02.04 – Related Entities

For FATCA, an entity is regarded as being related to another entity if one entity controls the other or the two entities are under common control the “related entity group.”

For this purpose, control is taken as including the direct or indirect ownership of more than 50 percent of the vote and value in an entity.

An entity that is a member of a related entity group will not be a Financial Institution if-

  • The entity does not maintain Financial Accounts (other than accounts maintained for members of its related entity group);
  • The entity does not hold an account with or receive U.S. source withholdable payments from any withholding agent other than a member of its related entity group;
  • The entity does not make U.S. source withholdable payments to any person other than to members of its related entity group that are not limited FIs or limited branches; and
  • The entity has not agreed to undertake reporting as a Sponsoring Entity or otherwise act as an agent regarding the Agreement on behalf of any Financial Institution, including a member of its related entity group.
    Related Entities are relevant in the context of the obligations placed on UK Financial Institutions, in respect of any related entities that are Non-Participating Financial Institutions (NPFI).

Where a UK Financial Institution has any Related Entities that, as a result of the jurisdictions they operate in, are unable to comply with FATCA, then the UK Financial Institution must treat the related entity as an NPFI and fulfil obligations in respect of that NPFI as set out in Article 4 of the Agreement. Further guidance on these obligations is set out in more detail at Section 9.4.

Exemption for Investment Entities

Investment Entities that have received seed capital from a member of a group to which the Investment Entity belongs will not be considered a Related Entity for the purposes of the Agreement.

In general a seed capital investment is an initial capital contribution (that is intended as a temporary investment), made to an Investment Entity. This will generally be for the purposes of establishing a performance record before selling interests in the entity to unrelated investors, or for purposes otherwise deemed appropriate by the manager.

Specifically, an Investment Entity will not be considered a Related Entity as a result of a contribution of seed capital by a member of the group if:

  • the member of the group that provides the seed capital is in the business of providing seed capital to Investment Entities that it intends to sell to unrelated investors;
  • the Investment Entity is created in the course of its business;
  • any equity interest more than 50% of the total value of stock of the Investment Entity is intended to be held for no more than three years from the date of acquisition; and
  • in the case of an equity interest that has been held for over three years, its value is less than 50% of the total value of the stock of the Investment Entity.