This is the second in a series of Foley Advisers about FATCA, the new U.S. tax regime designed to combat offshore tax evasion by U.S. taxpayers that will go into effect on January 1, 2014. Our prior installment (Part One click here) described FATCA compliance for U.S. stand-alone funds and U.S. feeder funds with only U.S. investors. The procedures described in Part One also govern FATCA compliance for U.S. master funds with respect to their U.S. investors, including U.S. feeder funds. Part Two focuses on FATCA compliance for U.S. master funds with respect to their offshore feeder funds that are treated as corporations for U.S. tax purposes – for example, a Delaware limited partnership master with a Cayman Islands feeder (treated as a corporation for U.S. tax purposes). Future installments in this series will address FATCA compliance for other fund structures, including those with offshore master funds.
In order to ensure that a U.S. master fund and its offshore feeder fund are FATCA-compliant, you must do the following:
- You must register the offshore feeder fund with the online “FATCA Registration Portal” to be established by the IRS. The IRS will open access to the Portal on July 15, 2013, and perhaps earlier. We will publish another Foley Adviser regarding access to the Portal as soon as the IRS makes the information available. Upon successful registration, the IRS will issue a Global Intermediary Identification Number (“GIIN”) to the offshore feeder fund and will include the offshore feeder fund and its GIIN in a published list of FATCA-compliant entities, which will be updated monthly.
- Once the offshore feeder fund has registered and obtained its GIIN, you should immediately complete a new IRS Form W-8 for the offshore feeder fund, and keep this Form W-8 in the U.S. master fund’s files. Existing versions of Form W-8 are not sufficient; the IRS intends to issue new versions of Form W-8 specifically for FATCA purposes. We will publish another Foley Adviser with links to these “post-FATCA Forms W-8” as soon as the IRS makes them available.
- The U.S. master fund then must verify, on an ongoing basis, that the offshore feeder fund and its GIIN continue to be included in the published IRS list of FATCA-compliant entities.
If you complete the registration process by October 25, 2013, the offshore feeder fund will be included in the first published list of FATCA-compliant entities, which the IRS will release in December 2013 and which will not be updated until after FATCA becomes effective on January 1, 2014. If registration by October 25, 2013 is not possible, then for structures in which the offshore feeder fund has acquired an interest in the U.S. master fund prior to January 1, 2014, you generally will have a grace period until June 30, 2014 to complete the registration process. In contrast, for structures in which the offshore feeder fund acquires an interest in the U.S. master fund on or after January 1, 2014, you generally will have 90 days from the date on which the offshore feeder fund acquires the interest to complete the registration process.
The information required by the registration process, and the obligations of the offshore feeder fund once registered, will depend on the country in which the offshore feeder fund is organized. The United States is in the process of concluding FATCA-related Intergovernmental Agreements (“IGAs”) with countries throughout the world, based on two model agreements: the Model 1 IGA and the Model 2 IGA. Most countries in which offshore feeder funds are typically organized, including the Cayman Islands and the British Virgin Islands, and many other countries, have executed or are currently negotiating Model 1 IGAs.
As part of the registration process, a feeder fund organized in a Model 1 jurisdiction will agree to provide FATCA information to its local government, which will make the information available to the IRS. In contrast, a feeder fund organized in either a Model 2 jurisdiction or in a country that is not a party to an IGA generally will be required to enter into an agreement with the IRS to provide FATCA information directly to the IRS.
Finally, you should review your fund and subscription documents to ensure that they contain appropriate provisions to enable the U.S. master fund and the offshore feeder fund to fulfill their FATCA obligations, including provisions requiring investors to provide any needed information under FATCA.