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US Foreign Account Tax Compliance Act: Deadline to Register Sponsored Entities Approaching

Sponsoring entities should evaluate which of their sponsored entities should be registered via the IRS registration portal.

The next key deadline in the phased implementation of legislation commonly referred to as the Foreign Account Tax Compliance Act (FATCA) is fast approaching.

Entities that are treated as “sponsored entities”[1] for FATCA purposes and that are subject to the rules of a Model 1 Intergovernmental Agreement (Model 1 IGA)—such as fund entities organized in the Cayman Islands—will be required to obtain a global intermediary identification number (GIIN) by the later of (i) December 31, 2016 or (ii) 90 days after a “US Reportable Account” is first identified.

Sponsored entities subject to the rules of a Model 2 IGA or that are not located in an IGA jurisdiction must be registered by December 31, 2016.

Background

Under FATCA, a non-US financial institution is generally required to register with the IRS, obtain a GIIN, and satisfy certain due diligence, reporting, and (depending on the jurisdiction) withholding obligations. An entity can register with the IRS as a “sponsoring entity” that agrees to perform those obligations on behalf of another entity, in which case the sponsoring entity is issued the GIIN.

In the fund context, a sponsoring entity (such as a general partner entity) may act as a sponsoring entity for a number of non-US funds and related entities. Since registration became required in 2014, sponsored entities have not, until now, been required to obtain a separate GIIN and could have relied upon the GIIN issued to the sponsoring entity. Under the transitional relief provided by the IRS in Notice 2015-66, a sponsored entity has not needed to obtain its own GIIN until December 31, 2016, and has not been required to register before that date. The IRS registration portal has since been updated to permit the registration of sponsored entities by their sponsors and issuance of GIINs to the sponsors to provide to sponsored entities.

Action Needed

Sponsoring entities should evaluate which of their sponsored entities should be registered. A sponsoring entity (and not the sponsored entity) must log into its account on the FATCA registration portal and add information regarding each sponsored entity that needs to be registered under the rules described above.

Per the IRS FATCA online registration user guide, information regarding multiple sponsored entities can be added at one time using a file upload. The sponsoring entity will be given a unique GIIN for each sponsored entity, which the sponsoring entity can distribute accordingly. Each sponsored entity should update its W-8 and self-certification forms to include the unique GIIN provided by its sponsoring entity.

The approaching deadline may be particularly relevant to investment funds that consolidated their FATCA compliance function for offshore entities (e.g., offshore blockers, offshore funds, and wholly owned controlled foreign company (CFC) subsidiaries of US regulated investment companies) into one or more sponsoring entities.


[1] Under FATCA, an entity (the “sponsoring entity”) may register with the IRS and agree to perform the due diligence, withholding, and reporting obligations of a foreign financial institution (a “sponsored entity”), and as a result of such undertaking by the sponsoring entity, the sponsored entity will be deemed compliant with FATCA.

Copyright © 2019 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

Gabriel Quihuis, Morgan Lewis, tax attorney
Of Counsel

Gabriel A. Quihuis advises fund sponsors on tax matters relating to fund structuring and operations, and provides tax advice to institutional investors in connection with domestic and offshore private fund investments. Gabriel regularly advises clients on issues relating to the Foreign Account Tax Compliance Act (FATCA). Gabriel also assists clients on various corporate tax issues related to domestic and cross-border mergers, acquisitions, financings, and restructurings.

617 341 7736
Jason P. Traue, Morgan Lewis, tax attorney
Partner

Jason P. Traue’s practice focuses on federal tax matters. He works extensively with tax issues related to the formation and operation of registered and private investment funds. Jason also assists with merger and acquisition transactions, capital markets transactions, general corporate and partnership tax issues, and international tax issues.

617.951.8964
Richard Zarin, Morgan Lewis, Financial services lawyer
Partner

Working with businesses in industries such as media, financial services, aviation, shipping, and education, Richard S. Zarin counsels clients on tax matters involving international and US transactions. He also advises clients on ongoing tax planning. Richard’s experience includes mergers, acquisitions, the formation and operation of joint ventures, debt and equity restructurings, and securities offerings. In addition, he represents organizers of and investors in onshore and offshore investment funds and other alternative investment vehicles.

212.309.6879
William Zimmerman, Morgan Lewis, Tax lawyer
Partner

William P. Zimmerman guides clients on the creation and operation of private and pooled investment vehicles, such as mutual funds, hedge funds, real estate investment trusts, and other investment-related vehicles. He also advises clients on general corporate and individual tax planning matters, including reorganizations, mergers, acquisitions, spinoffs, recapitalizations, and workouts. Additionally, Bill provides partnerships and limited liability companies with planning and operational guidance on tax-related issues.

Bill is the most recent past chair of the...

215-963-5023
Peter M. Daub, Morgan Lewis, Tax Planning Attorney
Partner

With more than 30 years of experience, Peter M. Daub concentrates his practice in the areas of international and domestic tax planning for US- and foreign-based multinationals, financial institutions, and financial intermediaries. Domestically, he helps US-based multinational clients in deferral and repatriation structures and foreign tax credit planning and provides tax advice on financial and currency transactions. For foreign-based multinationals, Peter’s principal areas of concentration include the structuring of US operations, withholding tax minimization, and...

202.373.5171