Luxembourg is the largest fund domicile in Europe. Luxembourg-domiciled investment structures are distributed in over 50 countries, with a particular focus on Europe, Asia, Latin America and the Middle East. Structures impacted by FATCA rules are funds invested in the U.S. market including, but not limited to, funds of funds, exchange-traded funds, hedge funds, private equity and venture capital funds, other managed funds, commodity pools, and other investment vehicles.
For widely-held funds, identifying U.S. investors is difficult given the number of investors. The Luxembourg fund distribution model involves distributors (e.g. banks, insurance companies, wealth managers, etc.) and transfer agents. This means that units or shares in investment funds are held through nominee accounts.
Funds that are exclusively distributed through intermediaries that are themselves FATCA compliant will be in the position to address the problem, as these distributors should be held responsible for identifying the investors and reporting to the IRS.
Funds that are distributed through non-compliant distributors, however, will need to address the identification of investors and reporting to the IRS. The Notice 2011-34 provides that in the case of an affiliated group, funds can appoint a lead FFI (Asset Manager or other Agents) to assume the FATCA compliance requirements on behalf of the funds it manages.
Concerning alternative investment funds, they have encountered an increasing success over the last years. Private equity, real estate or hedge funds often are held by a more limited number of investors than UCITS. They are tailored to allow institutional investors, family offices or even qualified individual investors to access investments either directly or through feeder structures (like trusts or companies). These private placements will also need to be adequately documented, enabling the identification of the investors and the reporting to the IRS in order to avoid adverse withholding tax consequences.
FATCA will also extend the taxation of US persons who transfer property to non-US trusts. This provision, which is already applicable to transfers made from 18 March 2010, will impact US investors who invest into Luxembourg based funds through foreign (e.g. Cayman) trust structures.
(Source : KPMG Luxembourg)
