International tax services for private capital

2 International tax services for private capital

Global tax trends affect private capitalThe 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 2017-18 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

• Documentation requirements for debt instruments issued by US corporations

• An 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

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.

• Local 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.

• Family 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.

3Ernst & Young LLP

How we can helpEY 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

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

John Cook Partner Private Client Services

Joseph Bulger Principal Private Client Services

Marianne Kayan Senior Manager Cross-Border Tax Planning Leader for Private Clients

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 Principal ITS Wealth and Asset Management, New York

Lucas Rachuba Principal ITS Wealth and Asset Management, San Francisco

Martin Milner Principal National Tax, Washington, DC

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

EY | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

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