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FATCA: Implications for investment funds 

Market Insight

"Mainstream funds have already made a big effort in understanding the implications of the new FATCA provisions for their business and the industry’s lobbying activities by EFAMA and ALFI have been very positively received. However, much work still needs to be done. Alternative investment structures are also in the loop and will have to come up to speed and embrace the full complexity of this regulation. Full compliance with the FATCA rules for 2013 is a challenge that cannot be postponed any longer. As FATCA is a lot more than tax reporting, adequate project management will be key."  

Under FATCA, a 30% withholding tax applies to any US payments (interest, dividend or sales proceeds) made to an investment fund unless the Foreign Financial Institution (FFI) agrees, pursuant to a disclosure compliance agreement entered into with the U.S. Treasury, to provide information with respect to each ‘financial account’ held by ‘specified U.S. persons’ and ‘U.S.-owned foreign entities.’

 

The term FFI may include banks, brokers, insurance and reinsurance companies and investment funds, including private equity funds, hedge funds and real estate funds, as well as certain professionals of the financial sector (PFS).

 

Who is impacted?

Funds invested in the U.S. market including, but not limited to, funds of funds, exchange-traded funds, hedge funds, private equity and venture capital funds, other managed funds, commodity pools, and other investment vehicles.

What is the impact?

This new reporting and withholding regime presents significant challenges for FFIs in identifying US accounts and subsequently identifying and evaluating relevant payments for compliance. In order to comply with the FATCA provisions and to avoid the 30% withholding tax, the fund must enter into a disclosure agreement with the U.S. Treasury and agree to:

 

  • identify U.S. investors;
  • comply with verification and due diligence procedures;
  • perform annual reporting;
  • deduct and withhold 30% from any payment made by the fund to inadequately documented investors; and
  • comply with requests for additional information.

How we can help

Complying with the FATCA rules will not only be a major compliance task to fulfill due to extended information reporting but will also influence your business strategy and the markets you serve.
 

The impact on the investment funds is not negligible and requires assistance of specialists.

 

  • Development of Implementation Plans : assistance in developing realistic, pragmatic, plans by utilizing our experience gained in other projects of similar scope and our deep understanding of the technical requirements.
  • Payment Mapping Analysis : assistance with conducting a mapping exercise to determine where your business is impacted and the nature of accounts to which payments are made.
  • Anti-Money Laundering (AML)/Know Your Client (KYC) Reviews : performing a review of the procedures in place for AML/KYC purposes to ascertain whether these will also be sufficient to ensure compliance with FATCA requirements.  We can also assist by developing new account opening procedures to facilitate FATCA compliance and provide training for staff responsible for these processes.
  • Systems Analysis : identify the extent of current capabilities and where new functionality or data records will be needed.  We can also assist in developing or reviewing specification documents and, to the extent we are permitted from a regulatory perspective, to implement and test new functionality.
  • FATCA Help Desk : help desk services that enable staff specified by clients to call with any technical questions related to FATCA.

     

      Consult our FATCA Workshop brochure.pdf (250 KB)

     

      Consult our FATCA Implications for funds brochure.pdf (2.18 MB)