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Irish Funds Industry Welcomes Positive FATCA Development

Mason Hayes Curran Investment Funds Update February/March 2012

The Irish Funds Industry Association (IFIA) has welcomed the news that European fund managers stand to save up to a reported $1 billion in costs associated with reporting obligations under FATCA. The news comes after the release, on 8 February 2012, of widely anticipated proposed regulations (the “Proposed Regulations”) by the US Department of Treasury and Internal Revenue Service (“IRS”). The Proposed Regulations provide guidance for foreign financial institutions, non-financial foreign entities, and US withholding agents on the implementation of various provisions under FATCA.

FATCA originally required every foreign financial institution (“FFI”), including non-US domiciled funds, to enter into an “FFI Agreement” with the IRS and to comply with specific documentation and information reporting requirements with respect to US account holders. Otherwise, the FFI would generally be subject to a 30% withholding tax on US source income or gross proceeds from disposals. However, the Proposed Regulations provide that companies in FATCA partnering countries will not have to enter into an FFI Agreement with the IRS but only register with it. The introduction of the Proposed Regulations is to address legal issues facing FFIs seeking to comply with FATCA.

Essentially the Proposed Regulations mean that an FFI, including investment funds,  would be able to comply with its reporting obligations by providing the relevant compliance information to the government of its home country, rather than to the IRS, and that government would, in turn, provide the information to the IRS. This would result in the US authorities ultimately receiving the necessary information while, at the same time, reporting costs for foreign firms would be significantly reduced.

While Ireland is currently not included in the newly formed FATCA partnering tax agreement, it has an information exchange agreement with the US, is a reporting country under the EU Savings Directive, does not have banking secrecy challenges and plans to be part of any inter-Governmental arrangements on FATCA.

Ken Owens, Chairperson of the IFIA, said: “This is most welcome news and demonstrates a practical approach to European fund managers meeting their reporting obligations under FATCA.

“Ireland already has an information exchange agreement with the US and we are very fortunate to have the support of Government which is doing all it can to support the ongoing growth in our industry by making any and all necessary amendments.”