The Foreign Account Tax Compliance Act (FATCA) requires that “Foreign Financial Institutions” (FFIs) enter into reporting agreements with the Internal Revenue Service (IRS) and provide the IRS with relevant information. The PEGCC is interested in the FATCA regime because many of our member firms have a sizable number of entities in their funds families that are expected to become participating FFIs, and numerous others that will need to otherwise comply with FATCA reporting or certification procedures.
The PEGCC supports FATCA’s overarching policies of ensuring transparency and compliance with the tax laws, and is committed to working with regulators to further those policies. The comment letter submitted to regulators on April 30, 2012, addresses areas where the FATCA regulations could be streamlined to achieve the regulatory goals more effectively and reduce burdens on private equity firms. A central goal of the comment letter to is encourage regulators to create a centralized compliance option for investment fund families. The PEGCC recommends that the regulators change the proposed rule to:
- Allow fund families to enter into FFI agreements on a consolidated basis, where one entity (the “Compliance Member”) is authorized by other entities within the family to act on their behalf and to bind them all to the terms of a single FFI agreement;
- Allow the Compliance Member to comply with the FATCA reporting requirements on behalf of the members of its group on a centralized basis, such that the Compliance Member would interact directly with the IRS on behalf of the group and would take legal and financial responsibility for the group’s compliance with FATCA;
- Not require investment funds (particularly private equity funds, which are subject to practical and legal constraints regarding the redemption of their investors’ interests) to incur the potentially severe financial hardship of redeeming investors that are recalcitrant account holders as a condition of avoiding a default under an FFI agreement, but rather use alternative means of incentivizing investors not to become recalcitrant account holders;
- Rationalize the rules for information reporting in tiered partnership structures and adapt them better to investment fund structures; and
- Integrate FATCA reporting for partnerships with current obligations of some foreign partnerships to file Form 1065 and related Schedules K-1.
For more information on the PEGCC position on FACTA please click here.
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