SIFMA's Asset Management Group ("SIFMA AMG") submitted comments in response to the Organization for Economic Cooperation and Development ("OECD") recent discussion draft on the treaty entitlement of non-Collective Investment Vehicle ("CIV") funds. SIFMA AMG's made recommendations related to: (i) non-CIV funds set up as transparent entities; (ii) the inclusion of a derivative benefit rule applicable to certain non-CIV funds in the limitation on benefits; (iii) the adoption of a "Substantial Connection" approach; and (iv) the adoption of a "Global Streamed Fund" regime.

SIFMA AMG made the following recommendations:

  • Transparent Non-CIV Fund Entities: Because there is no worldwide recognition of the "fiscally transparent" funds in the U.S., any solution addressing cross-border transactions would require all jurisdictions to permit funds to be treated as transparent, requiring: (i) the standardization and coordination of documentation; (ii) withholding rules; (iii) tax transparency treatment; and (iv) standard accounting and reporting systems.
  • Derivative Benefit Rule: The OECD generally should include treaty benefits for all types of managed funds, such as those investing in real estate (e.g. infrastructure real estate, including social housing), unlisted companies (e.g. private equity funds, venture capital funds and loan origination funds) and hedge funds.
  • Investor Identification: In addition to documentation and reporting requirements to prevent treaty-shopping, SIFMA AMG encourages the OECD to: (i) adopt the self-certification system developed in Trade Reporting and Compliance Engine ("TRACE") as a mechanism to demonstrate the appropriate information to tax authorities; and (ii) provide individual jurisdictions with the authority to adopt alternative approaches that would accomplish the same goal as (i).
  • Deferral Prevention: SIFMA AMG believes the U.S. qualified electing fund passive foreign investment company regime provides an example of an anti-deferral framework that addresses concerns regarding investor deferral of income. SIFMA AMG urges the coordination of a regime that allows for compliance and administrability that do not pose prohibitive burdens on the non-CIV funds.
  • Substantial Connection Approach: A non-CIV fund should be entitled to treaty benefits under the proposed principal purposes test if: (i) there are considerable non-tax commercial reasons to establish the fund; and (ii) its activities have a substantial connection to the State of residence.

SIFMA AMG noted that although it has not yet fully examined the Global Streamed Fund regime, it "looks like an innovative and pragmatic approach to address country concerns around investor identity and treaty entitlement while providing a means for non-CIVs to continue to be a viable means of cross-border investment."

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