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FATCA and Non-US funds:

A Practical Guide
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Contents
Executive Summary ............................................ 4
Does FATCA Apply to Our Fund? ................. 5
When Does FATCA Apply to Our Fund? ..... 6
Receiving Withholdable Payments ................... 7
IGAs ...................................................................... 9
What if Our Fund Does Not Comply? ......... 11
What if the Investors Do Not Comply? ........ 12
What Does Our Fund Need Do to Ensure
Compliance? ....................................................... 13
How Does FATCA Apply to Our Fund? a
Flowchart ............................................................ 15
Finally .................................................................. 16
Disclaimers ......................................................... 17
Author ................................................................. 18

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Executive Summary
The US Congress enacted Foreign Account Tax Compliance Act
(FATCA) in 2010 to reduce tax evasion by the US persons. FATCA
targets offshore accounts that were not subject to US information
reporting to the Internal Revenue Service (IRS). FATCA added a
new component to the US tax withholding and information
reporting regime. It requires non-US entities to register with the IRS
and conduct diligence and reporting relating to their investors and
account holders. The law effectively makes foreign financial
institutions (FFIs) information gathering agents of the IRS by
threatening an FFIs own US source income and sale proceeds with a
30% withholding tax (30% Withholding). Many countries have
entered into intergovernmental agreements (IGAs) with the US that
modify the FATCA rules promulgated in the Treasury regulations.

This new regime is not intended to be a
revenue raiser for the US government,
but rather to provide a mechanism to
identify US investors in FFIs. The 30%
Withholding does not apply, for
example, if the relevant FFI enters into
an agreement with the IRS to report
certain information in respect of
financial accounts which are held by US
persons (as well as certain non-US
entities which have a 10% US owner), or
complies with prescribed procedures to
ensure that the FFI does not maintain
financial accounts of such persons or
entities.
By entering into such an agreement, an
FFI will also oblige itself to apply 30%
withholding to a specified portion of
payments it makes to other FFIs which
have not entered into such agreements.
The US has published a model
intergovernmental agreement (IGA)
which provides relief from the
withholding rules described above for
certain FFIs operating in countries
which agree to its terms. Such FFIs will
be required to report information about
financial accounts to their home country
tax authorities, which will in turn
transmit it to the IRS. The first IGA was
signed by the US and the UK in
September 2012.
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Andrey Krahmal, Esq.

Does FATCA Apply to Our Fund?
FATCA applies to non-US funds that are FFIs that are foreign
investment entities, including entities that
conduct investment and asset management activities for
customers,
are managed by other FFIs and the gross income of which is
primarily attributable to investing, reinvesting, or trading in
financial assets, or
are collective investment vehicles with investment strategies of
investing, reinvesting, or trading in financial assets.

This definition encompasses private
equity funds, hedge funds, venture
capital funds, family investment vehicles,
and other similar investment funds
(other than investment funds wholly
owned and controlled by foreign
sovereigns). FATCA also applies to
foreign feeder funds, alternative
investment vehicles, parallel funds, and
foreign blocker entities organized in
connection with such foreign investment
funds or US funds.

Financial assets are securities,
partnership interests, commodities,
notional principal contracts, insurance or
annuity contracts, or any interest
(including a futures or forward contract
or option) in a security, partnership
interest, commodity, notional principal
contract, insurance contract, or annuity
contract.

If a non-US entity is not an FFI, it will
be a non-financial foreign entity
(NFFE). An NFFE generally will not
be required to comply with the diligence
and reporting requirements applicable to
FFIs. However, an NFFE may need to
identify to a withholding agent any US
persons with accounts or substantial
interests in it.

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When Does FATCA Apply to Our Fund?
FATCA applies when a non-US fund receives withholdable
payments. Such payments include
US-source interest and dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other
fixed or determinable annual or periodic gains, profits, and
income (FDAP income); and
gross proceeds from the sale or other disposition of any property
which can produce US-source interest or dividends, regardless of
whether the recipient realized a gain (or loss) on such property.
A fund that does not derive, and is not a payee of, any withholdable
payments should not be subject to FATCA withholding even if it
does not become a Participating FFI or a deemed-compliant FFI.

Payments of FDAP income are subject
to FATCA withholding from July 1,
2014. Gross proceeds from the
disposition of property that can produce
US-source interest and dividends will
only be subject to FATCA withholding
for dispositions occurring after
December 31, 2016. FATCA will not
apply with respect to FDAP income
derived from, and gross proceeds from a
disposition of, any grandfathered
obligations. Grandfathered obligations
include debt obligations, outstanding on
July 1, 2014 and not materially modified
thereafter. Equity interests are not
grandfathered regardless of their issue
date. Prior to January 1, 2017, a
payment made with respect to collateral
under a collateral agreement securing
transactions, including debt instruments
and derivative financial instruments, will
not be subject to FATCA withholding
provided that the secured party holds a
commercially reasonable amount of
collateral. This is the case even if the
securities posted as collateral are not
grandfathered obligations. Beginning
no earlier than 2017, withholding may
also be required with respect to foreign
passthru payments. An IRS notice
issued in 2011 proposed that
noncustodial payments by an FFI (such
as interest payments on savings accounts
at the FFI) would be subject to FATCA
withholding in proportion to the
percentage of US assets owned by the
paying FFI, i.e. its passthru payment
percentage. The current US Treasury
regulations reserve on the definition of a
foreign passthru payment, and it is
unclear whether and when withholding
on foreign passthru payments will be
required.
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Receiving Withholdable Payments
If a non-US fund receives withholdable payments, it can become
a Participating FFI; or
a Registered Deemed-Compliant FFI.

Participating FFI
A fund generally can enter into an FFI
Agreement with the IRS to become a
Participating FFI. The FFI Agreement is
the same for every FFI. A Participating
FFI that decides enter into an FFI
Agreement with the IRS can do so by
registering through the FATCA internet
portal. Once the IRS approves the
registration it issues a global
intermediary identification number
(GIIN) to the fund. The IRS started
publishing a monthly electronic list of
Participating FFIs and registered
deemed-compliant FFIs starting June 2,
2014. The IRS FFI list is important
because both US withholding agents and
Participating FFIs will verify a GIIN
furnished by s fund with its certification
to avoid FATCA withholding on
payments made to the fund.

Registration as a Participating FFI will
require, in addition to the provision of
identifying information about the fund, a
designation of a responsible officer
and other persons acting as points of
contact for the IRS. The funds
responsible officer will need to
electronically sign the agreement with
the IRS. Once a fund enters into an FFI
Agreement and becomes a Participating
FFI, it generally may terminate the FFI
Agreement by providing notice to the
IRS through the FATCA registration
portal. Such a fund will become a
nonparticipating FFI unless it qualifies as
an excluded FFI or is deemed compliant
with FATCA. A Participating FFI that
terminates its FFI Agreement will be
required to notify all withholding agents
that make payments to it of its change in
FFI status.

There is no need to enter into an FFI
Agreement if the fund is subject to a
Model 1 IGA (determined on its country
of organization or tax residence) or the
fund qualifies for an exception because it
is:
a deemed-compliant FFI,
an exempt beneficial owner FFI,
a) foreign governments and their
controlled entities;
b) international organizations;
c) foreign central banks of issue;
d) governments of US territories;
e) foreign retirement plans; and
f) entities wholly owned by other
exempt beneficial owners.
excluded under regulations
a) financial entities of a
nonfinancial group;
b) nonfinancial start-ups or
entrants of new business lines;
c) entities in liquidation or
bankruptcy;
d) non-US members of
Participating FFI groups; and
e) nonprofit organizations.
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Registered Deemed-Compliant FFI
Funds that qualify as deemed-
compliant FFIs are not required to
enter into FFI Agreements. There are
two categories of deemed-compliant
FFIs:
certified deemed-compliant (this
category applies to small and local
banks) and
registered deemed-compliant.
A fund subject to a Model 1 IGA will
automatically qualify as a registered
deemed-compliant FFI as long as it
complies with the registration
requirements of the applicable IGA.
Such funds will be subject to diligence
and reporting requirements, but the
requirements are less stringent than
those applicable to a Participating FFI.
Some Model 1 registered deemed-
compliant FFIs within one of the
subcategories described in the next
paragraph may have no diligence or
reporting requirements. An FFI subject
to a Model 2 IGA will be subject to
many of the same requirements as a
Participating FFI. However, an FFI
subject to a Model 2 IGA may qualify as
a registered deemed- compliant FFI if it
meets the requirements of one of the
types of registered deemed-compliant
FFIs listed in Annex II of the applicable
Model 2 IGA or if it meets the
requirements of one of the types of
registered deemed-compliant FFIs
provided for in the US Treasury
regulations.
The categories of registered deemed-
compliant FFIs in the US Treasury
regulations include:
a) local banks;
b) non-reporting members of corporate
groups;
c) collective investment vehicles and
restricted funds;
d) qualified credit card issuers and
servicers; and
e) sponsored investment entities and
controlled foreign corporations.
The sponsored investment entity
category provides an opportunity for
fund managers and FFIs with multiple
related entities to streamline and
centralize compliance with FATCA
requirements for their various
investment funds and related entities. To
be treated as a sponsored investment
entity, a sponsoring entity, including a
Participating FFI or a US financial
institution, must agree to perform, on
behalf of the sponsored entity, all due
diligence, reporting, and withholding
requirements that the sponsored entity
would otherwise have been required to
perform as a Participating FFI.
Registered deemed-compliant FFIs must
also register with the IRS through the
internet portal and obtain GIINs. They
will then be listed on the IRS FFI List

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IGAs
The US Treasury entered into Model 1 and Model 2 IGAs with
various jurisdictions.

Model 1 IGA
Countries that enter into Model 1 IGAs
establish local information reporting
regimes pursuant to which FFIs that are
subject to the IGA report FATCA-
relevant information to the local taxing
authorities. The information is then
furnished to the US Department of the
Treasury. A fund that is subject to a
Model 1 IGA and that is required to
report FATCA-relevant information to
the local taxing authority will not need to
enter into an FFI Agreement, but will be
required to register with the IRS and
obtain a GIIN. However, an FFI that is
subject to a Model 1 IGA is not required
to obtain a GIIN or provide a GIIN to a
withholding agent before January 1,
2015. The countries with which Model 1
IGAs have been signed are:
Australia, Belgium, Canada,
Cayman Islands, Costa Rica,
Denmark, Estonia, Finland,
France, Germany, Gibraltar,
Guernsey, Hungary, Honduras,
Ireland, Isle of Man, Italy,
Jamaica, Jersey, Luxembourg,
Malta, Mauritius, Mexico,
Netherlands, Norway, Spain, and
United Kingdom.
and with which Model 1 IGAs have
been agreed in substance, are:
Azerbaijan, Bahamas, Brazil,
British Virgin Islands, Bulgaria,
Colombia, Croatia, Curaao,
Czech Republic, Cyprus, India,
Indonesia, Israel, Kosovo,
Kuwait, Latvia, Liechtenstein,
Lithuania, New Zealand, Panama,
Peru, Poland, Portugal, Qatar,
Romania, Singapore, Slovak
Republic, Slovenia, South Africa,
South Korea, Sweden and Turks
and Caicos Islands.
Model 2 IGAs
Model 2 IGAs differ from Model 1
IGAs in that they do not provide for
information reporting to the local taxing
authorities, and instead require an FFI to
report relevant FATCA information
directly to the IRS. An fund that is
subject to a Model 2 IGA generally must
enter into an FFI Agreement unless it
qualifies as a deemed-compliant FFI, an
excluded FFI, or an exempt beneficial
owner under the applicable Model 2
IGA. Pursuant to its FFI Agreement, an
FFI subject to a Model 2 IGA generally
must comply with applicable due
diligence rules, which may be modified
by the Model 2 IGA.
The countries with which Model 2 IGAs
have been signed are:
Austria, Bermuda, Chile, Japan,
and Switzerland
and with which Model 2 IGAs have
been agreed in substance are:
Armenia and Hong Kong
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Application of IGAs
Each IGA is unique. Funds should
always confirm the specific
requirements. Some IGAs, including
Japans, apply to FFIs that are resident
in the relevant country. Resident
may mean tax resident as defined under
the countrys existing laws or as specified
in any legislation or guidance issued by
the country regarding the IGA. In
contrast, other IGAs, including the
Cayman Islands, apply to FFIs that are
organized under the laws of the
relevant country. Accordingly, an FFI
may be subject to multiple IGAs (in
which case the treatment is currently
unclear) or no IGA (in which case the
default rules of the US Treasury
regulations apply). Several countries,
including the United Kingdom, have
issued detailed guidance notes to expand
upon and clarify details of the relevant
IGA. Such guidance notes continue to
be issued and revised as the FATCA
regime evolves, and may contain
country-specific details and exceptions
that differ from the US Treasury
regulations and guidance notes issued by
other IGA countries.

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What if Our Fund Does Not Comply?
The treatment under FATCA depends on whether the Fund receives
withholdable payments.

Withholdable Payments Received
Such payments will be subject to a
withholding tax at a rate of 30%. US
withholding agents must withhold tax at
a 30% rate on:
withholdable payments made to
nonparticipating FFIs that are not
exempt beneficial owners,
excluded FFIs, or deemed-
compliant FFIs; and
payments of US-source FDAP
made to Participating FFIs acting
as intermediaries (other than
withholding qualified
intermediaries (QIs)), or flow-
through entities (other than
withholding foreign partnerships
or withholding foreign trusts),
except to the extent Participating
FFIs provide the US withholding
agents with valid documentation
that establishes the portion of the
payment that is allocable to a class
of payees for which no
withholding is required.
Withholdable Payments Not Received
There will be no consequences under
FATCA even if the Fund is
noncompliant. Ancillary consequences
to include difficulty in opening a bank
account or entering into transactions or
agreements with financial institutions,
which require that all counterparties are
FATCA-compliant regardless of
nonexistent risk of withholding.
Investors may demand that the Fund
becomes a Participating FFIs because of
reputational risk. Some jurisdictions
may require FFIs to comply with
FATCA under the local legislation
implementing an IGA, even though
FATCA compliance is otherwise
voluntary. Some funds may decide to
comply with FATCA, even if currently it
is not directly relevant.
If the Fund does not currently receive
any withholdable payments, but may do
so in the future, it should register under
FATCA at that later date. Any
withholdable payments received prior to
such registration are subject to FATCA
withholding.


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What if the Investors Do Not Comply?
The Fund may be required to withhold if any investor is a
nonparticipating FFI or a recalcitrant account holder.

A nonparticipating FFI is an FFI that
has chosen not to become a
Participating FFI and is not an exempt
beneficial owner, an excluded FFI, or a
deemed- compliant FFI. A recalcitrant
account holder is an account holder
that has failed to provide the
Participating FFI with the information
necessary for the Participating FFI to
determine whether the account holder is
a US person, or other information that
the Participating FFI is required to
report to the IRS. If any investor in the
Fund is a nonparticipating FFI or a
recalcitrant account holder, the Fund (as
a Participating FFI) will be required to
act as a withholding agent and withhold
tax at a 30% rate on withholdable
payments to such nonparticipating FFI
or recalcitrant account holder. Funds
that are subject to a Model 1 IGA are
generally not required to withhold,
although they must report information
about their investors that are
nonparticipating FFIs or recalcitrant
account holders. Funds subject to
Model 2 IGAs also face relaxed
withholding requirements.

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What Does Our Fund Need Do to Ensure
Compliance?
The Fund may be required to withhold if any investor is a
nonparticipating FFI or a recalcitrant account holder.

The Fund is a Participating FFI
Per FFI Agreement the Fund must:
identify its
a) US accounts,
b) accounts held by
nonparticipating FFIs, and
c) accounts held by recalcitrant
account holders;
report annually to the IRS with
respect to such accounts;
withhold on payments to
nonparticipating FFIs and
recalcitrant account holders; and
establish a FATCA compliance
program and have its responsible
officer periodically certify to the
IRS the effectiveness of the
program.
Under FATCA an account includes not
only depositary accounts but also equity
and debt interests in investment entities
and financial institutions, with
exceptions for publicly traded interests.
As part of the diligence, the Fund must
obtained information about newly
opened and preexisting accounts. The
procedures differ for individual account
holders and for entities.
Newly-Opened Accounts
The Fund must implement procedures
to be able to identify the account holder
as US or foreign and, if foreign,
determine its classification under
FATCA. The Fund will be required to
obtain certification of the account
holders US or foreign status and, if
applicable, its classification under
FATCA. These certifications will be
provided on the following IRS forms:
a) Form W-9 for US individuals and
entities;
b) Form W-8BEN for non-US
individuals;
c) Form W-8BEN-E for many non-US
entities; and
d) other W-8 forms for non-US
intermediaries and non-US exempt
beneficial owners.
Preexisting Accounts
The Fund must conduct an initial review
of its account holders within six months
and a more thorough review within two
years of the effective date of the FFI
Agreement to determine which accounts
are held by FFIs and US persons.
Preexisting are accounts maintained by
the Fund that are outstanding on June
30, 2014. Pursuant to recent IRS
guidance, accounts held by entities and
opened on or after July 1, 2014 and
before January 1, 2015 generally may be
treated as preexisting accounts.
Assuming an effective date for the FFI
Agreement of June 30, 2014:
Prior to January 1, 2015, the Fund
must identify accounts held by
prima facie FFIs. Prima Facie
FFIs are entities that are
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designated in its electronic
(searchable) database as account
holders that are
a) qualified intermediaries or
nonqualified intermediaries or
b) for accounts maintained in the
United States, documented or
presumed to be a foreign
account holder and assigned in
the Funds electronic
(searchable) database one of a
set of industry codes indicating
that the entity is a financial
intermediary. Those account
holders identified as prima
facie FFIs that do not provide
certification that they are
Participating FFIs, deemed-
compliant FFIs, excluded
FFIs, or exempt beneficial
owners are subject to FATCA
withholding beginning on
January 1, 2015.
Prior to July 1, 2015, the Fund
must review individual accounts
with a balance of more than
$1,000,000 on June 30, 2014 for
specified characteristics that may
indicate that the account holder is
a US person.
Prior to July 1, 2016, the Fund
must all other individual and
entity accounts (other than certain
low value accounts) for specified
characteristics that may indicate
that the account holder is a US
person.
The Fund is a Registered Deemed-
Compliant FFI
Once registered, the Fund generally
must:
maintain appropriate records;
have its responsible officer certify
every three years that it satisfies
the requirements of a registered
deemed-compliant FFI; and
notify the IRS of a change in
circumstances that would make it
ineligible for registered deemed-
compliant status.



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How Does FATCA Apply to Our Fund? a Flowchart

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Finally
FATCA continues to evolve as
additional IGAs are signed and IGA
jurisdictions promulgate guidance. Do
not hesitate to contact the author of this
note if you have any questions regarding
the FATCA classification of entities in
your fund structure, compliance, or any
other topic addressed in this
memorandum or related to FATCA.
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Disclaimers
Attorney Advertising. Prior results do not guarantee a similar outcome. This document
is not intended to provide and should not be construed as legal advice for any purpose.
This document may contain US tax advice. Unless otherwise expressly stated, this
communication was not intended or written to be used, and cannot be used, by any
person for the purpose of avoiding US federal tax-related penalties that may be imposed
with respect to the matters addressed. Some of this document may have been written to
support the promotion or marketing of the transactions or matters addressed to persons
other than our client. For such advice, be advised that the advice was written to support
the promotion or marketing of the transaction(s) or matter(s) addressed and if you are a
person other than our client, you should seek advice based on your particular
circumstances from an independent tax advisor. In addition, unless expressly stated to
the contrary in the foregoing document, nothing herein shall be construed to impose a
limitation on disclosure by any person of the tax treatment or tax structure of any
transaction that is addressed herein.






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Author


Andrey Krahmal, Esq.
5 Grays Inn Square, Grays Inn
London WC1R 5AH
Main +44 (0) 20 7670 1500
Direct +44 (0) 77 6767 4238
andrey@atlastaxchambers.com