U.S. Withholding Tax and Reporting Action Items for Investment Funds and Asset Managers (Fall 2018)

by Akin Gump Strauss Hauer & Feld LLP

Akin Gump Strauss Hauer & Feld LLP

  • Foreign Investor Forms W-8: An update of Forms W-8 on file for non-U.S. investors is generally recommended by December 31, 2018 to ensure that a date of birth (DOB) and non-U.S. taxpayer identification number (Foreign TIN) are included where relevant to avoid incurring 30 percent U.S. withholding on certain U.S. source income.
  • FATCA Withholding – Gross Proceeds: Withholding under the U.S. Foreign Account Tax Compliance Act (FATCA) on gross proceeds is scheduled to go into effect on January 1, 2019.
  • FATCA Certifications: Investment funds that are based in a jurisdiction with a Model 2 intergovernmental agreement (IGA) (e.g., Bermuda, Hong Kong and Switzerland) or without an IGA (e.g., the Marshall Islands) generally must submit certain FATCA certifications to the IRS by December 15, 2018.
  • Section 871(m) Withholding: Relief from U.S. withholding for “non-delta 1.0” swaps and other derivatives involving U.S. equities is extended to 2021; U.S. withholding with respect to such trades with “delta 1.0” are generally subject to U.S. withholding and should continue to be monitored.
  • CRS Reporting: Investment funds resident of the Cayman Islands, or of other jurisdictions that have changed the definition of a “controlling person” for purposes of the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS) must generally update any controlling person information on file for any passive non-financial entity (NFE) investors by December 31, 2018.
  • FBAR Reporting: U.S. persons that have not yet reported any reportable financial interest or signature authority over foreign financial accounts maintained in 2017 under the Foreign Bank Account Reporting (FBAR) regime were granted automatic extension and should report by October 15, 2018.

As asset managers and investment funds focus on the implementation of the tax reform adopted under the U.S. Tax Cuts and Jobs Act of 2017 towards the end of 2018, they should also consider the following action items. This is a general summary of complex rules and cannot be relied upon as specific advice. Managers and their investment funds should work with their administrators to take action with knowledge of their particular circumstances.

1. Forms W-8 – Date of Birth and Foreign Taxpayer Identification Number Requirements

Treasury Regulations were adopted in 2017 that generally require financial institutions to document and report a DOB and/or Foreign TIN for non-U.S. investors who provide a withholding tax form (e.g., a Form W-8BEN or W-8BEN-E) with respect to a financial account maintained at a U.S. branch or office. The purpose is to enable the IRS to obtain information it may need to satisfy exchange of information obligations with third countries. Exceptions may apply, including when a Foreign TIN cannot be provided (e.g., if the investor is resident in a jurisdiction that does not issue TINs).

Transitional relief permits relevant financial institutions to rely on an otherwise valid Form W-8 without a DOB that was signed by an individual investor before January 1, 2018 for payments they make before January 1, 2019.  In addition, an otherwise valid Form W-8 without a Foreign TIN that was signed before January 1, 2018 may continue to be treated as valid until the earlier of its expiration date or December 31, 2019 (Notice 2017-46).  Forms W-8 provided since January 1, 2018 do not benefit from the transitional relief and already need to include a DOB and Foreign TIN, where applicable, to be treated as valid.

While it is not entirely clear whether non-U.S. investors in an investment fund treated as a flow-through for U.S. federal income tax purposes are captured by these rules, U.S. withholding agents are likely to require Forms W-8 to include a DOB and a Foreign TIN, as applicable, from all non-U.S. investors that are required to be reported on an IRS Form 1042-S.  Therefore, in light of the expiration of the transitional relief, it is generally recommended that investment funds update any Forms W-8 on file that do not yet include a DOB or a Foreign TIN by December 31, 2018 to avoid that non-U.S. investors incur U.S. withholding.

2. FATCA Withholding and Reporting

a. Gross Proceeds Withholding to Apply as of January 1, 2019

To avoid 30 percent U.S. withholding on certain U.S. source income, FATCA generally imposes due diligence, withholding and reporting requirements on foreign financial institutions (FFIs) and certain other non-U.S. entities, which includes many master funds and offshore feeders. FATCA withholding currently applies to payments of certain U.S. source investment income, including income that may be exempt from general U.S. federal withholding tax (e.g., portfolio interest or treaty-exempt income).  As of January 1, 2019, absent notice otherwise, U.S. withholding agents will also be required to deduct 30 percent FATCA withholding from payments of gross proceeds from the sale or other disposition of any property of a type that can produce U.S. source dividends or interest (e.g., U.S. stock or bonds) that would generally be subject to FATCA withholding. Debt securities outstanding since July 1, 2014 that have not been “significantly modified” would be grandfathered.

b. RO and COPA Certification Deadline by December 15, 2018 for Model 2 IGA and Non-IGA FFIs

As part of their FATCA compliance, non-U.S. investment funds in jurisdictions that (i) have a Model 2 IGA (e.g., Bermuda, Hong Kong or Switzerland) or (ii) do not have an IGA (e.g., the Marshall Islands), are required to designate a responsible officer (RO) to act on their behalf vis-à-vis the IRS. The ROs must make a one-time certification to confirm the fund has complied with relevant diligence requirements for investors that invested in the fund on or before certain cut-off dates (a certification of pre-existing accounts or “COPA”). In addition, ROs must certify after each three-year period that they continue to meet ongoing FATCA compliance requirements (a periodic RO certification). 

The due dates for funds registered as a participating FFI or reporting Model 2 IGA FFI required to make these certifications are:

  • December 15, 2018, for the first certification period in the case of a fund that was registered on or before December 31, 2014
  • July 1 of the year following the third full calendar year following the effective date of registration, for a fund that was registered on or after January 1, 2015
  • July 1 of the year following the third full calendar year following the previous certification period, for renewal certifications.

Funds in jurisdictions with a Model 1 IGA (e.g., the Cayman Islands) that are registered as reporting Model 1 IGA FFIs are not required to make either the periodic RO certification or the COPA certification (although they may be subject to certification requirements under local law). However, the IRS recommends that such funds also confirm or update their FATCA classification status on the IRS web site to avoid receiving unnecessary notifications to update their status in the future.

3. Section 871(m) Withholding

The IRS has recently further extended the effective date for the full application of U.S. withholding on synthetic equity trades and other derivative transactions under Section 871(m) of the Internal Revenue Code for so-called “non-delta 1.0” transactions until 2021 (Notice 2018-72).  Final Treasury Regulations that apply Section 871(m) to “delta 1.0” transactions continue to apply.  For further detail and certain to do items for investment funds and their offshore clients in this context, including whether to obtain updated Forms W-8IMY from certain non-U.S. brokers or dealers acting as qualified derivative dealers (QDD), see the recent Akin Gump Tax Alert on this topic. 

4. CRS – Deadline for Updated Controlling Person Diligence by December 31, 2018

Under the CRS regime, Cayman and other investment funds that qualify as reporting financial institutions must perform due diligence on their investors and, where applicable, report certain investor information to their local tax authorities. Subject to limited exceptions, investors that do not themselves qualify as financial institutions for CRS purposes, but focus primarily on passive investments (i.e., so-called passive NFEs, which includes many privately held investment companies, offshore trust arrangements and family office investors) are generally required to disclose the tax residence of their “controlling persons” to investment funds in which they hold equity or debt interests. In addition, investment entities resident of a jurisdiction that does not participate in the CRS, such as the United States, are generally treated as passive NFEs for this purpose. Investment funds in participating jurisdictions are required to conduct CRS due diligence and reporting with respect to such controlling persons as if they were direct investors in the fund. A “controlling person” for CRS purposes generally is a natural person who (i) owns more than a threshold percentage of the relevant investor entity; (ii) absent significant equity ownership, otherwise exercises control over such entity; or (iii) if control is not otherwise established, is in charge of the effective management of such entity.

The Cayman Islands and certain other jurisdictions currently participating in CRS have lowered the threshold percentage that investment funds must take into account when determining reportable “controlling person” status by reference to ownership with respect to investors that are, or are treated as, passive NFEs from 25 percent to 10 percent of ownership.  Thus:

  • Existing funds should contact their CRS administrators and confirm the correct “passive NFE” investor information is on file by December 31, 2018
  • Controlling persons of new “passive NFE” investors must be documented by reference to the new 10 percent threshold
  • The 2019 CRS filing will need to reflect any reportable controlling person information by reference to the new 10 percent threshold.

5. FBAR Reporting by October 15, 2018

U.S. asset managers should consider any foreign bank account reporting (FBAR) requirements they or the U.S. vehicles they utilize may have on FinCEN Form 114 for foreign financial accounts maintained in 2017, by October 15, 2018, which is an automatic extension from the due date for “regular” U.S. income tax return filing requirements. 

FBAR generally applies to U.S. persons with financial interests in or signatory authority over any foreign financial accounts maintained during the previous calendar year if the aggregate value of such accounts exceeded $10,000 at any time during such year, irrespective of any income generated by such account. U.S. persons with certain significant equity ownership in U.S. or lower-tier entities that maintain such accounts are generally also required to make such filings by attribution (for example, direct or indirect ownership of more than 50 percent by vote or value in a corporation, or of more than 50 percent in the capital or profits of a partnership). Potentially significant penalties may apply in case of willful or non-willful failure to timely file any FinCEN Form 114. U.S. managers who failed to timely file FBAR reports for prior years should note that under certain conditions the IRS’ delinquent submission procedures continue to be available to rectify noncompliance. The offshore voluntary disclosure program (OVDP) for U.S. persons with exposure to potential criminal liability and/or substantial civil penalties under FBAR due to a willful failure to report has closed effectively September 28, 2018. However, the IRS has suggested that updated procedures will be announced. We also note that certain regulations have been proposed, but not yet finalized, that may provide certain relief from reporting in the future.

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.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.