United States

The application of the U.S. FATCA rules to international investment funds


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UPDATE: On April 2, 2014, the Treasury announced an extra 10-day grace period, through May 5, 2014, for foreign financial institutions (FFIs) to register and be included in the first IRS list of entities treated as registered FFIs for purposes of the Foreign Account Tax Compliance Act (FATCA). Additionally, the Treasury published a list of countries (now 45) that have signed intergovernmental agreements (IGAs) under FATCA or that have agreements in substance. The announcement also stated that any country with an IGA that is either effective or that is agreed to in substance before July 1, 2014, will be treated as having a signed agreement in place through Dec. 31, 2014.

On July 1, 2014, new U.S. FATCA rules come into effect under which foreign investment funds could face potentially burdensome withholding and reporting requirements. While the application of these rules may change somewhat in future IRS guidance, it is very likely that the FATCA rules are here to stay. Foreign investment funds should therefore assess exposure and develop compliance strategies immediately to avoid being subject to the 30 percent FATCA withholding tax.



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