Fatca Alert

February 2012 Financial Services Get the facts on FATCA! You can access current FATC A news and thought leadership. Type into your web browser: www.ey.com/FATCA. Proposed FATCA regulations affect the asset management industry This Alert highlights new rules and key issues affecting the asset management industry arising from the release of the long-anticipated proposed regulations {http://www.irs.gov/ pub/newsroom/reg-121647-10.pdf} on 8 February 2012, under Internal Revenue Code (IRC) Sections 1471 through 1474 (also referred to as the “Chapter 4” provisions or Foreign Account Tax Compliance Act (FATCA)), which became part of the IRC under the HIRE Act in 2010. Please see our separate Alert (2012-310 {}) for a more detailed discussion of the regulations. Background The FATCA rules, in essence, require that persons making payments after 31 December 2012 of US source xed, determinable, annual or periodic (FDAP) income, and gross proceeds from the sale of US stocks and debt instruments, to “foreign nancial institutions” (FFIs) must withhold a 30% tax, unless either the FFI enters into an agreement with the IRS (discussed below) to become a “participating FFI” (PFFI) or the FFI establishes that it is exempt or deemed to be in compliance. These rules can apply to payments by a bank or broker to account holders (and, in certain cases, investors) and payments made by a fund to investors. Any non-US entity that would be called an “investment fund,” “hedge fund,” “private equity fund,” “venture capital fund,” or the like would most likely be an FFI. The FATCA rules also apply to payments of US-source income to undocumented non-US entities that are not FFIs (non-nancial foreign entities, or NFFEs). FATCA rules can affect investment funds in two ways: • US investment funds will, as withholding agents, have to either perform FATCA withholding on payments to non-US entities, or document why withholding is not required. Undocumented foreign individuals are subject to withholding as a presumed US person. • Non-US investment funds organized to receive withholdable payments will face 30% withholding unless they either become PFFIs (which will require performing due diligence on investors/account holders, reporting to the IRS when required, and performing passthru payment withholding when required) or nd other routes to mitigate adverse FATCA compliance issues (e.g., obtaining deemed compliant status).

Fatca Alert

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