The Foreign Account Tax Compliance Act (FATCA), is arguably a thorn in the sides of many foreign hedge funds. While some funds are attempting to tackle compliance flying by the seats of their pants, for others, FATCA compliance is not even on their radar.
With the impending May 5th deadline, the complex guidelines surrounding FATCA has led to confusion and funds into unchartered territory. Susan Grbic, Partner and Practice Leader – Financial Services Tax at WeiserMazars LLP, has been analyzing FATCA regulations and advising fund managers and compliance officers on how to adapt to comply with the new rules. Here is an overview of what she believes hedge funds should be thinking about:
- Hedge Funds with foreign entities in their organizational structure need to be thinking about registration.
- For most Funds with foreign entities, relevant jurisdictions will be limited to places such as Cayman, the Netherlands, Luxembourg etc, all of which have notably signed Model 1 IGAs. With the Model 1 IGA – Entities have until year-end to obtain a GIIN, however, we are seeing many register now to help mitigate erroneous withholding by USWAs.
- Hedge Funds must register their foreign investment entities, as they are certain to be FFIs, but must also consider whether Management entities are also within scope. Model 1 IGAs and Final Regulations both contain limited carve-outs for certain Investment Managers that will remove them from scope. Local implementation rules may also affect the degree to which investment managers are subject to FATCA – UK guidance has a modified carve-out that differs from that contained in the standard Model 1 IGA. Local implementation rules are not yet available for the majority of countries that have signed Model 1 IGAs, and so there is significant potential for future changes in this space.
- By July 1st, foreign Fund entities should implement procedures that will bring their new account onboarding processes into compliance with FATCA.
- Also the foreign entities should keep in mind that in March, 2015, information reporting regarding U.S. accounts will be required (September, 2015 for Model 1 IGA entities).
Ultimately, registering all foreign investment entities, as well as in-scope investment managers is the priority, but once that takes place, ensuring that the correct information is being gathered in preparation for future reporting obligations is essential.