International tax services for private capital
Global tax trends affect private capital The relaxation of restrictions on foreign private investment, including real estate, as well as lower interest rates/growth in developed countries have prompted increased cross-border flow of private capital for higher rates of return. It is no longer uncommon for a large family office to manage a portfolio of investments in dozens of countries across multiple continents. Private inbound investment in the US remains strong due to relative stability and the high level of liquidity offered by the US market. While private investment in emerging countries recently has been on a downward trend, we expect this to eventually reverse as countries continue to encourage inflows of foreign capital and investors continue to seek diversified portfolios, with returns hedged across multiple markets. Private investments may be held directly through proprietary fund structures or through third-party managed alternative investment funds. As a result, our high-net-worth clients and their family offices continue to identify cross-border tax and compliance issues as the main area of risk due to a lack in centralized expertise and resources. The tax issues affecting private capital in tax year 201718 are interdependent with the issues and trends affecting the asset management industry as a whole: 1. A major tax reform of the cross-border aspects of the US federal income tax system is highly likely in the near term. 2. Managed accounts/fund-of-one investing are increasingly popular structures to use to mitigate investment manager risk. 3. There has been a continuous increase in volume and complexity of the global compliance reporting requirements for nonresident investors. This includes but is not limited to: • Foreign Account Tax Compliance Act (FATCA) and FATCA-like reporting • Informational tax reporting for US investors (Forms 5471, 8621, 8858, etc.) • Foreign Investment in Real Property Tax Act (FIRPTA) and FIRPTA-like reporting for real estate investments • D ocumentation requirements for debt instruments issued by US corporations • A n increasing number of fund managers beginning to provide more detailed data to facilitate tax reporting needs of non-US investors — in some instances, this flashes out under-reporting in prior years due to lack of information, which now needs to be corrected
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International tax services for private capital
4. Some companies utilize multiple service providers to support tax needs in multiple locations across the globe but lack in-house expertise to oversee these resources: • Multiple withholding agents (prime brokers, fund managers, trustees) may have different approaches to administering withholding taxes — this requires reconciliation and refund filings. • L ocal law firms assisting with structuring, regulatory compliance and transaction planning may not be aware of US (or non-US) tax sensitivities and how legal planning impacts all aspects of a high-net-worth individual’s tax planning and compliance. • F amily offices or CPA practitioners providing individual income tax advice to principals and executives may lack expertise pertaining to cross-border tax issues. 5. An exponential rise in global tax regulatory enforcement is expected in 2017–18 as a result of the ongoing global transparency and information exchange initiatives. • We note a steady rise in crossover between immigration and tax enforcement — customs and border agencies in multiple jurisdictions have programs in place to share information on frequent travelers with the tax authorities.
How we can help EY International Tax Services (ITS) professionals in the US have experience in providing tax planning and tax compliance services to high-net-worth individuals and family offices. Below are examples of services EY professionals provide: • Initial and ongoing reviews of the individual’s/family’s tax posture to identify rate reduction/planning opportunities • Modeling for cross-border aspects of the pending US tax reform, including improving foreign tax credit utilization and Section 962 election planning • Planning for cross-border real estate investing (investment in and outside of the US by US and non-US individuals and entities as well as families with multiple residence/citizenship status) • International tax aspects of estate and gift planning • Taxable presence management for frequent business travelers and individuals maintaining residences in multiple jurisdictions • Global tax controversy management and support • Planning for fund-of-one and managed accounts investing • Planning for cross-border angel and private equity investments and club deals, including structuring, due diligence and, if needed, transfer pricing planning and assistance with obtaining advance tax rulings • Due diligence to facilitate investing in third-party managed funds • Due diligence and international tax planning related to strategic acquisitions of target companies • Tax advisory services to determine tax implications of investing in publicly or widely offered securities and cross-border debt, including assistance with tax residency certifications, withholding tax reconciliation and reclaims • Mapping out cross-border international tax reporting requirements and assistance with country-by-country reporting (CbCR) compliance and the preparation of complex informational reporting for US tax returns, including assistance with the preparation of form side letters to request tax compliance information from investee funds and portfolio companies • FATCA assistance and documentation • Planning for cross-border charitable giving and art collecting • International tax aspects of the ownership and operation of aircraft
US ITS Private Capital Ernst & Young LLP Services network Jonny Lindroos
Partner ITS Leader, Northeast New York
Chris Housman
Partner ITS Leader, FSO New York
Seda Livian
Partner Financial Services-Tax, New York
Irina Pisareva
EY’s Family Office practice Bobby Stover
Partner Americas Family Office Leader
Andrew Vinciguerra Executive Director Private Client Services, Family Office Services
EY’s Private Client Services
Principal ITS Wealth and Asset Management, New York
John Cook
Lucas Rachuba
Joseph Bulger
Principal ITS Wealth and Asset Management, San Francisco
Martin Milner
Principal National Tax, Washington, DC
Partner Private Client Services Principal Private Client Services
Marianne Kayan
Senior Manager Cross-Border Tax Planning Leader for Private Clients
Zsuzsanna Kadar
Executive Director ITS Wealth and Asset Management, New York
Alastair Campbell Senior Manager Northeast New York
Allen Stenger
Senior Manager National Tax, Washington, DC
Maria Martinez Hernando Senior Manager National Tax, Washington, DC
Trae High
Senior Manager ITS Wealth and Asset Management, New York
Marina Baughman
Senior Manager ITS Quantitative Services Wealth and Asset Management, Chicago
Ernst & Young LLP
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