FATCA Update: FATCA Registration

March 20, 2014

This memorandum addresses a number of issues that have arisen regarding the Foreign Account Tax Compliance Act (“FATCA”) registration process for private investment funds. As the first FATCA registration deadline of April 25th is fast approaching, we thought that this would be a good time to share our thoughts on some of these topics.

FATCA is a U.S. withholding regime that subjects certain payments of U.S. source passive investment income and gross proceeds from a sale of U.S. securities made to a “foreign financial institution” (such as a typical offshore private investment fund) to 30% withholding, unless the foreign financial institution agrees to assume certain obligations with respect to its U.S. accountholders or investors, including an obligation to report information about them to the IRS or an appropriate governmental authority. Background information on FATCA is set forth in our prior memoranda and webinar, which can be accessed via links provided at the end of this memorandum.

This memorandum is focused primarily on private investment funds that are domiciled in the Cayman Islands, which has signed a Model 1 intergovernmental agreement (a “Model 1 IGA”, and, specifically, the “Cayman IGA”) with the United States regarding the implementation of FATCA. Funds that are domiciled in other jurisdictions with similar Model 1 IGAs in place (such as the British Virgin Islands)1 should also find this memorandum useful in most respects.

Registration by April 25th v. January 1st

A fund must register under FATCA by no later than April 25, 2014 to be assured of appearing on the June list of institutions that have received a global intermediary identification number (a “GIIN”), which list will be used by withholding agents on July 1, 2014 (the date that withholding agents, such as prime brokers, will begin withholding a 30% tax under FATCA). However, a fund organized in a jurisdiction that has entered into a Model 1 IGA is not required to provide a GIIN to withholding agents prior to January 1, 2015. Nonetheless, we do not believe that there is any discernible advantage for most funds to delaying registration, and we think that failing to have a GIIN by July 1, 2014 would increase the chances of a 30% withholding tax erroneously being imposed on a fund.

We would be happy to provide assistance to any fund with the registration process. Please see our contact information at the end of this memorandum.

Some clients have discussed the possibility with us that Cayman funds may not have to register under one or more exceptions that are contained in the Cayman IGA, and have asked whether it might not be better to wait until some uncertainties surrounding these exceptions are clarified. We do not believe that most funds will find the exceptions (discussed in more detail below) to be particularly useful to them. Further, while there is no downside to registering, other than the time involved, there is a significant potential downside to not registering in the form of a 30% withholding tax. If it ultimately came to pass that a fund were registered unnecessarily, the fund would be able to de-register. The registration process is not particularly complicated, and the information requested is not of the type generally considered confidential.

FATCA Responsible Officer

There has been much confusion regarding the concept of the appointment of a “FATCA Responsible Officer” (an “FRO”). This has arisen chiefly because the Cayman IGA appears not to contemplate an FRO, but the registration process requires the naming of an FRO for certain purposes. The Cayman Islands authorities recently confirmed that an FRO will not be necessary under Cayman legislation and regulations that will implement the Cayman IGA.

In our view, for funds subject to the Cayman IGA, the sole duties of an FRO are to submit the FATCA registration for the purposes of obtaining a GIIN and authorizing one or more points of contact to receive information related to registration. The FRO need not be an officer or a director of the fund, but simply must be the individual with authority under local law (i.e., Cayman) to submit the information provided on behalf of the fund. Generally, we would expect a fund’s investment management agreement to provide broad enough authority for an officer of the investment manager to submit the information, but funds may want to consult with their Cayman (or other local) counsel on this point.

The registration form raises some concerns about the scope of the FRO’s duties because the signature line states that the FRO agrees that the fund will comply with its FATCA obligations. However, the instructions to the registration form are unclear as to whether that portion of the certification is applicable to funds governed by Model 1 IGAs. In any case, we do not believe that naming an FRO for the registration purposes discussed above imposes any sort of strict liability on such person for any FATCA compliance failures. Any person, FRO or otherwise, could certainly be subject to civil penalties or criminal prosecution for deliberate misrepresentations or attempts to circumvent or evade FATCA.

Collective Investment Vehicle Exception

The Cayman IGA provides that any entity qualifying as a “collective investment vehicle” (a “CIV”) is excepted from FATCA registration and reporting. A CIV is, generally, an entity that is regulated as a “collective investment vehicle” by the Cayman Islands and all of whose interests are held by exempt beneficial owners, Active NFFEs that meet certain requirements, U.S. Persons that are not Specified U.S. Persons, or Financial Institutions that are not Nonparticipating Financial Institutions (as all such terms are used in the Cayman IGA).

What it means to be “regulated” as a CIV for this purpose is not clear. However, we believe it is unlikely that a typical Cayman private investment fund would be found to be adequately regulated for this purpose, although there could be further guidance forthcoming on this point. In addition, this exception would seem to have limited utility for two other reasons. First, the definition of a CIV does not seem to allow non-U.S. individuals as holders (at least directly— many non-U.S. individuals may hold through a financial institution nominee that would qualify). Second, a fund that has these specified holders would likely have very few additional requirements under FATCA in any case, other than registration, since to qualify as a CIV it would have to undertake due diligence to identify its investors, and the types of investors that may hold interests in a CIV are exempt from FATCA reporting in any event.

Sponsored Investment Entity Exception

A fund that has a sponsoring entity is not required to register under FATCA. However, its sponsoring entity must register, obtain a sponsoring entity GIIN, and must also meet various requirements, including agreeing to perform all due diligence and reporting of its sponsored funds as if the sponsored funds were registered. We therefore believe that the primary utility in this exception is that a sponsoring entity will be able to streamline FATCA registration and administration all under one roof, so to speak, as opposed to having to register and administer each sponsored fund on an individual basis. The downside is that the sponsoring entity (which would in many cases presumably be the investment manager) could be subjecting itself to greater liability and, in addition, the prospect of cross-contamination is raised if the sponsoring entity does not comply with its requirements with respect to each of its sponsored entities. Thus, while there could be some advantages to this exception for funds that are part of a large fund family, we don’t think that most fund groups will find it to be particularly useful. We also note that a sponsoring entity must register a sponsored entity if a U.S. reportable account is identified. The IRS has not yet provided guidance regarding how this registration would be effected.

Expanded Affiliated Group

Under the FATCA regulations, each member of an “Expanded Affiliated Group” (an “EAG”) must be compliant with FATCA for any member of an EAG to be compliant. An EAG means one or more chains of includible corporations connected through more than 50% stock ownership (measured by vote and value) with a common parent corporation. A partnership can also be part of an EAG if another EAG member owns more than 50% of the partnership by value.

The Cayman IGA is silent on EAGs, although it has a similar “Related Entity” concept (which is measured by vote or value). Thus, it is not entirely clear that a fund subject to the Cayman IGA would be noncompliant with FATCA if either a Related Entity or a member of its EAG were not compliant. The Cayman Islands implementing legislation may provide some clarity on this point. Nonetheless, in the meantime, we believe that the prudent course of action is to assume that the EAG concept applies.

What this means for registration purposes is that a fund will need to determine whether it is a member of an EAG. If so, that fund must register together with its other EAG members, with one of the members being designated the “Lead” of the EAG. This situation is most likely to arise for funds that are part of a master-feeder structure where the offshore feeder fund owns more than 50% of the master fund. A less frequent but more complicated situation will be when an outside investor owns more than 50% of an offshore fund. In that case, the fund should take steps to ensure that the investor (and any entities related to the investor that are also part of the EAG) will be compliant with FATCA (unless it is exempt), and the fund and that investor (and such other entities) are required to register together as members of an EAG. This will necessitate the fund and the investor deciding which one will be the “Lead”.

There is currently no guidance regarding what happens if ownership fluctuates above or below 50% from the time of registration. Unless there is further guidance on this point, we are recommending to clients that they determine EAG status at the time of registration, and that there is no need to re-register if the ownership changes. The most important point, we believe, is that all members of an EAG be compliant, whether or not they are registered as part of an EAG.

Registration of Non-U.S. Investment Managers

As a prima facie matter, non-U.S. investment managers generally are entities that are subject to FATCA registration and compliance. However, there is an exception in the Cayman IGA for entities that would be subject to FATCA solely because they provide investment advice to, or manage the investment portfolios of, customers. There is a similar exception in the FATCA regulations that would apply to investment managers organized outside of a Model 1 IGA jurisdiction. We believe that most investment managers would meet this exception, and therefore should not have to register under or comply with FATCA (although any investment manager in a Model 1 IGA jurisdiction will need to consult the terms of its IGA and implementing legislation). We do not believe that the receipt of a profit allocation or carried interest would generally change this result.

FATCA Background Information and Contact Information

Our prior memoranda regarding FATCA can be accessed here:





Our webinar regarding FATCA can be accessed here:


We will continue to keep you updated on any developments regarding FATCA. If you have any questions regarding the registration process or the general application of FATCA to your organization, please contact: Jon Brose (212-574-1615, brose@sewkis.com), Jim Cofer (212-574-1688, cofer@sewkis.com), Ron Cima (212-574-1471, cima@sewkis.com), or Dan Murphy (212-574-1210, murphyd@sewkis.com).


1 The British Virgin Islands government has recently announced that it has initialed a Model 1 IGA with the United States, which paves the way for imminent signing and implementation. Other common fund jurisdictions with Model 1 IGAs in place are: Guernsey, Ireland, Isle of Man, Jersey and Mauritius. Bermuda has signed a Model 2 IGA, which will generally subject Bermuda funds to the requirements of the FATCA regulations, from which Model 1 IGA funds are largely exempt.