custody of gold by B in the deposit of A’s safekeeping account is not a Custodial Account. If only a physical precious metal can be held in a custody account, the account will not constitute a Custodial Account and no reporting of these precious metals or the proceeds of their sale is required. If other assets representing financial assets (such as securities) can also be held in the same depository account held by of A, the account will constitute a Custodial Account. According to the OECD Commentary on the CRS, p. 98, margin no. 12 and para. 1.3.2.3.7.1 of the new Swiss AEoI Guidance, the total balance or value of a reportable account shall be calculated in the same way as for the purpose of reporting to the Account Holder. The notification to the Account Holder (under article 14 AEOI Act) shall include physical precious metal holdings. Thus, for AEOI purposes, the total balance or value of the Financial Account can be reported without deduction of the gold.

Source: Lukas von Orelli, President of SwissFoundations, (today’s NZZ, page 18) – literally translated

The commentary

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