News on FATCA and the IBA's Globalisation of Investment Funds Conference
The International Bar Association’s 24th Annual Conference on the Globalisation of Investment Funds took place between 9 and 11 June.
FATCA remains a hot topic internationally. Andrew Prowse, a tax partner at Fieldfisher, was invited to speak on the latest developments in the UK on FATCA, including HMRC’s recently published Guidance and the latest draft Regulations implementing the US:UK Intergovernmental Agreement. The Guidance can be found here. The Regulations can be found here
There was an interesting discussion with fellow panellists, including Steve A. Musher, Associate General Counsel of the IRS, particularly as to the FATCA treatment of fund structures and the likely proliferation of FATCA style agreements around the world.
The panellists agreed that fund documentation will need to be checked to ensure that all FATCA requirements are addressed. For example, provision will be needed to:
- explain in the PPM what obligations (and risks) investors will face;
- set out Investors’ information provision obligations, both in their application form and in the operative fund documents, and both as to US FATCA and as to the raft of similar bilateral agreements, based on FATCA, which are emerging between other countries;
- protect the Fund and investors from other investors not complying with their information obligations – e.g. permitting FATCA withholding, providing for indemnities and providing for forced reclassification or redemption of units where appropriate; and
- set out who will be responsible for gathering and collating information and for submitting it to the appropriate tax authorities.
Additionally, systems will need to be made ready for the introduction of FATCA, and FATCA-style agreements multijurisdictionally. Given the proliferation of FATCA-based agreements between the UK and other jurisdictions (not just with the United States) it will not be possible for funds simply to focus on whether there are any US investors. In this connection, HMRC published a discussion document on FATCA-style agreements between the UK and Jersey, Guernsey and the Isle of Man on 26 June 2013, which invites comments by 06 September 2013 and can be found here.
None of this can happen very quickly – for example, changing forms and adapting computer systems takes time – and it was worrying to hear from some other delegates that other jurisdictions have a long way to go before their FATCA approach will be settled, especially in terms of domestic authorities' guidance. For instance, whilst the UK was the first off the blocks in agreeing an intergovernmental agreement with the US, many other jurisdictions are still at the early stages of that process, which begs the question as to what financial institutions should do where an agreement is expected but is not actually in place by the FATCA start date.
Whilst undoubtedly work is continuing apace both in terms of the work which tax authorities are doing domestically and in collaboration internationally, and in terms of in-house work at financial institutions to prepare for FATCA, there is still much to do and it is to be hoped that the IRS takes a realistic view of the problems faced by financial institutions in this area. The requirements of other bilateral agreements based on FATCA information exchange will be an additional challenge and burden.
The IRS appears to be heeding these concerns. Last week the U.S. Department of the Treasury and the Internal Revenue Service announced a six-month extension to the start of FATCA withholding and account due diligence requirements, to allow more time to complete agreements with foreign jurisdictions. The six-month extension, to July 1, 2014, will also provide foreign financial institutions (FFIs) with more time to comply with FATCA while helping to ensure efficient implementation of the law. (While the start of withholding and due diligence will be extended to 1 July 2014, the first report of information under FATCA continues to be due in 2015, and will include information about accounts maintained during 2014). It remains to be seen how this extension will be taken into account in the UK regulations implementing the FATCA intergovernmental agreement.
If you require any advice on any aspect of the implementation of FATCA or FATCA-style information exchange agreements in the UK, please contact Andrew Prowse or your usual Funds contact.