The Foreign Account Tax Compliance Act (FATCA) regulations will require foreign financial institutions to report detailed information to the US Internal Revenue Service about financial earnings and holdings by US “taxable” persons. Failure to do so may result in withholdings from US-sourced income.
If an investor in a fund fails to provide the information and documents required to identify its status or is otherwise non-compliant under the FATCA regulations, fund managers and trustees may need to effect compulsory redemptions or transfers of that investor’s interest in the fund in order to protect the fund and other investors from the adverse effect of any FATCA withholdings.
We recommend you review the constitutive documents of your funds to ensure that there is power to make such compulsory redemptions or transfers. You may also wish to review and update FATCA-related representations and warranties and personal data collection statements in your account opening and subscription documentation.