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FATCA and Non-US funds:

A Practical Guide

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Contents Executive Summary ............................................ 4 Does FATCA Apply to Our Fund? ................. 5 When Does FATCA Apply to Our Fund? ..... 6 Receiving Withholdable Payments ................... 7 IGAs ...................................................................... 9 What if Our Fund Does Not Comply? ......... 11 What if the Investors Do Not Comply? ........ 12 What Does Our Fund Need Do to Ensure Compliance? ....................................................... 13 How Does FATCA Apply to Our Fund? a Flowchart ............................................................ 15 Finally .................................................................. 16 Disclaimers ......................................................... 17 Author ................................................................. 18

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Executive Summary

The US Congress enacted Foreign Account Tax Compliance Act (FATCA) in 2010 to reduce tax evasion by the US persons. FATCA targets offshore accounts that were not subject to US information reporting to the Internal Revenue Service (IRS). FATCA added a new component to the US tax withholding and information reporting regime. It requires non-US entities to register with the IRS and conduct diligence and reporting relating to their investors and account holders. The law effectively makes foreign financial institutions (FFIs) information gathering agents of the IRS by threatening an FFIs own US source income and sale proceeds with a 30% withholding tax (30% Withholding). Many countries have entered into intergovernmental agreements (IGAs) with the US that modify the FATCA rules promulgated in the Treasury regulations. This new regime is not intended to be a revenue raiser for the US government, but rather to provide a mechanism to identify US investors in FFIs. The 30% Withholding does not apply, for example, if the relevant FFI enters into an agreement with the IRS to report certain information in respect of financial accounts which are held by US persons (as well as certain non-US entities which have a 10% US owner), or complies with prescribed procedures to ensure that the FFI does not maintain financial accounts of such persons or entities.

By entering into such an agreement, an FFI will also oblige itself to apply 30% withholding to a specified portion of

payments it makes to other FFIs which have not entered into such agreements.

The US has published a model intergovernmental agreement (IGA) which provides relief from the withholding rules described above for certain FFIs operating in countries which agree to its terms. Such FFIs will be required to report information about financial accounts to their home country tax authorities, which will in turn transmit it to the IRS. The first IGA was signed by the US and the UK in September 2012.

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Andrey Krahmal, Esq.

Does FATCA Apply to Our Fund?

FATCA applies to non-US funds that are FFIs that are foreign investment entities, including entities that conduct investment and asset management activities for

customers, are managed by other FFIs and the gross income of which is

primarily attributable to investing, reinvesting, or trading in financial assets, or

are collective investment vehicles with investment strategies of investing, reinvesting, or trading in financial assets.

This definition encompasses private equity funds, hedge funds, venture capital funds, family investment vehicles, and other similar investment funds (other than investment funds wholly owned and controlled by foreign sovereigns). FATCA also applies to foreign feeder funds, alternative investment vehicles, parallel funds, and foreign blocker entities organized in connection with such foreign investment funds or US funds. Financial assets are securities, partnership interests, commodities, notional principal contracts, insurance or

annuity contracts, or any interest (including a futures or forward contract or option) in a security, partnership interest, commodity, notional principal contract, insurance contract, or annuity contract. If a non-US entity is not an FFI, it will be a non-financial foreign entity (NFFE). An NFFE generally will not be required to comply with the diligence and reporting requirements applicable to FFIs. However, an NFFE may need to identify to a withholding agent any US persons with accounts or substantial interests in it.

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When Does FATCA Apply to Our Fund?

FATCA applies when a non-US fund receives withholdable payments. Such payments include US-source interest and dividends, rents, salaries, wages, premiums,

annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodic gains, profits, and income (FDAP income); and

gross proceeds from the sale or other disposition of any property which can produce US-source interest or dividends, regardless of whether the recipient realized a gain (or loss) on such property.

A fund that does not derive, and is not a payee of, any withholdable payments should not be subject to FATCA withholding even if it does not become a Participating FFI or a deemed-compliant FFI. Payments of FDAP income are subject to FATCA withholding from July 1, 2014. Gross proceeds from the disposition of property that can produce US-source interest and dividends will only be subject to FATCA withholding for dispositions occurring after December 31, 2016. FATCA will not apply with respect to FDAP income derived from, and gross proceeds from a disposition of, any grandfathered obligations. Grandfathered obligations include debt obligations, outstanding on July 1, 2014 and not materially modified thereafter. Equity interests are not grandfathered regardless of their issue date. Prior to January 1, 2017, a payment made with respect to collateral under a collateral agreement securing transactions, including debt instruments and derivative financial instruments, will not be subject to FATCA withholding

provided that the secured party holds a commercially reasonable amount of collateral. This is the case even if the securities posted as collateral are not grandfathered obligations. Beginning no earlier than 2017, withholding may also be required with respect to foreign passthru payments. An IRS notice issued in 2011 proposed that noncustodial payments by an FFI (such as interest payments on savings accounts at the FFI) would be subject to FATCA withholding in proportion to the percentage of US assets owned by the paying FFI, i.e. its passthru payment percentage. The current US Treasury regulations reserve on the definition of a foreign passthru payment, and it is unclear whether and when withholding on foreign passthru payments will be required.

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Receiving Withholdable Payments

If a non-US fund receives withholdable payments, it can become a Participating FFI; or a Registered Deemed-Compliant FFI. Participating FFI A fund generally can enter into an FFI Agreement with the IRS to become a Participating FFI. The FFI Agreement is the same for every FFI. A Participating FFI that decides enter into an FFI Agreement with the IRS can do so by registering through the FATCA internet portal. Once the IRS approves the registration it issues a global intermediary identification number (GIIN) to the fund. The IRS started publishing a monthly electronic list of Participating FFIs and registered deemed-compliant FFIs starting June 2, 2014. The IRS FFI list is important because both US withholding agents and Participating FFIs will verify a GIIN furnished by s fund with its certification to avoid FATCA withholding on payments made to the fund. Registration as a Participating FFI will require, in addition to the provision of identifying information about the fund, a designation of a responsible officer and other persons acting as points of contact for the IRS. The funds responsible officer will need to electronically sign the agreement with the IRS. Once a fund enters into an FFI Agreement and becomes a Participating FFI, it generally may terminate the FFI Agreement by providing notice to the IRS through the FATCA registration

portal. Such a fund will become a nonparticipating FFI unless it qualifies as an excluded FFI or is deemed compliant with FATCA. A Participating FFI that terminates its FFI Agreement will be required to notify all withholding agents that make payments to it of its change in FFI status. There is no need to enter into an FFI Agreement if the fund is subject to a Model 1 IGA (determined on its country of organization or tax residence) or the fund qualifies for an exception because it is:

a deemed-compliant FFI, an exempt beneficial owner FFI,

a) foreign governments and their controlled entities;

b) international organizations; c) foreign central banks of issue; d) governments of US territories; e) foreign retirement plans; and f) entities wholly owned by other

exempt beneficial owners. excluded under regulations

a) financial entities of a nonfinancial group;

b) nonfinancial start-ups or entrants of new business lines;

c) entities in liquidation or bankruptcy;

d) non-US members of Participating FFI groups; and

e) nonprofit organizations.

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Registered Deemed-Compliant FFI

Funds that qualify as deemed-compliant FFIs are not required to enter into FFI Agreements. There are two categories of deemed-compliant FFIs:

certified deemed-compliant (this category applies to small and local banks) and

registered deemed-compliant.

A fund subject to a Model 1 IGA will automatically qualify as a registered deemed-compliant FFI as long as it complies with the registration requirements of the applicable IGA. Such funds will be subject to diligence and reporting requirements, but the requirements are less stringent than those applicable to a Participating FFI. Some Model 1 registered deemed-compliant FFIs within one of the subcategories described in the next paragraph may have no diligence or reporting requirements. An FFI subject to a Model 2 IGA will be subject to many of the same requirements as a Participating FFI. However, an FFI subject to a Model 2 IGA may qualify as a registered deemed- compliant FFI if it meets the requirements of one of the types of registered deemed-compliant FFIs listed in Annex II of the applicable Model 2 IGA or if it meets the requirements of one of the types of registered deemed-compliant FFIs

provided for in the US Treasury regulations.

The categories of registered deemed-compliant FFIs in the US Treasury regulations include: a) local banks; b) non-reporting members of corporate

groups; c) collective investment vehicles and

restricted funds; d) qualified credit card issuers and

servicers; and e) sponsored investment entities and

controlled foreign corporations.

The sponsored investment entity category provides an opportunity for fund managers and FFIs with multiple related entities to streamline and centralize compliance with FATCA requirements for their various investment funds and related entities. To be treated as a sponsored investment entity, a sponsoring entity, including a Participating FFI or a US financial institution, must agree to perform, on behalf of the sponsored entity, all due diligence, reporting, and withholding requirements that the sponsored entity would otherwise have been required to perform as a Participating FFI.

Registered deemed-compliant FFIs must also register with the IRS through the internet portal and obtain GIINs. They will then be listed on the IRS FFI List

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IGAs

The US Treasury entered into Model 1 and Model 2 IGAs with various jurisdictions. Model 1 IGA Countries that enter into Model 1 IGAs establish local information reporting regimes pursuant to which FFIs that are subject to the IGA report FATCA-relevant information to the local taxing authorities. The information is then furnished to the US Department of the Treasury. A fund that is subject to a Model 1 IGA and that is required to report FATCA-relevant information to the local taxing authority will not need to enter into an FFI Agreement, but will be required to register with the IRS and obtain a GIIN. However, an FFI that is subject to a Model 1 IGA is not required to obtain a GIIN or provide a GIIN to a withholding agent before January 1, 2015. The countries with which Model 1 IGAs have been signed are:

Australia, Belgium, Canada, Cayman Islands, Costa Rica, Denmark, Estonia, Finland, France, Germany, Gibraltar, Guernsey, Hungary, Honduras, Ireland, Isle of Man, Italy, Jamaica, Jersey, Luxembourg, Malta, Mauritius, Mexico, Netherlands, Norway, Spain, and United Kingdom.

and with which Model 1 IGAs have been agreed in substance, are:

Azerbaijan, Bahamas, Brazil, British Virgin Islands, Bulgaria, Colombia, Croatia, Curaao, Czech Republic, Cyprus, India, Indonesia, Israel, Kosovo,

Kuwait, Latvia, Liechtenstein, Lithuania, New Zealand, Panama, Peru, Poland, Portugal, Qatar, Romania, Singapore, Slovak Republic, Slovenia, South Africa, South Korea, Sweden and Turks and Caicos Islands.

Model 2 IGAs

Model 2 IGAs differ from Model 1 IGAs in that they do not provide for information reporting to the local taxing authorities, and instead require an FFI to report relevant FATCA information directly to the IRS. An fund that is subject to a Model 2 IGA generally must enter into an FFI Agreement unless it qualifies as a deemed-compliant FFI, an excluded FFI, or an exempt beneficial owner under the applicable Model 2 IGA. Pursuant to its FFI Agreement, an FFI subject to a Model 2 IGA generally must comply with applicable due diligence rules, which may be modified by the Model 2 IGA.

The countries with which Model 2 IGAs have been signed are:

Austria, Bermuda, Chile, Japan, and Switzerland

and with which Model 2 IGAs have been agreed in substance are:

Armenia and Hong Kong

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Application of IGAs

Each IGA is unique. Funds should always confirm the specific requirements. Some IGAs, including Japans, apply to FFIs that are resident in the relevant country. Resident may mean tax resident as defined under the countrys existing laws or as specified in any legislation or guidance issued by the country regarding the IGA. In contrast, other IGAs, including the Cayman Islands, apply to FFIs that are organized under the laws of the relevant country. Accordingly, an FFI may be subject to multiple IGAs (in

which case the treatment is currently unclear) or no IGA (in which case the default rules of the US Treasury regulations apply). Several countries, including the United Kingdom, have issued detailed guidance notes to expand upon and clarify details of the relevant IGA. Such guidance notes continue to be issued and revised as the FATCA regime evolves, and may contain country-specific details and exceptions that differ from the US Treasury regulations and guidance notes issued by other IGA countries.

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What if Our Fund Does Not Comply?

The treatment under FATCA depends on whether the Fund receives withholdable payments.

Withholdable Payments Received

Such payments will be subject to a withholding tax at a rate of 30%. US withholding agents must withhold tax at a 30% rate on:

withholdable payments made to nonparticipating FFIs that are not exempt beneficial owners, excluded FFIs, or deemed-compliant FFIs; and

payments of US-source FDAP made to Participating FFIs acting as intermediaries (other than withholding qualified intermediaries (QIs)), or flow-through entities (other than withholding foreign partnerships or withholding foreign trusts), except to the extent Participating FFIs provide the US withholding agents with valid documentation that establishes the portion of the payment that is allocable to a class of payees for which no withholding is required.

Withholdable Payments Not Received

There will be no consequences under FATCA even if the Fund is noncompliant. Ancillary consequences to include difficulty in opening a bank account or entering into transactions or agreements with financial institutions, which require that all counterparties are FATCA-compliant regardless of nonexistent risk of withholding. Investors may demand that the Fund becomes a Participating FFIs because of reputational risk. Some jurisdictions may require FFIs to comply with FATCA under the local legislation implementing an IGA, even though FATCA compliance is otherwise voluntary. Some funds may decide to comply with FATCA, even if currently it is not directly relevant.

If the Fund does not currently receive any withholdable payments, but may do so in the future, it should register under FATCA at that later date. Any withholdable payments received prior to such registration are subject to FATCA withholding.

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What if the Investors Do Not Comply? The Fund may be required to withhold if any investor is a nonparticipating FFI or a recalcitrant account holder. A nonparticipating FFI is an FFI that has chosen not to become a Participating FFI and is not an exempt beneficial owner, an excluded FFI, or a deemed- compliant FFI. A recalcitrant account holder is an account holder that has failed to provide the Participating FFI with the information necessary for the Participating FFI to determine whether the account holder is a US person, or other information that the Participating FFI is required to report to the IRS. If any investor in the Fund is a nonparticipating FFI or a

recalcitrant account holder, the Fund (as a Participating FFI) will be required to act as a withholding agent and withhold tax at a 30% rate on withholdable payments to such nonparticipating FFI or recalcitrant account holder. Funds that are subject to a Model 1 IGA are generally not required to withhold, although they must report information about their investors that are nonparticipating FFIs or recalcitrant account holders. Funds subject to Model 2 IGAs also face relaxed withholding requirements.

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What Does Our Fund Need Do to Ensure Compliance? The Fund may be required to withhold if any investor is a nonparticipating FFI or a recalcitrant account holder.

The Fund is a Participating FFI

Per FFI Agreement the Fund must: identify its

a) US accounts, b) accounts held by

nonparticipating FFIs, and c) accounts held by recalcitrant

account holders; report annually to the IRS with

respect to such accounts; withhold on payments to

nonparticipating FFIs and recalcitrant account holders; and

establish a FATCA compliance program and have its responsible officer periodically certify to the IRS the effectiveness of the program.

Under FATCA an account includes not only depositary accounts but also equity and debt interests in investment entities and financial institutions, with exceptions for publicly traded interests. As part of the diligence, the Fund must obtained information about newly opened and preexisting accounts. The procedures differ for individual account holders and for entities.

Newly-Opened Accounts The Fund must implement procedures to be able to identify the account holder as US or foreign and, if foreign, determine its classification under

FATCA. The Fund will be required to obtain certification of the account holders US or foreign status and, if applicable, its classification under FATCA. These certifications will be provided on the following IRS forms: a) Form W-9 for US individuals and

entities; b) Form W-8BEN for non-US

individuals; c) Form W-8BEN-E for many non-US

entities; and d) other W-8 forms for non-US

intermediaries and non-US exempt beneficial owners.

Preexisting Accounts The Fund must conduct an initial review of its account holders within six months and a more thorough review within two years of the effective date of the FFI Agreement to determine which accounts are held by FFIs and US persons. Preexisting are accounts maintained by the Fund that are outstanding on June 30, 2014. Pursuant to recent IRS guidance, accounts held by entities and opened on or after July 1, 2014 and before January 1, 2015 generally may be treated as preexisting accounts. Assuming an effective date for the FFI Agreement of June 30, 2014:

Prior to January 1, 2015, the Fund must identify accounts held by prima facie FFIs. Prima Facie FFIs are entities that are

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designated in its electronic (searchable) database as account holders that are a) qualified intermediaries or

nonqualified intermediaries or b) for accounts maintained in the

United States, documented or presumed to be a foreign account holder and assigned in the Funds electronic (searchable) database one of a set of industry codes indicating that the entity is a financial intermediary. Those account holders identified as prima facie FFIs that do not provide certification that they are Participating FFIs, deemed- compliant FFIs, excluded FFIs, or exempt beneficial owners are subject to FATCA withholding beginning on January 1, 2015.

Prior to July 1, 2015, the Fund must review individual accounts with a balance of more than $1,000,000 on June 30, 2014 for specified characteristics that may

indicate that the account holder is a US person.

Prior to July 1, 2016, the Fund must all other individual and entity accounts (other than certain low value accounts) for specified characteristics that may indicate that the account holder is a US person.

The Fund is a Registered Deemed-Compliant FFI

Once registered, the Fund generally must:

maintain appropriate records; have its responsible officer certify

every three years that it satisfies the requirements of a registered deemed-compliant FFI; and

notify the IRS of a change in circumstances that would make it ineligible for registered deemed-compliant status.

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How Does FATCA Apply to Our Fund? a Flowchart

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Finally FATCA continues to evolve as additional IGAs are signed and IGA jurisdictions promulgate guidance. Do not hesitate to contact the author of this note if you have any questions regarding

the FATCA classification of entities in your fund structure, compliance, or any other topic addressed in this memorandum or related to FATCA.

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DisclaimersAttorney Advertising. Prior results do not guarantee a similar outcome. This document is not intended to provide and should not be construed as legal advice for any purpose.

This document may contain US tax advice. Unless otherwise expressly stated, this communication was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding US federal tax-related penalties that may be imposed with respect to the matters addressed. Some of this document may have been written to support the promotion or marketing of the transactions or matters addressed to persons other than our client. For such advice, be advised that the advice was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and if you are a person other than our client, you should seek advice based on your particular circumstances from an independent tax advisor. In addition, unless expressly stated to the contrary in the foregoing document, nothing herein shall be construed to impose a limitation on disclosure by any person of the tax treatment or tax structure of any transaction that is addressed herein. !

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Author

Andrey Krahmal, Esq.

5 Grays Inn Square, Grays Inn London WC1R 5AH

Main +44 (0) 20 7670 1500 Direct +44 (0) 77 6767 4238

andrey@atlastaxchambers.com