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FATCA impact on private equity and hedge funds industry

The U.S Foreign Account Tax Compliance Act (“FATCA”) addresses perceived abuses by US taxpayers with respect to assets held offshore and will require virtually all private equity and hedge funds to be capable of implementing its requirements in 2013.


Enacted in 2010, FATCA compels non-US entities to report US account holders to the Internal Revenue Service (“IRS”) by otherwise imposing a new withholding tax levied against non-cooperative foreign entities.


FATCA reporting will be enforced by requiring payors of US source income and gross proceeds to withhold 30% on payments to non-US entities that do not certify their compliance with FATCA.


The new rules will have a significant impact on all private equity and hedge funds which generate US source income because they will likely be considered either a US Withholding Agent or a Foreign Financial Institutions (“FFIs”) under these rules.


Proposed regulations released in February 2012 by the US Treasury and the IRS provide detailed requirements with which FFIs, US Withholding Agents, and other non-US entities must comply to avoid withholding. The proposal also details exceptions, exclusions, reporting and withholding requirements.


Simultaneously with the release of the proposal, a broader framework for international cooperation aimed at easing privacy concerns was announced in a Joint Statement between the US and five major European countries.


Understanding the implications of these new rules will allow for a well-scheduled and well-planned implementation.

Contacts

  • Pascal Eber
    Partner - Operations Excellence & Infrastructure Operations
  • Pascal Rapallino
    Partner - Private Wealth Services Leader
  • Pascal Noël
    Partner - Tax - International Tax-GFSI
  • Basil Sommerfeld
    Partner - Operations & Human Capital Leader
  • Alain Verberken
    Directeur - Tax - International Tax-GFSI

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