Background refresher on the Corporate Transparency Act: What is the CTA? – Tax Logicians
The CTA imposes specific reporting requirements on entities formed under the laws of foreign (non-US) countries that would otherwise qualify for reporting exemptions (as many US investment entities will be exempt). Let’s delve into the key aspects of this regulation and its implications for affected foreign financial entities such as private equity and investment firms that have US entities or are directly registered to conduct business in the United States.
Special Reporting Rules:
The crux of the new rule revolves around special reporting requirements for foreign pooled investment vehicles. Generally, US based firms (and firms licensed by the SEC, regardless of their location) are exempt from CTA reporting; as they are generally already subject to extensive ownership and control disclosure requirements. However, any foreign (non-US) entity that would normally be exempt from CTA reporting based on the various exemptions for US based financial institutions may be classified as a reporting company pursuant to the CTA and mandated to file a report with FinCEN. This report is expected to provide identification information about individuals exercising substantial control over the foreign pooled investment vehicle.
A foreign pooled investment vehicle is defined in part by regulations issued by the US Securities and Exchange Commission (“SEC”); please contact us if you have any questions on your status as a foreign pooled investment vehicle. Generally, it may include private equity, investment management firms and similar entities.
For entities qualifying as a foreign pooled investment vehicle only one beneficial owner must be reported. This is in contrast to the generally applicable rule that anyone (and all such persons) with a substantial economic interest or substantial control must be reported.
Conclusion:
FinCEN’s new rule targeting foreign pooled investment vehicles reflects a continued commitment to strengthening financial transparency and preventing illicit financial activities. As financial entities navigate these new reporting requirements, understanding the nuances and implications will be crucial. If you have questions on how the CTA may effect you, or what your firm’s reporting requirements may be please contact us.
