Fund administrators could struggle with multiple IGA reporting requirements
Hedge fund administrators whose clients operate in numerous jurisdictions could struggle with the multiple FATCA reporting requirements, Deloitte has warned.
US authorities have signed or are negotiating intergovernmental agreements (IGAs) with approximately 60 countries although many of these bilateral agreements have variances. US Treasury has reportedly been loathe to allow foreign financial institutions (FFIs) operating out of multiple locations to sign a uniform agreement, and instead is forcing them to be compliant with each IGA in every jurisdiction where they have a presence.
“Each jurisdiction has different requirements under FATCA and I am concerned fund administrators could struggle to get their heads around this. Different countries have different IGAs and the reporting requirements vary. I suspect fund administrators will struggle to get compliant with all of the rules ahead of the January 2014 deadline,” said Denise Marie Hintzke, global tax leader for FATCA at Deloitte.
There are currently two IGA models in circulation. IGA Model one, put simply, allows the FFI to report directly details of US accountholders to its national authority, which will then pass the information onto the IRS. IGA Model two requires the FFI to report directly to the IRS details of US accountholders although information on recalcitrant accountholders will be passed to national authorities who will then hand it over to the IRS. Despite the well-meaning intentions of the IGAs, they have unwittingly complicated the FATCA implementation process.
Fund administrators will be tasked with assisting managers with documentation, withholding proceeds to non-compliant managers and reporting data to national regulators or the IRS depending on the jurisdiction’s IGA.
The UK, Norway, Mexico, Switzerland and Ireland are so far the only jurisdictions to have signed IGAs with the US, although others will follow suit shortly. “Different countries have different requirements and the rules for funds with domiciles in say Singapore, British Virgin Islands and Cayman Islands will differ. It is going to be a struggle for some fund administrators to get on top of these multiple reporting requirements,” said Hintzke.
Hedge funds based in multiple countries could appoint another administrator if they feel their primary administrator cannot handle the reporting requirements in certain domiciles. Nonetheless, this could prove expensive.
FATCA has frustrated numerous financial institutions since its inception. Some experts predict the reciprocal nature of the IGAs could be scuppered as several Congressional members are reportedly uneasy about forcing US financial institutions to pass on data about clients to third countries.