United States: Drinking GIIN And The IRS' Juice

"Rollin down the street, smokin indo, sippin on gin and juice/ Laid back (with my mind on my money and my money on my mind)." — Snoop Doggy Dogg. Nov. 23, 1993.

Like Snoop Dogg, the vast majority of investment managers, directors of hedge funds and private equity funds, plus their service providers and counterparties, including administrators, banks, custodians, prime brokers and other financial institutions, whether foreign (i.e., non-U.S.) or U.S., must soon start sipping on gin and juice before they can be laid back when thinking about their money.

This potent cocktail is the perfect metaphor for the powerful combination of the Global Intermediary Identification Number mixed with the tremendous power or "juice" of the Internal Revenue Service, spawned by the Foreign Account Tax Compliance Act. Like the cocktail, it will deliver more than a few headaches, but this time the hangover will not go away.

The IRS will issue a GIIN on June 2, 2014, to each foreign financial institution (FFI) that registers on the IRS FFI registration portal by April 25, 2014. The GIIN is foolproof commercial assurance against disruption in the FFI's counterparty relationships.

Withholding agents will require the GIIN to ensure the FFI is not subject to Foreign Account Tax Compliance Act withholding. It is prudent to obtain the GIIN before FATCA "goes live," since the actions of withholding agents are beyond the FFI's control.

We understand that withholding agents, such as prime brokers and other fund counterparties, may insist on FFIs producing their GIIN on July 1, 2014, to avoid any possibility of them being held liable to the IRS for FATCA withholding tax on U.S. source payments to nonparticipating financial institutions (NPFIs). Unlike Snoop Dogg, withholding agents are notorious for being conservative in protecting their interests.

Generally, the only person who can register an FFI with the IRS is its FATCA-responsible officer (FRO). It is not practical for a U.S. investment manager to act as "sponsoring entity" of its Cayman Islands or British Virgin Islands funds. One reason is that, although the U.S.-Cayman/BVI intergovernmental agreements permit that sponsorship, the U.K.-Cayman/BVI IGAs do not. The most practical solution is for Cayman and BVI funds (and other investment entities) to appoint their own FRO.

The FRO must be a natural person appointed as a duly authorized corporate officer (or director) by the FFI's board of directors (or equivalent). That is because the FRO must be legally authorized to register the FFI. Furthermore, the FFI's directors have fiduciary duties to understand the scope of the FRO's responsibilities and that the FRO has the capacity and ability to perform his/her obligations.

The FRO is mandatory for any FFI required to register with the IRS and obtain its own GIIN. The IRS must know the FRO's identity. The IRS will not process the FFI's registration for the GIIN unless it is signed by the FRO who, in doing so, must certify the accuracy and completeness of information and agrees that the FFI will comply with all its FATCA obligations.

The FRO must also agree that the FFI will comply with all relevant FATCA obligations. Consequently, the FRO has a dual responsibility to the IRS and the partner jurisdiction's competent authority; i.e., the FRO is personally liable to the IRS1 in addition to any liabilities imposed under the laws of any partner jurisdiction under an IGA.

The FRO's initial responsibilities include registering the FFI with the IRS to obtain the GIIN, overseeing the FFI's compliance program, answering the regulators' questions and remediating any instances of noncompliance. The FRO's formal reporting responsibilities commence in 2015.

The IRS relies on the FRO to approve and oversee the FFI's FATCA compliance program, being the due diligence, withholding and reporting policies and procedures established in accordance with the relevant intergovernmental agreement between the U.S. Treasury and partner jurisdictions, and/or FFI agreement between the IRS and the FFI itself. Other additional FRO responsibilities may arise under local IGA legislation once implemented.

FROs and FFIs should be aware that the Internal Revenue Manual states that the IRS will instigate covert (secret) investigations long before it makes them overt so the FRO would also be the target when and if the IRS believes that administrative or other errors may have led to incorrect or incomplete information reporting or resulted in other infringements of the IGA.

We recommend that investment managers and their FFIs' board of directors give serious consideration to appointing a specialist independent FRO. First, we are not aware of any fund administrators willing to act as FRO. Second, there are a number of reasons why an investment manager may find it unappealing for its employee to be the FRO of the FFIs it manages, as explained below.

The FRO has personal strict liability for the accuracy and completeness of the FFI's FATCA reports and also for any failure to report on reportable accounts. The FRO would also have fiduciary duties in the performance of his/her duties, which could make the FRO personally liable in the event of breach of those duties, particularly if it amounts to willful default or fraud.

These legal risks expose the investment manager, through vicarious liability and/or indemnification, to liability for any losses caused to an FFI by an employee of the investment manager serving as FRO. Investors and regulators alike may perceive that an employee of the investment manager, who is also FRO of its funds, has an inherent conflict of interest and could lack objectivity where personal or employer interests conflict with those of the FFI/regulators.

If the investment manager's employee acts as the FFI's FRO, the investment manager would bear that expense (or at least the opportunity cost), whereas the FFI itself would bear the cost of any independent specialist FRO. Any FRO, who is a U.S. person, may have additional personal tax reporting requirements to the IRS on Form 5471 regarding his/her position as an officer or director of a corporate FFI.

FATCA is the responsibility of the FFI and is not a core compliance function of the investment manager. The network of IGAs that impact each FFI are local and will become increasingly complex; the U.K's IGAs with Cayman, the BVI and all other overseas territories and crown dependencies "go live" on July 1, 2014.

FATCA will grow in scope, particularly as all G20 countries, representing 90 percent of global output and two-thirds of the world's population, are now party to the Organisation for Economic Co-operation and Development Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Fund managers and their tax advisers are already recognizing the value of offshore funds appointing a specialist independent FRO to drink the new "GIIN and juice." Like Snoop Dogg, managers want the freedom to be "rollin' down the street ... laid back (with my mind on my money and my money on my mind)."


1 26 U.S. Code - Internal Revenue Code — Fraud and False Statements, §7206(2); 18 U.S. Code — Crimes — Ch. 19 — Conspiracy, §371

Published in Law360, New York (January 28, 2014, 1:54 PM ET)

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.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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.


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.


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