Isle of Man: US FATCA for Investment Funds Under The Model 1 IGA

Last Updated: 24 December 2013
Article by Appleby  

Further to the FATCA Brief issued to clients of Appleby in November 2013, we present below a tailored addition to the Brief specific to investment funds that are domiciled in a jurisdiction that has either entered, or has confirmed it will enter, into a Model 1 Intergovernmental Agreement (IGA) with the US Treasury in respect of the US Foreign Account Tax Compliance Act (FATCA).

The following summary presents our understanding of the requirements and responsibilities of investment funds under the Model 1 IGA and how Appleby Fund Services (Isle of Man) Limited ("AFSIOML") can assist with the fund's obligations.

As a financial institution (FI), the fund is responsible for ensuring that it understands what its obligations are under the applicable Model 1 IGA and for making sure that it is fully compliant. As administrator, we are able to contract with funds to carry out certain activities on their behalf but the fund itself is ultimately responsible for its own compliance, and for monitoring the actions of any party to which it delegates its obligations.

There are three broad categories under which the Model 1 IGA obligations will fall – (i) registration with the IRS, (ii) due diligence to facilitate the identification of US reportable accounts and (iii) reporting to the relevant jurisdictional tax authorities on US reportable accounts. We discuss each of these areas below with reference to the UK and Cayman Model 1 IGAs that have been signed already. It is anticipated that the Model 1 IGAs to be signed between the US Treasury and other jurisdictions, including the British Virgin Islands and the Isle of Man, will not differ significantly from those already signed.

Registration

Despite not reporting directly to the IRS, a reporting FI under a Model 1 IGA is required to register with the IRS and obtain a global intermediary identification number (GIIN).

Under the Model 1 IGA, a reporting FI is defined as any financial institution that is not a non-reporting FI. A non-reporting FI is an entity that is considered as being low risk in terms of tax evasion including certain FIs that are treated as deemed-compliant, have exempt beneficial owners (e.g. certain pension and retirement funds) or are sponsored investment entities under the FATCA regulations. A definition of the entities that each jurisdiction deems to be non-reporting FIs is set out in Annex II to the relevant IGA. As this may vary between jurisdictions, we strongly advise that each fund takes specific tax advice to establish its status in terms of registration requirements.

An FI may appoint a sponsoring entity, provided they are authorised to act on behalf of the FI (such as a fund manager, fiduciary, corporate director or managing partner) to fulfil applicable registration requirements. This may be beneficial, for example, where there are several funds under common management to be registered. The sponsoring entity would then agree to perform all due diligence, withholding, reporting and other requirements under the Model 1 IGA on behalf of all FIs it sponsors.

Registration with the IRS will be the responsibility of the fund, or the sponsoring entity, which must appoint a responsible office (RO) for this purpose. AFSIOML will be able to assist with the administrative element of the registration process under instruction from the fund, if required.

Due diligence

Under the Model 1 IGA, reporting FIs are required to apply certain due diligence procedures in order to identify US reportable accounts, both to identify pre-existing account holders and as part of the identification process for new account holders. The due diligence procedures are set out in Annex 1 of the relevant IGA. Until all IGAs have been signed and finalised, it is not certain how much the due diligence requirements might vary between jurisdictions.

As AFSIOML currently performs AML due diligence reviews of investors for the funds we administer, we anticipate that this will be a service that funds may wish to delegate to us. AFSIOML is familiar with the due diligence procedures set out in Annex 1 of the UK and Cayman Model 1 IGAs and has performed analysis to identify any updates necessary to either our systems or processes in order to comply with these procedures. We will follow closely the progress of other Model 1 IGAs so that we are able to ensure compliance with their due diligence requirements once released.

Reporting

Under the Model 1 IGA, reporting FIs will be required to report annually certain information on US reportable accounts to the relevant authorities of that jurisdiction. The information that is to be reported and the timing of the information to be passed on to the IRS by the relevant tax authority is set out in the main body of the Model 1 IGA and applies to all Model 1 jurisdictions. As of the date of this communication, no jurisdiction has finalised local legislation for compliance with its IGA, which will determine the manner in which this information will be passed from the fund to the relevant authorities.

The fund and its governing body will be responsible for ensuring appropriate reporting to the relevant authorities. AFSIOML will be able to contract to provide such reporting for the fund's governing body, if required.

Other considerations

As well as familiarising themselves with their obligations under the Model 1 IGA and ensuring they fully understand the status and requirements of the fund, fund governing bodies may also wish to consider other matters such as communications to investors in respect of FATCA and whether the fund's governing and subscription documents require update.

Appleby continues to advise its fund clients to obtain independent tax advice in respect of FATCA. Based on our understanding of the legislation, we consider that funds should assume that they will be affected in some way by FATCA unless they are advised otherwise, regardless of whether or not the fund has US investors or investments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions