Advanced Tax Strategies In Structuring Private Investment Funds
Presenting a live 110-minute teleconference with interactive Q&A Advanced Tax Strategies in Structuring Private Investment Funds Balancing the Competing Interests of Fund Investors When Structuring Investment Funds THURSDAY, MAY 1, 2014 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today’s faculty features: Christian M. McBurney, Partner, Nixon Peabody, Washington, D.C. Jeremy Naylor, Partner, Cooley, New York Elizabeth Norman, Attorney, Goulston & Storrs, Boston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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May 1, 2014 Advanced Tax Strategies in Structuring Private Investment Funds Christian McBurney, Nixon Peabody LLP, Washington, D.C. office Jeremy Naylor, Cooley LLP, New York office Elizabeth Norman, Goulston & Storrs, Boston office 5
Fund Characteristics Types of Funds — Private Equity — Venture Capital — Hedge — Distressed Debt — Real Estate — LBO — Fund of funds 6
Fund Characteristics (cont’d) Other important fund characteristics — U.S.-based or based outside U.S.? — Focus investing in U.S. or outside U.S., or both? — Is fund an investor or conducting a trade or business? › Investor: possible disallowance of fund manager fees for U.S. investors under Section 212 › Trade or business: fees deductible under Section 162; but UBTI, ECI and CAI concerns 7
Type of Fund Investors U.S. Taxable Individual or Corporation U.S. State and Local Government — Pension Funds U.S. Tax-Exempt Investors — Corporate Pension Plans — University and College Endowment Funds — Private Foundations — Charity Endowment Funds — Individual Retirement Accounts (IRAs) 8
Type of Fund Investors (cont’d) Non-U.S. Investors — Individuals — Non-U.S. entities treated as corporations for U.S. income tax purposes — Pension Funds (not taxed in home country) Non-U.S. Government Investors (Section 892) — Sovereign Wealth Funds — Pension Funds 9
U. S. Taxable Individuals and Corporations U.S. Taxable Individual U.S. Taxable C Corp. - 20% c.g. - 39.6% o.i. - 3.8% nii - Gain on stock sale Dividends Interest Gain on debt sale Portfolio Corp. 35% c.g. and o.i. Fund L.P. - Gain on interest sale Gain on asset sale Interest Gain on debt sale Portfolio LLC No Fund Blocker desired Unblocked investor can also claim tax credits and treaty benefits 10
U. S. State and Local Government U. S. State and Local Government 0% U.S. tax rate Fund L.P. Gain/income Portfolio Corp. Gain/income Portfolio LLC No Fund Blocker desired Unblocked can also claim treaty benefits 11
U. S. Tax-Exempt Investors U.S. Tax-Exempt 0% U.S. tax rate - Gain on stock sale Dividends Interest Gain on debt sale Portfolio Corp. Fund L.P. - Gain on interest sale (c.g.) - Interest - Gain on debt sale (c.g.) Portfolio LLC - Gain on sale of noninventory property No Fund Blocker desired Unblocked investor can also claim treaty benefits 12
U. S. Tax-Exempt Investors (cont’d) U.S. Tax-Exempt 35% U.S. tax rate Fund L.P. Fees earned by L.P. Portfolio LLC - Operating income - Gain on sale of inventory Fund Blocker often desired Unrelated business taxable income (UBTI) 13
U. S. Tax-Exempt Investors (cont’d) U.S. Tax-Exempt 35% U.S. tax rate Debt-Financed: - Gain on stock sale - Dividends - Interest - Gain on debt sale Portfolio Corp. Fund L.P. Debt-Financed: - Gain on interest sale - Interest - Gain on debt sale Portfolio LLC Debt-Financed: - Gain on sale of any property - Operating Income Debt-financed income is UBTI Fund Blocker often desired 14
U. S. Tax-Exempt Investors (cont’d) Parallel Fund Structure U.S. Tax-Exempt Non-U.S. or U.S. Feeder Fund Non-U.S. Investments (No UBTI) U.S. Investments (No UBTI) U.S. Corp. Blocker Investments (UBTI) 15
Non-U.S. Investors U.S. tax goals — Avoid having to file a U.S. income tax return — Limit U.S. tax on “Effectively Connected Income” (ECI). — If ECI: › Must file U.S. federal, state, and local returns › Must pay income tax at regular, federal, state and local rates Non-U.S. corp must also pay U.S. 30% “branch profits” tax — Limit U.S. tax on FDAP income › 30% U.S. withholding tax rate unless U.S. tax treaty applies › Claim U.S. treaty benefits where possible 16
Non-U.S. Investors (cont’d) Effectively Connected Income (ECI) is income recognized by a non-U.S. person that is effectively connected with a business carried on in the U.S. — Does fund have a loan origination business? — “Securities trading safe harbor” protects offshore funds ECI includes share of operating income from a passthrough entity conducting business in the U.S. — Non-U.S. partners are deemed engaged in a U.S. business — Sale of partnership interest in partnership that generates ECI: IRS takes the position that gain is ECI FIRPTA income treated like ECI 17
Non-U. S. Investors (cont’d) Non-U.S. Investor 0% U.S. tax rate U.S. Source: - Gain on stock sale Fund L.P. U.S. Source: - Portfolio interest - Gain on debt sale Non-U.S. Source: - Gain/income Portfolio Corp. Portfolio Corp. Portfolio LLC No Fund Blocker desired 18
Non-U. S. Investors (cont’d) Non-U.S. Investor 30% U.S. tax rate (unless treaty applies) Fund L.P. U.S. Source: - Dividends - Non-portfolio interest Portfolio Corp. Treaty benefits can be claimed Non-U.S. pension fund from a treaty country – 0% U.S. tax rate No Fund Blocker desired 19
Non-U. S. Investors (cont’d) Non-U.S. Investor 35%/39.6% U.S. tax rate Fund L.P. Gain on interest sale (ECI) Portfolio LLC U.S. Source: - Gain on sale of operating assests (ECI) - Operating income (ECI) Fund Blocker usually desired 20
Non-U. S. Investors (cont’d) Parallel Fund Structure Non-U.S. Investor Non-U.S. or U.S. Feeder Fund Non-U.S. Investments (No ECI) U.S. Investments (No ECI) U.S. Corp. Blocker U. S. Investments (ECI) 21
U.S. Tax-Exempt Investor (cont’d) Parallel Fund Structure Why use non-U.S. Feeder? — Not have to report non-U.S. investments — Can avoid "controlled foreign corporation" (CFC) treatment where substantial investors are non-U.S. investors and fund owns 50% or more of the non-U.S. portfolio company — Minimize risk that Fund interest will be treated as part of non-U.S. individual investor’s estate for U.S. estate tax purposes 22
U.S. Tax-Exempt Investor (cont’d) Parallel Fund Structure Why use U.S. Feeder? — Easier to claim U.S. treaty benefits—only need to issue W-8BEN to U.S. Feeder — Will treaty benefits "flow-through" a non-U.S. Feeder to a non-U.S. investor? Generally, non-U.S. entity must be fiscally transparent for non-U.S. as well as U.S. purposes › See also Section 894(c). 23
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UBTI and ECI—Not Exactly the Same Some investments may generate UBTI, but not ECI — Debt-financed income (including stock sales, dividends, and interest) Some investments may generate ECI, but not UBTI — Sale of partnership interests where partnership conducts a U.S. trade or business — Investments in U.S. real property holding corporations (holding 50% or more of gross assets in U.S. real property) — Loan commitment fees not UBTI, but may be ECI Accordingly, a blocker that avoids all ECI may be too broad for a U.S. tax-exempt investor; and a blocker that avoids all UBTI may be too broad for a non-U.S. Investor 25
Non-U.S. Governmental Investors Non-U.S. Governments (including their controlled entities) are generally exempt from U.S. tax under IRC Section 892 on income from investments from securities, except income from the conduct of a "commercial activity" (CAI) If a controlled entity has CAI (either US or non-US), it could lose its Section 892 exemption (but recent relief in proposed regulations—“inadvertent” and “de minimis” standards; interest in non-controlled LP) Investments in operating partnerships generate CAI Non-US Government owning U.S. real property or 50% or more of the stock of a United States Real Property Holding Corporation (USRPHC) can generate CAI 26
Non-U. S. Governmental Investors (cont’d) Non-U.S. Government 0% U.S. tax rate U.S. Source: - Gain on stock sale - Interest - Dividends Portfolio Corp. Fund L.P. U.S. Source: - Interest - Gain on debt sale Non-U.S. Source: - Gain/income Portfolio Corp. Portfolio LLC No Fund Blocker desired 27
Non-U. S. Governmental Investors (cont’d) Non-U.S. Government 35% U.S. tax rate Fund L.P. Gain on interest sale (CAI) Portfolio LLC U.S. Source: - Operating income (CAI) - Gain on sale of operating assets (CAI) Fund Blocker desired 28
Non-U. S. Governmental Investors (cont’d) Non-U.S. Government Non-U.S. or U.S. Feeder Fund Non-U.S. Investments (No CAI) U.S. Investments (No CAI) U.S. Corp. Blocker U. S. Investments (CAI) 29
ECI, FDAP and CAI—Not Exactly the Same Some investments may generate ECI but not CAI — Investments in U.S. real property holding corporations (USRPHC) (holding 50% or more of gross assets in U.S. real property) › Only CAI if Non-U.S. Government holds 50% of more of USRPHC Some investments may generate CAI but not ECI — Sale at gain of non-U.S. corporate entity controlled by Non-U.S. Government, which would be a USRPHC if formed in the U.S., is taxable CAI, but would not be ECI Some investments may generate FDAP withholding for non-U.S. Investors, but not for Non-U.S. Governmental Investors 30
Parallel Fund Structure Most tax efficient fund structure generally is to use separate parallel funds for each type of investor — Administrative costs Should each investment have a newly-formed separate blocker? — This can avoid U.S. dividend withholding tax on exit — But if a single blocker is used for multiple investments, income and gain from one investment can be offset by losses from another Risk of aggregation of different fund entities used in parallel/AIV structure due to applying carried interest across all funds 31
Simplified Parallel Fund Electing U.S. Tax-Exempt, Non-U.S. and Non-U.S. Governmental Investors Other Investors GP Parallel Fund Carry Carry Blocker Corp. Intermediate Partnership Main Fund Portfolio LLC Portfolio Corp. 32
Alternative Investment Fund All Investors Electing U.S. Tax-Exempt, Non-U.S. and Non-U.S. Governmental Investors Other Investors GP Carry Main Fund AIF “B” AIF “A” Blocker Corp. Carry Portfolio Corp. Intermediate Partnership Portfolio LLC 33
Feeder Fund – No Flexibility Electing U.S. Tax-Exempt, Non-U.S. and Non-U.S. Governmental Investors Other Investors GP Feeder Fund (Offshore) Main Fund L.P. Portfolio LLC Portfolio Corp. 34
Subsidiary Blocker Structures Non-U.S./U.S. Tax-Exempt Investors Taxable Investors Fund Taxable investor capital Sensitive investor capital U.S. Corp. Blocker Portfolio LLC 35
Subsidiary Blocker Structures Some funds use subsidiary “blocker” corporations for ECI and UBTI investments — Capital of tax sensitive investors channeled through blockers › Special allocations at the Fund level – substantiality concerns? › Risk to Non-U.S. Investors of U.S. tax return filing obligation — GP Carry pre- or post-tax? Take out GP carry below the blocker Exit from investment — Sale of assets and liquidation of blocker — Sale of blocker shares? › Allocation of discount? 36
Other Types of US Funds Hedge Funds Distressed Debt Real Estate (including oil and gas) 37
Other Types of US Funds – Hedge Funds Onshore/offshore structure — Typically Cayman “master fund” – taxed as a partnership — Onshore feeder – Delaware LP or LLC › Taxable investors invest here › Simplifies reporting for U.S. taxable investors — Offshore feeder – Cayman company (or LP that box checks to be treated as a corp) › Tax-Exempts and Non-U.S. investors invest here › Offshore feeder may make sense for taxable investors given Section 212 limitations on deductibility of management and other fees and NII Medicare tax 38
Other Types of US Funds – Hedge Funds (cont’d) Issues for taxable investors — Is the fund a “trader” for tax purposes? › deductibility of management fees and expenses — GP’s performance compensation structured as a partnership allocation of profits › If paid as fee and fund is not trader – Section 212 deductibility limitations — Management fees and other expenses should be paid at the master fund level › Risk that under logic of Rev. Rul. 2008-39, if paid at the feeder level may not be deductible. — Investment in offshore feeder may offer tax advantages › Deferral of 3.8% Medicare tax on NII until distribution › Effective deduction of management fees in non-trader fund 39
Other Types of US Funds – Hedge Funds (cont’d) Issues for Non-U.S./U.S. Tax-Exempt investors — Trading in stocks and securities safe harbor for feeder — Offshore feeder is effective “blocker” for UBTI and ECI › But corporate income tax and branch profits tax on any ECI — Non-U.S. government investors cannot access 892 benefits through offshore feeder — Allocation of FATCA risk 40
Other Types of US Funds – Hedge Funds (cont’d) Issues for Investment Manager — Treatment of incentive compensation › Allocation allows for potential for capital gains › Generally not a large portion of hedge fund’s revenues › Not available for funds that mark-to-market — Incentive fees › Section 457A/409A issues if paid by offshore feeder › Potentially avoid self-employment tax and new 3.8% Medicare tax on NII 41
Other Types of US Funds – Distressed Debt Typically structured similar to hedge funds with same general issues Distressed debt-specific issues — Portfolio Interest — Market Discount; OID — Recovery of basis treatment for deeply discounted debt? — Loan origination activities › Workouts/loan modifications resulting in reissuances/deemed new originations › “Season and Sell” – other strategies to avoid being considered in loan origination/active financing business › Impact of 2009 GLAM (Chief Counsel Mem. AM2009010) 42
Foreign Investment in Real Property Tax Act (FIRPTA) In general, non-US persons generally do not pay U.S. tax on disposals of stock or securities of U.S. issuers FIRPTA is an exception to this general treatment FIRPTA imposes a tax on gains realized from the disposition of a U.S. real property interest, which includes direct real estate holdings and: — Partnership/flow-throughs that hold U.S. real estate — Interests in a “U.S. real property holding corporation” (USRPHCs) — Direct or indirect rights to share in proceeds, appreciation or profit of U.S. real estate 43
FIRPTA (cont’d) USRPHCs — FIRPTA also applies to companies where at least half of the fair market value of the company’s trade or business assets is attributable to U.S. real property assets › Five-year lookback — Carve-out for investments in publicly traded stocks where the investor does not hold more than 5% of the class of stock being traded — FIRPTA Traps › Distressed companies › Publicly traded stock de-listed 44
FIRPTA (cont’d) Tax imposed at U.S. tax rates Collected partially through withholding Gains treated as ECI Non-U.S. person with FIRPTA gain also incurs a U.S. federal income tax filing obligation Branch profits tax may also apply 45
FIRPTA (cont’d) U.S. blockers frequently used to hold U.S. real estate assets, which blocks application of FIRPTA tax and filing obligations Note, however, that the U.S. blocker itself may be a “USRPHC” which would trigger FIRPTA gain if sold (unlikely exit) Trap for unwary: Section 1445(e) withholding on nondividend distributions from a USRPHC 46
FIRPTA (cont’d) Non-U.S. Fund Non-U.S. Investments (No FIRPTA) U.S. Non-Real Estate Investments U.S. Corp. Blocker (No FIRPTA) U. S. Real Estate Investments 47
FIRPTA (cont’d) Financing the U.S. Blocker: Potential Complications (Withholding Tax, Earnings Stripping, AHYDO, Section 267) Non-U.S. Fund Offshore Blocker Loan Non-U.S. Investments (No FIRPTA) U.S. Non-Real Estate Investments U.S. Corp. Blocker (No FIRPTA) U. S. Real Estate Investments Interest 48
U. S. Tax-Exempt Investors: 514(c)(9) Certain tax-exempt investors (“Qualified Organizations”, or QOs) are eligible for an exception to debt-financed UBTI in certain circumstances — Most common QOs are pension funds and educational organizations Provided certain requirements are met, Section 514(c)(9) provides that debt incurred to acquire or improve “real property” won’t give rise to UBTI for QOs — Definition of “real property” unclear Compliance with 514(c)(9) poses challenges, particularly for funds 49
U. S. Tax-Exempt Investors (cont’d) : 514(c)(9) Requirements for a 514(c)(9)-Compliant Fund — Fund must comply with general requirements — AND › All of the partners must be QOs, or › Each allocation to a QO Partner must be a “Qualified Allocation”, or › The partnership’s allocation provisions for tax purposes: Satisfy the “Fractions Rule”, and Have “Substantial Economic Effect” Potential Legal and Economic Consequences of complying with the Fractions Rule and the Substantial Economic Effect Rules 50
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Non-U.S. Funds with U.S. Investments Same general structural considerations as above — Non-U.S. Investors will be focused on ECI — If fund holds real estate assets, FIRPTA may also apply — Special structuring requirements for non-U.S. investors — Treaty planning and additional documentation requirements — Non-U.S. corporation in structure (including offshore blocker entity)? Potential branch profits tax U.S. source income FATCA implications for fund and its investors 52
Non-U.S. Funds with U.S. Investors: Investing Overseas Some considerations: — PFIC/CFC issues (want non-U.S. fund to be pass-through) — Tax filing obligations in non-U.S. jurisdictions — Non-U.S. withholding tax — Treaty analysis — U.S. tax-exempt investors will still be concerned about UBTI, and may wish to invest through a blocker if there will be debt-financing or investments in operating pass-throughs — Certain countries (India, China) have begun imposing tax on indirect gains, which has led to an increase in the use of “filing blockers” 53
US Funds Investing Overseas Same general structural considerations as have been illustrated, with some additions — UBTI on debt-financed investments/pass-through income — Treaty benefits — PFIC/CFC — Foreign tax credit flow-through — Commercial activities income still a concern for controlled commercial entities (but 892 benefits generally irrelevant) Some of these are incompatible — E.g., flow-through structures for taxable investors, but UBTI issues for tax-exempts 54
US Funds Investing Overseas – Parallel Funds U.S. Taxable/U.S. Government Investors Non-U.S./U.S. Tax-Exempt Investors Fund (taxed as partnership) Fund (taxed as corporation) Non-U.S. Investments 55
US Funds Investing Overseas – Master/Feeder U.S. Taxable/U.S. Government Investors Non-U.S./U.S. Tax-Exempt Investors Feeder Fund (taxed as corporation) Master Fund (taxed as partnership) Non-U.S. Investments 56
US Funds Investing Overseas (cont’d) PFIC/CFC issues for US taxable investors — Anti-deferral regimes PFIC - 50% passive assets or 75% passive income — Look-through 25% owned subsidiaries Recharacterization of distributions, gain as ordinary income penalty interest charge — No chance for qualified dividend income 57
US Funds Investing Overseas (cont’d) Make “check the box election” to treat as a pass-through — Can be difficult to persuade local owners to make US tax election QEF Election – modified look-through — Losses and FTCs generally don’t flow through — Often covenants to make election and obtain information to make US tax filings — Can be burdensome for funds to gather required information, including from 25% owned subsidiaries 58
US Funds Investing Overseas (cont’d) CFC – more than 50% of a foreign corporation owned by “U.S. Shareholders” — U.S. persons with 10% or more voting power › U.S. partnership 1 U.S. person — Structure Fund and management entities as Cayman vehicles to apply 10% voting power test on look-through basis — Or elect to treat foreign portfolio corporation as a passthrough 59
Luxembourg Investment Structure into Europe U.S. Investors Luxco set up with minimal capital U.S. Main Fund LP PECs yield 8% per year CPECs can be redeemed for FMV of shares into which CPECs are convertible PECs and CPECs Cash PECs CPECs Luxco Cash German Portfolio Company CTB to be Taxed as a Disregarded Entity Debt for Luxemburg tax purposes Equity for U.S. tax purposes (99/1 debt -equity ratio) 60
Luxembourg Investment Structure into Europe (cont’d) U.S. Investors Little or no Lux withholding tax U.S. Fund LP Luxco benefits from EU tax treaties Luxco disregarded for U.S. tax purposes Some US tax issues: debtequity (including debt maturity); Section 305 Dividends Capital Gains Luxco CTB to be Taxed as a Disregarded Entity Dividends Capital Gains German Portfolio Company 61
Issue for Canadian Investors in U.S. Fund US Investors Canadian Corporation (Taxable) U.S. Fund Main LP Canadian Pension Fund (Non-Taxable) U.S. Blocker LP U.S. Portfolio L.P. Distribution Distribution CTB to be Taxed as a Corporation Canada treats U.S. Blocker LP as a partnership Under U.S.-Canada tax treaty, U.S. 30% withholding tax applies (hybrid entity) Avoided if U.S. Blocker is instead an LLC 62
Another Issue for Canadian Investors Canadian Corporation (Taxable) Canadian Pension Fund (Non-Taxable) US Investors U.S. Main Fund LP U.S. Portfolio LLC Dividends U.S. Corporation Canada treats LLC as a corporation Under U.S.-Canada tax treaty, U.S. 30% withholding tax applies (hybrid entity) Avoided if U.S. Portfolio LLC is instead U.S. Portfolio LP 63
Structuring Fund Manager Entities Funds generally have separate General Partners and Investment Managers — GP (or special LP owned by principals) receives carried interest › Generally special purpose entity for each fund — Investment Manager receives management fees › Generally single Management Company across all funds › Employees, contracts › Franchise value 64
Structuring Fund Manager Entities (cont’d) Reasons for separation? — Ensure proper tax treatment of separate income streams › Carried interest – capital gains › Management fees – ordinary income — State/local tax reasons › NYC unincorporated business tax — Often separate ownership stakes › Carried interest more widely distributed than ownership of Management Company › Deal-by-deal; fund-by-fund 65
Structuring Fund Management Entities (cont’d) Principals Limited Partners General Partner Management Company Carried interest Fund Management Fees Investments 66
Structuring Fund Manager Entities (cont’d) Considerations? — Management Company – Choice of Entity › S corp – limited flexibility; state tax issues; perhaps avoid self-employment taxes on dividends › LLC – flexibility; self-employment taxes on distributive share of fee income? › LP – flexibility; requires separate GP entity; avoid selfemployment taxes on distributive share of fee income Statutory exception from SECA for distributive share of a limited partner Impact of recent case law? 67
Structuring Fund Manager Entities (cont’d) Considerations? — General Partner – Choice of Entity › Less of an issue than Management Company as distributions are generally not subject to self-employment taxes › Use of LP may avoid new Medicare tax on NII — General Partner – Issuances of Interests; Vesting › Issuance of profits interest; no interest in current value › 83(b) election › Catch-up allocations › Vesting/forfeiture/allocations to other partners 68
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Foreign Account Tax Compliance Act (FATCA) “Foreign Account Tax Compliance Act” or FATCA Intended to ensure that U.S. persons holding assets through offshore entities and accounts pay U.S. taxes on related income Compels non-U.S. financial entities to either (1) document and report information about their U.S. accountholders/investors or (2) face a withholding tax of 30% on most U.S. source gross income or gross proceeds 70
FATCA (cont’d) FATCA does not replace the current withholding and reporting regime for non-U.S. persons — FATCA is intended to be coordinated with the current regime in order to prevent double withholding 71
FATCA (cont’d) Categories Under Regulations U.S. Withholding Agents — U.S. hedge and private equity funds may be required to act as withholding agents under FATCA Foreign Financial Institutions (FFIs) — Non-U.S. funds likely FFIs — Multiple categories: Participating FFI, Deemed Compliant FFI, and Non-Participating FFI Non-Financial Foreign Entities (NFFEs) Exempt Beneficial Owners — Generally not subject to FATCA withholding as long as necessary documentation is provided to withholding agent 72
FATCA (cont’d) Withholding Under FATCA FFIs: 30% of any “withholdable payment” paid to nonparticipating FFIs and recalcitrant account holders — Tiered implementation of withholdable payments › July 1, 2014: U.S. source FDAP income › 2017: U.S. source gross proceeds on sale of stock or securities › 2017: “foreign pass-through payments” Other withholding agents: Non-FFI withholding agents must withhold 30% of any withholdable payment paid to non-participating FFIs and passive NFFEs that fail to report on their significant U.S. owners “Withholding agent” broadly construed under FATCA 73
FATCA (cont’d) Two-pronged approach to FATCA compliance — IRS Regulations — Intergovernmental Agreements (IGAs) 74
FATCA (cont’d) U.S. Funds: U.S. Withholding Agents Withholding by U.S. Fund: If an investor fails to provide necessary information to U.S. Fund, 30% FATCA withholding may be deducted from investor’s share of withholdable payments Tax withheld under FATCA is paid by U.S. Fund to IRS 75
FATCA (cont’d) Non-U.S. Funds (and non-US blockers): Are they FFIs? — Definition of FFI in the final regulations includes (among others) foreign “investment entities” › Broad definition of “investment entities” — Most non-U.S. funds will be FFIs, with the exception of certain real estate funds — No credit or refund of 30% withholding tax—if fund or blocker is treated as corporation for U.S. tax purposes and treaty does not change result Does every FFI need to comply with FATCA? — Material U.S. source income? — Legal and practical considerations — Various classifications for compliant FFIs 76
FATCA (cont’d) Special Considerations for Funds Organized as Partnerships for U.S. Tax Purposes — FATCA withholding applies not just to withholdable payments, but also to allocations of income — Timing of FATCA withholding on a partnership’s receipt of gross proceeds is unclear — Regulations don’t address how the sale of a partnership interest will be treated under FATCA 77
FATCA (cont’d) FATCA and Fund Documentation — Fund organizational and operational documents › Operating agreements › Investor subscription documents and account applications › Fund offering documents › Side letters — Service provider agreements (transfer agent, custodian, administrator, withholding agent, adviser, etc) — Credit agreements/ISDAs/repo & securities lending agreements 78
FATCA (cont’d) How to avoid 30% withholding after June 30, 2014? For an FFI not organized in a country with a Model 1 IGA in effect, FFI should provide withholding certificate or statement claiming status as a participating FFI or registered deemed-compliant FFI. Withholding agent then has 90 days to confirm that the FFI's GIIN appears on the IRS FFI List. — For an FFI organized in a country with a Model 1 IGA, but with
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2 Tax Facts Figures 2021 - Cyprus Table of contents Foreword 1 Personal income tax 2 Corporation tax 11 Special Contribution for Defence 26 Capital gains tax 32 Inheritance Tax 35 Value Added Tax 36 Immovable Property Tax 48 Trusts 50 Transfer fees by the department of land and surveys 52 Social insurance 54 General health system 56 Stamp duty 58 Capital duty 60 Tax treaties and withholding .
1 Advanced Engineering Mathematics C. Ray Wylie, Louis C. Barrett McGraw-Hill Book Co 6th Edition, 1995 2 Introductory Methods of Numerical Analysis S. S. Sastry Prentice Hall of India 4th Edition 2010 3 Higher Engineering Mathematics B.V. Ramana McGraw-Hill 11th Edition,2010 4 A Text Book of Engineering Mathematics N. P. Baliand ManishGoyal
