AIMA

The Alternative Investment Management Association

Alternative Investment Management Association

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FATCA

The purpose of the Foreign Account Tax Compliance Act (FATCA) is to detect US taxpayers evading tax through offshore holdings. FATCA will require Foreign Financial Institutions (FFIs) to obtain and report information regarding US customers and beneficial owners to the Internal Revenue Service (IRS) or suffer 30% withholding tax on US sourced income. The IRS issued preliminary guidance on priority implementation issues and guidance on some industry priority issues together with an update and revision of that guidance in April 2011. Further guidance in July 2011 introduced phased implementation of requirements: for reporting 30 June 2013; withholding 1 January 2014 (on Fixed, Determinable, Annual, Periodic – or FDAP) and 1 January 2015 on all ‘withholdable payments’ (the start date for Passthru Payment rules). AIMA has made three written submissions to date, met US Treasury and the IRS in June 2011 and followed up with them in July, September and November, providing detail on issues facing hedge fund managers and proposals for practical approaches to implementation.

Draft regulations were issued on 8 February, accompanied by a statement on the US, UK, FR, Italy, Spain and Germany having agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange and based on existing bilateral tax treaties. A statement issued by the UK HM Treasury is here.

The Draft Regulations are open to comment until 30 April and a public hearing is planned for 15 May. Further implementation timing is as follows:

The IRS plans to publish a draft model FFI Agreement in early 2012, with a final model FFI agreement in Autumn 2012.
The ‘grandfathering’ date has been pushed back to 1 January 2013 (from 18 March 2012); this should mean that most debt securities issued, derivatives entered into and loans advanced or committed to in 2012 will be outside FATCA throughout their life.
A FFI can sign an IRS Agreement and become a participating FFI from (at the latest) 1 January 2013.
US source payments (of interest, dividends etc) to non-participating FFIs become subject to 30% withholding from 1 January 2014.
US source gross proceeds (e.g. repayment of principal) to non-participating FFIs become subject to 30% withholding from 1 January 2015.
Passthru payments must be reported, but are not subject to withholding, from 1 January 2015.
Passthru payments become subject to withholding (at 30% x the relevant passthru percentage) from 1 January 2017 (revised from 1 January 2015.