Round Two of FATCA Guidance: Notice 2011-34 - What’s New and What Remains on the Wish List for Non-U.S. Investment Funds


The U.S. Department of the Treasury (“Treasury”) and the U.S. Internal Revenue Service (the “IRS”) on April 8, 2011 issued Notice 2011-34, their second installment of written guidance under the Foreign Account Tax Compliance Act (“FATCA”). The following discussion highlights those areas of particular interest to non-U.S. investment funds.


Included as a revenue offset in the Hiring Incentives to Restore Employment Act enacted on March 18, 2010 (the “HIRE Act”), FATCA adds new chapter 4 (sections 1471-1474) to the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Chapter 4 of the Code imposes new information reporting and withholding requirements on “foreign financial institutions” (“FFIs,” which term includes most non-U.S. investment funds, including UCITS funds, hedge funds and private equity funds)1 with respect to certain U.S. investors or account holders (“U.S. accounts”).2 Compliance is enforced through a new 30% withholding tax on certain income and gross sales proceeds derived from U.S. sources (referred to as “withholdable payments”)3 by non-compliant FFIs, effective January 1, 2013.

On August 27, 2010, Treasury and the IRS published Notice 2010-60, which provided very preliminary initial guidance and requested comments on a number of issues relating to the implementation of FATCA. In particular, Notice 2010-60 identified non-U.S. collective investment vehicles that prohibit the sale of their interests to certain U.S. persons as a potential category of FFI that, subject to certain additional requirements, could possibly be deemed to be FATCA-compliant, and requested comments on a number of related points. In response, many commentators, including a number of asset management industry groups, submitted proposals to Treasury detailing various conditions under which non-U.S. investment funds could be either exempt from or deemed compliant with any FATCA obligations.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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