IEIM401180 - NRFI: FATCA Only: Sponsored Closely Held Investment Vehicles

NRFI: FATCA Only: Sponsored Closely Held Investment Vehicles

In February 2019, HMRC and the US Internal Revenue Service entered into a Competent Authority Agreement (CAA) to update Annex II of the UK/US Intergovernmental Agreement (IGA) to implement FATCA.

»Ê¹ÚÌåÓýapp CAA adds additional entities to Section II (Deemed Compliant Financial Institutions) of Annex II of the IGA, including sponsored closely held investment vehicles, as Non-Reporting United Kingdom Financial Institutions that are treated as deemed-compliant FFIs for purposes of section 1471 of the Internal Revenue Code.

Prior to February 2019, such entities could be treated as Non-Reporting Financial Institutions by virtue of the US regulations at §1471-5-(f)(2)(iii).

Under the CAA, a Financial Institution that is a sponsored, closely held investment vehicle that satisfies the requirements set out below will be treated as a deemed-compliant FFI.

  1. »Ê¹ÚÌåÓýapp Financial Institution is a Financial Institution solely because it is an Investment Entity and is not a qualified intermediary, withholding foreign partnership, or withholding foreign trust pursuant to relevant U.S. Treasury Regulations;
  2. »Ê¹ÚÌåÓýapp sponsoring entity is a Reporting U.S. Financial Institution, Reporting Model 1 FFI, or Participating FFI, is authorized to act on behalf of the Financial Institution (such as a professional manager, trustee, or managing partner), and agrees to perform, on behalf of the Financial Institution, all due diligence, withholding, reporting, and other requirements that the Financial Institution would have been required to perform if it were a Reporting United Kingdom Financial Institution;
  3. »Ê¹ÚÌåÓýapp Financial Institution does not hold itself out as an investment vehicle for unrelated parties;
  4. Twenty or fewer individuals own all of the debt interests and Equity Interests in the Financial Institution (disregarding debt interests owned by Participating FFIs and deemed-compliant FFIs and Equity Interests owned by an Entity if that Entity owns 100 percent of the Equity Interests in the Financial Institution and is itself a sponsored Financial Institution described in this paragraph F); and
  5. »Ê¹ÚÌåÓýapp sponsoring entity complies with the following requirements:
  6. »Ê¹ÚÌåÓýapp sponsoring entity has registered as a sponsoring entity with the IRS on the IRS FATCA registration website;
  7. »Ê¹ÚÌåÓýapp sponsoring entity agrees to perform, on behalf of the Financial Institution, all due diligence, withholding, reporting, and other requirements that the Financial Institution would have been required to perform if it were a Reporting United Kingdom Financial Institution and retains documentation collected with respect to the Financial Institution for a period of six years;
  8. »Ê¹ÚÌåÓýapp sponsoring entity identifies the Financial Institution in all reporting completed on the Financial Institution’s behalf; and
  9. »Ê¹ÚÌåÓýapp sponsoring entity has not had its status as a sponsor revoked.

»Ê¹ÚÌåÓýapp CAA also provides that if an entity has met the requirements of a Sponsored, Closely Held Investment Vehicle described in HMRC’s guidance at all relevant times prior to the date of the CAA, the Competent Authority of the USA shall not determine that such entity is a Reporting United Kingdom Financial Institution that is in significant non-compliance with the IGA.