Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

International Exchange of Information Manual

HM Revenue & Customs
, see all updates

NRFI: FATCA Only: Sponsored Investment Entity

NRFI: FATCA Only: Sponsored Investment Entity

A Sponsored Investment Entity can be a Registered Deemed Compliant Financial Institution by virtue if the US regulations at §1471-5 (f)(1)(i)(F).

A Sponsored Investment Entity is an entity that has a contractual arrangement for its due diligence and reporting responsibilities to be carried out by a sponsoring entity.

A sponsoring entity (typically a fund manager) is an entity that is authorised to manage the sponsored Financial Institution (typically a fund, or a sub-fund that is an investment entity but is not a US qualified intermediary, withholding foreign partnership or withholding foreign trust) and to enter into contracts on behalf of the sponsored Financial Institution. A sponsor must register with the IRS as a sponsoring entity, and must, where a sponsored entity has Reportable Accounts, register each of the funds or sub-funds it manages (or a subset of these) with the IRS as “Sponsored Entities”.

A sponsor must undertake all FATCA compliance on behalf of the sponsored funds (and, where appropriate, outsource FATCA compliance obligations to third party service providers). This will include, for example, account identification and documentation. A sponsor will need to ensure that new investors in the funds it manages are appropriately documented for FATCA purposes (and this will typically be done by a transfer agent, acting as a third party service provider).

Where there is a sponsor/sponsored entity relationship the legal responsibility for undertaking the required due diligence and reporting remains that of the sponsored entity.

Where a sponsor acts on behalf of a range of funds, the classification of an account as a new account or a pre-existing account can be done by reference to whether the account is new to the sponsor (fund manager) and not the fund (but see comment below in relation to offshore funds and multiple service providers). This prevents a fund manager from having to seek FATCA documentation from the same Account Holder repeatedly, where that Account Holder is invested in more than one of the sponsored funds. Where a sponsor is able to link accounts in this manner, the accounts will need to be aggregated for the purpose of determining whether the accounts exceed the de minimis for reporting [see IEIM403560].

A sponsor will then report to HMRC on all the Account Holders of the funds it manages.

Reporting of sponsored offshore funds

In practice a fund manager will act for funds located in a number of jurisdictions. When acting as sponsor, the fund manager will need to act on behalf of the sponsored fund ranges independently, with respect to each tax authority in which the funds are domiciled.

Example 1

A UK fund manager manages fund ranges in UK and IGA Country 1. The UK manager can register as sponsor for all or some of the funds in each of these jurisdictions. The sponsor would;

•              Report to HMRC on behalf of the UK fund range, and

•              would report to the tax authorities in IGA Country 1 on behalf of the funds domiciled there.


Example 2

As above, but in addition the UK fund manager manages funds in a non-IGA country. Additionally the fund manager will need to report to the US on behalf of funds domiciled in non-IGA countries.

Multiple service providers

Similarly, a fund manager may use different transfer agents for different fund ranges within the same country. In such cases the fund manager itself cannot know whether an existing Account Holder in one of the fund ranges opens a new account in the other fund range. This in itself should not preclude the same fund manager from acting as a sponsor for both fund ranges. It does mean that the full benefits of sponsoring (such as not re-documenting existing account holders when they make new investments) might not be realised where different service providers are used.