NY TSB-A-00(5)C Corporation Tax 2000-03-23

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)?

Short answer: No. A foreign parent corporation that owns a foreign bank and elects to be treated as a 'financial holding company' under the Gramm-Leach-Bliley Act has not thereby 'registered under the federal Bank Holding Company Act of 1956' for purposes of section 1452(a)(9) of Article 32. Filing the financial-holding-company declaration is not a BHCA registration, so the foreign parent does not become a banking corporation under 1452(a)(9) on that basis -- it would only fall within the phrase if it acquires or owns a subsidiary bank in the United States and becomes a bank holding company.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

PricewaterhouseCoopers LLP asked whether a foreign parent corporation -- which owns a foreign bank doing a banking business -- becomes "registered under the federal Bank Holding Company Act of 1956, as amended" (the trigger in section 1452(a)(9) of Article 32 for being taxed as a banking corporation) when it elects to be treated as a "financial holding company" under the Gramm-Leach-Bliley Act of 1999 (GLB).

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

Section 1452(a)(9) classifies as a banking corporation a corporation "registered under the federal bank holding company act of 1956, as amended."
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 phrase only if it acquires or owns a subsidiary bank in the United States, thereby becoming a bank holding company subject to BHCA registration.

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. For New York's Article 32, that declaration is not a "registration" under the Bank Holding Company Act, so it does not by itself make a foreign parent a banking corporation under section 1452(a)(9).

The bank-holding-company line is what matters

The section 1452(a)(9) trigger is BHCA registration, which arises when a company owns or controls a U.S. subsidiary bank and must register as a bank holding company. A foreign parent that owns only a foreign bank and merely elects FHC status has not crossed that line.

Classification drives the tax regime

Whether the foreign parent is a banking corporation (Article 32) turns on this distinction. Confirm whether any U.S. subsidiary bank exists before concluding Article 32 status.

Common questions

Q: Does electing financial-holding-company status make a company a banking corporation in New York?
A: No. The FHC election under Gramm-Leach-Bliley is not a Bank Holding Company Act registration, so it does not trigger banking-corporation status under section 1452(a)(9).

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) determines whether the corporation is taxed as a banking corporation under Article 32.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 1452(a)(9) (banking corporation; corporation registered under the federal Bank Holding Company Act)
- 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

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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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.