This newsletter discusses important FATCA compliance issues that hedge funds should consider before the end of the year. Though the phased implementation of FATCA has afforded hedge funds additional time to comply with FATCA, important deadlines are approaching.
1. Offshore funds must register with the IRS (i.e., obtain a GIIN) to avoid FATCA withholding. While FATCA withholding generally began on July 1, 2014, withholding in respect of Cayman Islands financial institutions, including hedge funds, was delayed until January 1, 2015, pursuant to the terms of the U.S.-Cayman Islands intergovernmental agreement (the “IGA”). In order to be included on the published list of compliant entities not subject to FATCA withholding as of December 31, 2014, offshore standalone funds, offshore feeder funds and offshore master funds must register with the IRS to obtain a Global Intermediary Identification Number (a “GIIN”) by December 22, 2014. GIINs are furnished to withholding agents on applicable IRS W-8 forms to certify FATCA compliance.
Many offshore funds registered by June 2014 in order to be on the first list of entities with GIINs. If your offshore funds have not registered, they should do so by December 22, 2014. A list of entities and their GIINs can be found on the IRS website, www.irs.gov.
2. Information reporting begins in 2015. Pursuant to the IGA and Cayman implementing legislation enacted this year, Cayman funds must register with the Cayman Islands Tax Information Authority (the “TIA”) by March 31, 2015, and must furnish to the TIA information regarding specified U.S. account holders and others by May 31, 2015. Funds should contact their administrators to ensure that FATCA compliance procedures are underway. The reporting obligation for Cayman funds is satisfied by filing information returns with the TIA on or before May 31, 2015, which returns will include identification and valuation of interests held by certain U.S. investors. The Cayman Islands has announced implementation of a digital portal (which is expected to be opened in early 2015) through which funds can register and report.
3. U.K. FATCA. The U.K. has enacted laws similar to U.S. FATCA and entered into an intergovernmental agreement with the Cayman Islands in order to obtain information on U.K. persons that directly or indirectly own offshore assets.
4. Fund documents. Managers should make sure that their offering memoranda and subscription documents have been updated to include a discussion regarding U.S. and U.K. FATCA and requests for appropriate information. Among other things, UK FATCA certification forms should be added to subscription agreements for offshore funds. We have begun that process and can add them to your subscription agreements.
5. Information reporting is a global trend. The OECD recently released Common Reporting Standards (the “CRS”) for the annual reporting of financial institutions to the tax authorities of their customers (including investors). Many countries have declared an intention to implement the CRS effective 2016. Fund documents and information may need to be revised to provide disclosures and gather appropriate information to implement such global reporting. It would be premature to do so at this point though.