Is a foreign parent's election to become a financial holding company under Gramm-Leach-Bliley a registration under the Bank Holding Company Act for section 1452(a)(9)?

Plain-English summary

PricewaterhouseCoopers LLP asked whether a foreign parent corporation that owns a foreign bank becomes "registered under the federal Bank Holding Company Act of 1956, as amended" when it elects to be treated as a "financial holding company" under the Gramm-Leach-Bliley Act of 1999 (GLB). The parent's registration status matters because section 1452(a)(9) can classify certain corporations at least 65% owned by a registered bank holding company as banking corporations.

The Department held the FHC election is not a BHCA registration:

• Section 1452(a)(9) can classify a corporation as a banking corporation when at least 65% of its voting stock is owned by a registered bank holding company and it is principally engaged in qualifying banking-related business. Registration is a condition on the owner, not a rule classifying that owner itself.
• Filing a declaration to be treated as a financial holding company under GLB is not a "registration" under the BHCA.
• Therefore the foreign Parent Company would not be considered "registered under the BHCA" for section 1452(a)(9) purposes merely by electing FHC status.
• It would fall within that registered-owner phrase if it acquires a subsidiary bank in the United States, thereby becoming a bank holding company. The opinion expressly left the classification of the parent's other subsidiaries undecided.

What this means for you

Electing financial-holding-company status is not BHCA registration

Under GLB, an eligible institution can declare itself a financial holding company to expand its permissible activities. On the facts presented, that declaration did not register this foreign parent under the Bank Holding Company Act. The opinion did not determine the parent's own tax classification.

The bank-holding-company line is what matters

For section 1452(a)(9), BHCA registration of the owner is one condition for classifying a qualifying corporation it owns at least 65%. The Department said this foreign parent, with a foreign bank operating a U.S. branch, was not registered merely by electing FHC status. Acquiring a U.S. subsidiary bank would change the parent's bank-holding-company status.

Classification drives the tax regime

Whether the foreign parent is registered under the BHCA matters to the section 1452(a)(9) analysis of its qualifying subsidiaries. The Department expressly gave no opinion on whether the parent's other corporations met the subsidiary business test.

Common questions

Q: Did this foreign parent's financial-holding-company election count as BHCA registration? A: No. Under the stated facts, the election was not registration as a bank holding company. The opinion did not decide the parent's own banking-corporation status.

Q: When would the foreign parent become registered under the BHCA? A: If it acquires or owns a subsidiary bank in the United States and becomes a bank holding company required to register.

Q: Why does this matter?
A: Section 1452(a)(9) can classify certain corporations owned at least 65% by a registered bank holding company as banking corporations; the owner's registration status is one condition.

Citations and references

Statutes, regulations, and authorities:

• Tax Law section 1452(a)(9) (qualifying corporation at least 65% owned by a registered bank holding company)
• Federal Bank Holding Company Act of 1956, as amended
• Gramm-Leach-Bliley Act of 1999, P.L. 106-102 (financial holding company election)
• PricewaterhouseCoopers LLP, TSB-A-00(5)C (Mar. 23, 2000)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a00_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(5)C
Corporation Tax
March 23, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C000210A

On February 10, 2000, a Petition for Advisory Opinion was received from PricewaterhouseCoopers LLP, 1177 Avenue of the Americas - 26th Floor, New York, New York 10036-2798. The issue raised by Petitioner, PricewaterhouseCoopers LLP, is whether the election to become a “financial holding company” under the Gramm-Leach-Bliley Act of 1999, (P.L. 106-102, referred to as “GLB”), by a foreign parent corporation which owns a foreign bank doing a banking business in New York State and New York City, and also owns other corporations, which are not banks, also doing business in New York City, will cause such foreign parent corporation to become or be treated as a corporation “registered under the federal bank holding company act of nineteen hundred fifty-six, as amended” for purposes of section 1452(a)(9) of Article 32 of the Tax Law. Petitioner submits the following facts as the basis for this Advisory Opinion. The Parent Company is a corporation organized and existing under the laws of a foreign country, with its headquarters in that country, and does not have any office or employees in the United States. The Parent Company owns 100 percent of the stock of a Bank organized, existing and licensed as a bank by the same foreign country. The Bank carries on a banking business in New York City through a branch. In addition, the Parent Company owns stock of both domestic and foreign corporations which are not banks, that carry on business in New York City. Note that for purposes of this advisory opinion it is assumed that the Bank is a banking corporation under section 1452(a)(2) of the Tax Law, and is subject to franchise tax under Article 32 of the Tax Law. Further, this advisory opinion does not express any opinion on the issue of whether any of the other corporations whose stock the Parent Company owns come within the ambit of section 1452(a)(9) of the Tax Law because they are principally engaged in a business which might be lawfully conducted by a bank or that is so closely related to banking or managing or controlling banks as to be a proper incident thereto. Discussion Section 1452(a)(9) of the Tax Law provides that any corporation 65 percent or more of whose voting stock is owned or controlled, directly or indirectly, by, among others, a corporation registered under the federal bank holding company act of nineteen hundred fifty-six, as amended (referred to as “BHCA”), is a banking corporation provided that the corporation whose voting stock is so owned or controlled is principally engaged in a business, regardless of where conducted, which (i) might be lawfully conducted by a corporation subject to Article 3 of the Banking Law or by a national

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Corporation Tax
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banking association or (ii) is so closely related to banking or managing or controlling banks as to be a proper incident thereto, as set forth in section 4(c)(8) of the BHCA. A “corporation ... registered under the federal bank holding company act of 1956, as amended” means a bank holding company. Section 1844 of Title 12 of the U.S. Code imposes a specific registration requirement only on bank holding companies. A bank holding company is defined as a company which has control over any bank (12 USCS §1841(a)(1)). Since a foreign bank operating a branch in the United States is specifically excluded from the definition of the term “bank” for purposes of the definition of a bank holding company (12 USCS §1841(c)(2)(A)), any company that owns such a bank is not a bank holding company and is not required to register as such under section 1844. Therefore, in this case, the Parent Company currently is not included within the phrase “corporation ... registered under the federal bank holding company act of 1956, as amended” in section 1452(a)(9) of the Tax Law. Section 1843(l)(1) of Title 12 of the U.S. Code, as added by section 103 of the GLB, provides that, to become a financial holding company, a bank holding company must file a declaration with the Federal Reserve Board that the company elects to become a financial holding company and certifies that all its depository institution subsidiaries are well capitalized and well managed. While this provision refers only to bank holding companies making the election to become financial holding companies, section 1843(l)(3) provides that, for purposes of section 1843(l) (1) (containing the requirements to become a financial holding company), the Federal Reserve Board shall apply comparable capital and management standards to a foreign bank that operates a branch or agency in the United States. In the Federal Reserve Board’s interim rule on financial holding companies, it states that:
[a] foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States, and any company that owns or controls such a foreign bank, will be treated as a financial holding company if: (1)

The foreign bank is and remains well capitalized and well
managed; and

(2)

The foreign bank, or the company that owns the foreign bank, has made an effective election to be treated as a financial holding company under this subpart. 12 CFR §225.90(a); 65 Fed. Reg. 3793.

The terms “financial holding company” and “bank holding company” are not synonymous. Not all bank holding companies will become financial holding companies; only those bank holding companies that file the declaration required by section 1843(l)(1) will do so. In addition, the declaration required to be filed to elect to be a financial holding company is not the equivalent of a

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registration. Section 116 of the GLB, amending 12 USCS § 1844(a), states that “[a] declaration filed in accordance with [section 1843(l)(1)(C)] shall satisfy the requirements of this subsection with regard to the registration of a bank holding company ....” It is determined that this provision means only that a bank holding company otherwise obligated to register is permitted to forego the duplicative filing of a separate registration if it files a declaration electing to become a financial holding company. It does not mean that a foreign bank operating a branch in the United States or a company that owns such a foreign bank becomes a bank holding company obligated to register as a consequence of filing a declaration electing to be treated as a financial holding company. Thus, the declaration filed by a foreign bank operating a branch in the United States or a company that owns such a foreign bank electing to be treated as a financial holding company is not considered to be a “registration” under the BHCA for purposes of section 1452(a)(9) of the Tax Law. Accordingly, in this case, the Parent Company would not be considered to be a corporation “registered under the federal bank holding company act of 1956, as amended,” as that phrase is used in section 1452(a)(9) of the Tax Law if it elects to be treated as a financial holding company under the current facts and circumstances. However, if the Parent Company should acquire, in the future, a subsidiary bank in the United States, it would become a bank holding company, and it would fall within the scope of the phrase “registered under the federal bank holding company act of 1956, as amended”.

DATED: March 23, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.