Private equity investors face a new hurdle, unsurprisingly it’s in the form of new regulation as the U.S. government seeks to prevent Americans from hiding assets overseas. As Pensions and Investments explains, the new regulations will likely not be a direct problem for institutional investors but the real cost will come from increased compliance headaches in ensuring that asset managers adhere to the requirements of the The Foreign Account Tax Compliance Act.
While institutional investors are not directly affected by the new law, they will need to ensure the asset managers with which they do business are fully compliant, so that investment returns aren’t diminished by tax penalties.
The Foreign Account Tax Compliance Act, which requires financial institutions to identify Americans who have investments in non-U.S. financial accounts or entities, “is increasing exponentially the level of operational difficulty for asset managers. It is probably the most pressing regulatory challenge facing the U.S. now,” said David Richardson, managing tax director for KPMG Financial Services in New York.
“It’s going to be a very heavy lift,” agreed Harris Horowitz, managing director and global head of tax for BlackRock (BLK) Inc. (BLK), New York.
The final FATCA regulations, issued Jan. 17 by the Internal Revenue Service, are sweeping and, when fully implemented, the law will apply to any fund trading or investing, directly or indirectly, in U.S. assets, or any entity in an affiliated group with that fund. It also applies to the funds’ service providers and counterparties.
Except for a few asset managers with purely U.S. funds and no offshore vehicles, most private equity and hedge funds will have to register with the IRS as a foreign financial institution.
tags: private equity, private equity investors, laws, compliance, private equity compliance costs, private equity foreign account tax compliance act, Private Equity Foreign Account Tax Compliance Act law, Private Equity Foreign Account Tax Compliance Act law, investors