Confirmation of FATCA Status of Australian Superannuation Funds

In brief

The much anticipated Intergovernmental Agreement between Australia and the United States in relation to the implementation of the FATCA regime has been signed. As expected, the Agreement confirms that Australian superannuation funds and, importantly, their wholly owned investment vehicles, will be treated as 'Non-Reporting Australian Financial Institutions', 'exempt beneficial owners' and 'deemed compliant FFIs', as appropriate, for FATCA purposes. While this is welcomed as a significant win for the Australian superannuation industry, Senior Associate Thomas McAuliffe reports that superannuation trustees cannot ignore the regime altogether given that some residual FATCA obligations will remain.

The positives

As Non-Reporting Australian Financial Institutions, Australian superannuation funds of the kind described below will not be required to comply with the due diligence and information reporting requirements imposed by the FATCA regime which are designed to detect US taxpayers who use accounts held with financial institutions located outside of the United States ('Foreign Financial Institutions' or FFIs) to conceal income and assets from the US Internal Revenue Service (IRS).

Also, as exempt beneficial owners and deemed-compliant FFIs, such Australian superannuation funds will not be subject to 30 per cent FATCA withholding from certain payments made to them:

• from sources within the US; or
• by other financial institutions that have entered into an agreement with the IRS to comply with the FATCA regime (which would only be necessary if they are located in a jurisdiction that does not have an Intergovernmental Agreement (IGA) with the US).

Nor will such Australian superannuation funds be required to register with the IRS or obtain a Global Intermediary Identification Number (commonly referred to as a GIIN).

Which superannuation entities are covered?

The types of entities (including trusts) that will be treated as Non-Reporting Australian Financial Institutions, exempt beneficial owners and deemed-compliant FFIs will include:

1. Any plan, scheme, fund, trust, or other arrangement operated principally to administer or provide pension, retirement, superannuation, or death benefits that is a 'superannuation entity' (in this context, this means a 'regulated superannuation fund' or an 'approved deposit fund') or 'public sector superannuation scheme' (including an 'exempt public sector superannuation scheme') as defined in the Superannuation Industry (Supervision) Act 1993 (Cth), or a fund that is declared by the Income Tax Assessment Regulations 1997 (Cth)¹ to be a 'constitutionally protected fund'.
2. A 'pooled superannuation trust' as defined in section 48 of the Superannuation Industry (Supervision) Act 1993 (Cth).
3. Any entity that is wholly owned by, and conducts investment activities, accepts deposits from, or holds financial assets exclusively for or on behalf of, one or more plans, schemes, funds, trusts, or other arrangements referred to in (1) or (2).

Residual FATCA obligations

Notwithstanding the 'burden reductions' available to entities of the kind described above, they may still need to comply with certain FATCA-related procedural requirements. For example, when an Australian superannuation fund receives a payment from sources within the US, it will be required to provide the payer (or the relevant withholding agent) with a completed W-8BEN-E form² certifying that it is a 'Non-Reporting IGA FFI' and is treated as an exempt beneficial owner and/or deemed-compliant FFI under the IGA. The W-8BEN-E form is available for download (although the accompanying instructions which will provide additional guidance for completing the form have not yet been published).

Furthermore, it will still be necessary for such entities to consider the FATCA status of any entities outside Australia in which they hold investments in order to determine whether investment returns that flow up through such offshore entities could be subject to 30 per cent FATCA withholdings at points lower down in the investment chain.

Finally, if an Australian superannuation fund has a related entity that operates in a jurisdiction that prevents such related entity from complying with the FATCA regime then special rules apply (including that in order for the Australian superannuation fund to retain its FATCA exempt status, the related entity must not solicit US accounts). In this context, a relevant jurisdiction will be one that has not entered into an IGA with the US and where the domestic laws of the jurisdiction prevent entities subject to those laws from entering into a FATCA agreement directly with the IRS. The US Department of the Treasury maintains a list of jurisdictions that are treated as having an IGA.