Forget the monkey – 2016 is the year of tax regulation


Financier Worldwide Magazine

September 2016 Issue

September 2016 Issue

The Foreign Account Tax Compliance Act (FATCA) – the US-driven tax reporting regime which imposed new investor diligence and reporting requirements on many financial institutions – is something with which many in the asset management sector have had to become intensely familiar in recent years. During 2014 and 2015, the first milestones of registration, initial investor identification and reporting were reached by general partners (GPs).

You would be forgiven for thinking that with the intergovernmental agreements signed and the reporting underway, the industry could move on. Unfortunately life – and tax regulation particularly – is rarely so smooth and simple. FATCA is here to stay as a focus while the process of ‘bedding down’ gets underway. Managers are working to move their new processes from a one-off set of tasks into the ‘business as usual’ part of the compliance timetable.

The lengthy implementation period means that many will still have a number of tasks to complete. These include finalising documentation of remaining pre-existing investor accounts, determining what extra data will be reported alongside the year-end account balances for 2015 and beyond, and registering sponsored fund entities with the IRS for their own unique GIINs (the IRS has deferred this latter deadline to December of this year).

Outside of these outstanding issues, many GPs faced crunch times at the end of May and June – the former was the local reporting deadline for the UK and Singapore among others, while the latter was the same for the Channel Islands, Luxembourg and more. And financial institutions were also required to submit additional data – from a funds perspective, mainly distribution figures for the relevant periods – alongside year-end account balances. Some jurisdictions (e.g., the Cayman Islands, BVI and Mauritius) have again offered deadline extensions to assist the industry but it should not be expected that these will slip further – all part of the transition to a ‘business as usual’ environment for the new regime.

But while many managers cannot quite move on from FATCA yet, the regulatory agenda already has. In 2016, the focus for tax transparency has been set to move to what is often termed ‘Automatic Exchange of Information’ (AEOI), which essentially refers to multilateral applications of the same principles behind the US-centric FATCA. It refers to a number of similar initiatives.

One such is the similar reporting regime between the UK and its Crown Dependencies and Overseas Territories (UK-CDOT). Entities in locations under this regime have been filing their reports for the first time this year, and needed to complete reviews of remaining pre-existing accounts by the end of June.

More widely, AEOI also encompasses the Common Reporting Standard (CRS). Spearheaded by the OECD, it is designed to facilitate automatic exchange of information from financial institutions between a variety of jurisdictions. This means yet more local reporting requirements based on agreements already signed by more than 90 countries, with more than 50 ‘early adopters’, including the whole of the EU (which will enable withdrawal of its separate Savings Directive).

For those financial institutions domiciled in the ‘early adopter’ group, a key milestone has already passed; these firms are required to integrate the CRS regime for their new accountholder on-boarding process by the start of the calendar year. The OECD released proformas for self-certification earlier in the year, and some jurisdictions such as the Cayman Islands produced their own templates for accountholder on-boarding and remediation. Getting this process right in 2016 – supported by procedures, systems, resources and training – will be key to navigating the first reporting challenges in 2017. Firms in early adopter jurisdictions must have completed their reviews of pre-existing high value individual accounts (more than $1m) by the end of the year. Those funds in non-early adopter countries – such as China, Australia, Mauritius and Singapore – will face the same challenges in 2017, going into 2018.

Given the volume of activity, it is no surprise that tax regulation was named in our annual global survey as one of the major challenges facing fund managers in 2016, only just below market regulation and the core activities of fundraising and deal-finding. For Asia-based managers in particular, the issue emerged as the primary expected challenge for the year ahead. While FATCA may be approaching its sixth birthday, it is clear that tax regulation in general continues to be a major focus for the sector.


Giri Girisanthan is the group head of technical, training and product development at Augentius. He can be contacted on +44 (0)20 7397 5492 or by email:

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