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 can 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 section 4.15 for more details on aggregation of sponsored funds).
Subject to the design of the final reporting schema, a sponsor will then report to HMRC on all the account holders of the funds it manages.
Reporting of sponsored offshore funds
Multiple service providers