On the agenda was the response letter from SIF to the ICI, where it was confirmed that information collected from a third party provider, such as Broadridge, would be acceptable to establish U.S. residence of the RIC’S investors. [Background]

Points of Discussion

Following SIF’s response letter to the ICI confirming that information gathered from third-party providers would be considered as proof of U.S. domicile of the RIC’s investors, Broadridge increased its fees significantly, leading investors to seek alternative ways to confirm the residence of the U.S. RIC’s investors.

One potential solution set forth by the ICA is to utilize the Omniserve file, a voluntary system implemented by many funds and brokers in response to an SEC Rule to prevent market timing abuse by investors. Pursuant to the Omniserve file, brokers provide funds with data about investors that maintain holdings through them. Most brokers participate in this voluntary system. The data provided differs from broker to broker and may include the investor’s name, tax ID or address. It was suggested that this data may be used to establish US residency.  SIF agreed that this approach may be possible, depending on the type of information that can be obtained from the data and its reliability, and perhaps may also be used to demonstrate the equivalence to direct U.S. ownership.

The ICI has committed to further research with funds what type of confirmation may be produced based on Omniserve data and thereafter to circulate this information with the Swiss authorities to determine whether a compromise can be reached as to what would be acceptable.

The Swiss authorities also commented that they have not made any significant progress with the IRS on this issue. Following a meeting between members of the AGC and the U.S. Treasury earlier this year, it was confirmed that the issue is one of reciprocity of treaty benefits available to Swiss funds investing in the US and to US Funds investing in Switzerland. Although Swiss funds are contractual in nature, the Swiss view their funds as opaque for withholding tax purposes and claim to have a reliable system for identifying Swiss investors, since they are ultimately taxable on their share of the fund’s earning. In their view, the existing W-BEN documentation system for transparent funds under US domestic law is not deemed practical for Swiss open-ended investment funds.

Notably, the OECD’s Treaty Relief and Compliance Enhancement (TRACE) project, which aims to simplify investors’ ability to receive tax treaty benefits, recommends procedures by which transparent funds could make claims on behalf of their investors.

BBH Perspective

BBH is a member of the Association of Global Custodians (AGC) and works closely with the ICI on issues mutually impacting our clients. Seeking information from thirdparty providers as a means of proving treaty eligibility was not on the forefront of the AGC’s lobbying efforts. Many investors may find that contracting with a third-party provider is cost prohibitive and outweighs the benefit of the reclaim.

Resolution may not be forthcoming in the short term; therefore, we welcome the SFTA’s letter of confirmation  that information obtained from third-party provider may be used as means of proof of treaty eligibility.

BBH, continues its lobbying efforts via the AGC, for the governments to address the issue of US RIC treaty eligibility in a more streamlined and cost effective manner. Investors in receipt of requests for additional information, are strongly encouraged to consult with a tax advisor prior to responding to the SFTA.

For more information please contact your relationship manager or Global Tax Services.

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