October 2011

FATCA and real estate/infrastructure funds:

Whats a fund to do now?
Generally, the punitive 30 percent FATCA withholding tax does
not apply if a non-US fund enters into an agreement with the
IRS whereby it agrees, inter alia, to:

The US Foreign Account Tax Compliance Act (FATCA) is a

complex new withholding and reporting anti-avoidance regime
designed to encourage the reporting of certain US-source
income derived by US persons via offshore accounts and
investments. It achieves this objective by requiring certain
non-US entities to disclose to the IRS information about US
Account holders.
FATCA encourages compliance by imposing a punitive 30
percent withholding tax on certain US source income, as well
as the gross proceeds from the disposition of certain
investments (regardless of whether there is gain). In addition,
certain payments to non-US funds may be subject to US
withholding where there is a direct or indirect exposure to
certain U.S. assets. As such, a failure by a fund to comply
with FATCA may seriously impact investor returns.
Compliance with FATCA potentially imposes material US tax
documentation, reporting and withholding requirements on
non-US funds and asset managers, including Australian real
estate or infrastructure funds. Non-US funds that do not
directly or indirectly hold US assets also may be impacted by
FATCA (e.g. due to affiliations with other non-US funds with
such investments or where banking or other commercial
partners require compliance).
Recognising the significant impact of FATCA on the funds
industry, KPMG has developed expertise necessary to
assist clients to assess FATCA exposures and implement
required changes.

Identify and perform annual reporting on US investor

accounts (e.g. year end balances, gross
receipts/withdrawals, account closure details, etc).
Comply with verification/due diligence procedures.
Withhold 30 percent from payments made to certain noncompliant investors and in certain circumstances (yet to be
clarified by the IRS) close their account.
Calculate and publish pass-thru payment percentages on
a quarterly basis.
Comply with IRS requests for additional information.

FATCA has the potential to impact after-tax returns to

investors for a number of reasons:

Increased compliance costs for a non-US fund, resulting

from the above stated obligations, or
30 percent withholding if the non-US fund or certain
investors do not participate or otherwise comply, or
Penalties for failure to comply.

As a result, most fund managers will need to review their

operating models, including the identification and
documentation of customers, the product portfolio and internal
processes/IT systems. They will need to carefully examine
their distribution model and relationships with fund
administrators and other service providers to assess potential
system updates.
As system changes may require significant time and
investment, they should be identified soon to allow sufficient
time for implementation. Moreover, FATCA will raise client
relationship challenges in balancing increased compliance
costs without adversely affecting investor returns or
relationships, as well as potentially forcing a non-US fund to
closely reconsider its investment strategy into the US market.
As the IRS has not yet issued final guidance under
FATCA, the rules remain fluid in many important respects.
Based on preliminary IRS guidance to date, to avoid
withholding on income imposed from 1 January 2014, a
non-US fund has until 30 June 2013 to enter into an
agreement with the IRS to comply with FATCA. All
existing real estate and infrastructure funds with exposure
to US assets (directly, indirectly or through affiliated
entities) should consider how FATCA will impact their
business.

2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss
entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under
Professional Standards Legislation.

FATCA Where are we now?

Withholding under FATCA applies to withholdable payments and passthru payments made to a foreign financial institution(FFI)
and certain other non-financial foreign entities unless they agree to comply with FATCA. Under IRS guidance issued to date, the
majority of Australian real estate/infrastructure funds will be considered to be FFIs, and forced to consider compliance with FATCA.
Withholdable payments on which they may suffer withholding include:

US sourced fixed, determinable, annual, or periodical (FDAP) income (e.g. dividends, interest, rent), and
Gross proceeds from the disposition of property that could produce US sourced interest or US sourced dividends (e.g. US debt,
certain investments into US REIT shares, or an investment into a US Corporation). However, income that is effectively
connected to a US trade or business (for US tax purposes) is not subject to FATCA withholding.

Passthru payments include any amount attributable to a withholdable payment. Current guidance suggests the calculation of a
passthru payment is very complex, and is not directly traced to US source income. Very generally, a passthru payment can result
where a fund has an indirect investment in any asset that could result in a withholdable payment.
In addition to receiving withholdable or passthru payments, an Australian fund may also be drawn into FATCA if it is a member of
an expanded affiliated group (effectively a one-in all-in rule), or as a result of its relationships with other financial services
participants, (e.g. certain banks, distributors or custodians may refuse to deal with non-participating financial entities).
As previously indicated, compliance with FATCA will require the FFI to enter into an agreement with the IRS (an FFI Agreement),
under which it agrees to some potentially onerous obligations. FFIs that enter into FFI Agreements are Participating FFIs. Some
of the more complex obligations include:

The detailed and complex requirements for identifying and reporting US Accounts, which may force a fund to perform an audit
of information obtained from its investors to search for certain indicia of US ownership. The concept of US ownership may
require tracing through some interposed entities (e.g. other foreign funds, or nominee accounts).
In relation to identified US investors, to report certain information to the IRS (e.g. their name, US Taxpayer Identification
Number, account balance, withdrawals and gross receipts).
To withhold on passthru payments made to recalcitrant accountholders (i.e. those that refuse to provide information requested
to comply with FATCA, or other non-participating FFIs.) For example, an Australian fund that directly or indirectly holds US
assets may be required to impose 30 percent FATCA withholding on a distribution to a non-US investor that does not provide
the fund with sufficient information to support the premise that it is either non-US and/or has no US owners, or is a
participating investment entity.
The potential to close an investors account where they refuse to waive their rights under a local jurisdiction which prevent the
reporting of information required by FATCA.
Report a passthru payment percentage for distributions to participating institutional investors for its own FATCA reporting
requirements.

Some questions and our thoughts:

Does FATCA override double tax treaty withholding tax limits? It seems the US intention is that it does in certain situations.
Can an Australian real estate/infrastructure fund obtain a refund of FATCA tax withheld? In some circumstances, a refund may
not be available, or may be difficult to obtain in practice.
Is a tax credit available for a FATCA withholding? Probably not as such withholdings are punitive in nature and not an income
tax.

The key areas of risk that arise for a fund under FATCA include:

Commercial risk: Real estate and infrastructure funds may have obligations under an FFI Agreement, as noted above. A
failure to meet those obligations may put that fund or its sponsor at risk for unpaid taxes, penalties and interest.
Reputational risk: Sponsors of real estate and infrastructure funds depend on a continuous flow of capital, based on their
value proposition within the market. Direct and indirect investors may be required to make disclosures to a fund or its
distributors to avoid FATCA withholding. A mismanaged transition into FATCA may result in withholding that diminishes aftertax returns to investors, thereby creating a negative perception for fund sponsors in the market that may detrimentally impact
future capital raising efforts. Funds should consider their current client onboarding and distributor relationships to assess the
cost of transitioning new and existing investors to the FATCA regime.

2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a
Swiss entity. All rights reserved. The KPMG name, log and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme
approved under Professional Standards Legislation.

FATCA How can KPMG help?

Business impact analysis
The fund should perform an exercise to determine how its business and investors will be impacted by FATCA. KPMG can assist in
providing a documented global fund impact analysis based on IRS guidance issued to date, whereby:

FATCA impacted business units and entities are identified.

Relationships with investors, other financial institutions and third party service providers are reviewed.
Payments within the organisation are mapped to determine the risk of FATCA withholding and the potential compliance
required to mitigate this.
Investors and counterparties are provisionally classified under FATCA.
Existing withholding and information management systems and processes are reviewed to ascertain the enhancements
required under FATCA.

Following a business impact analysis, it should be clearer what resources are required based on available IRS guidance for tax
compliance, legal/risk management and investor relations areas. The impact analysis also provides a springboard for
implementation (once proposed and final regulations are issued) and a clearer sense of how compliance costs may affect the fund
bottom line.

The FATCA Implementation Plan

To be in a position to enter into an FFI Agreement by 30 June 2013 and withhold on income by 1 January 2014 and passthru
payments and gross proceeds by 1 January 2015, a fund will need an implementation plan to address gaps identified in the impact
analysis. Any gaps in information, tax and risk management systems must be identified and addressed, and a plan must be
developed for communication with both internal and external stakeholders. KPMG can provide a documented pathway to achieve
these goals. The FATCA Implementation Plan will guide the fund through:

Updating all information management and withholding systems to accommodate FATCA compliance.
Testing the upgraded systems to ensure they meet the agreed testing parameters related to obligations imposed on
participating FFIs (e.g. withholding on passthru payments, or the identification of accounts with an indicia of potential US
status).
Reviewing entity organisational documents and service provider agreements to ensure they address the compliance
requirements imposed under FATCA.
Coordinating with all investors and other external and internal stakeholders with respect to FATCA obligations.

The FATCA Implementation Plan will need to be crafted once detailed preliminary guidance is released (expected early 2012) and
refined once final guidance is available. Ideally, any required system amendments should be implemented and tested a few
months before 1 January 2014. However, the amount of time needed to get to this state should not be under-estimated.

Internal training: education of senior management, legal counsel and investor relations
Individuals tasked with liaising with investors on FATCA will have a key impact on how the fund manager they represent is
perceived by the market. KPMG professionals can assist in educating those on the investor relations front line (i.e. capital raising
and investor relations teams) about FATCA detail and also help senior management understand FATCA implications.

External investor relations: education and correspondence

KPMG professionals can work alongside a fund sponsor in educating and liaising with investors with respect to their specific
obligations under FATCA and how it will impact their investments. For key investors, entity-specific training can be implemented. In
addition, as KPMG has a wealth of tax technical and advisory experience in assisting foreign financial institutions with their specific
FATCA compliance obligations, KPMG professionals can also be engaged to assist key investors on a one-on-one basis, as
required.

Shaping the legislation

US Treasury and the IRS have invited comments from potentially affected parties with regard to the interpretation of the FATCA
statute and the preliminary guidance provided to date. This presents a significant opportunity for your business to influence the final
regulations in relation to your own business and operational needs. KPMGs professionals can assist in drafting and submitting
these comments.

2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a
Swiss entity. All rights reserved. The KPMG name, log and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme
approved under Professional Standards Legislation.

Contact us
To discuss any aspect of FATCA please contact:
Jeremy Hirschhorn
Partner and member of KPMG
FATCA Working Group
T: +61 2 9335 7442
E: jhirschhorn@kpmg.com.au

Matt Githens
Director and member of KPMG
FATCA Working Group
T: +61 2 9455 9093
E: mgithens@kpmg.com.au

Steve Gatt
National Real Estate and
Construction Sector Leader
T: +61 2 9335 7303
E: sgatt@kpmg.com.au

Steve Economides
Partner, Infrastructure
T: +61 2 9335 8876
E: seconomides@kpmg.com.au

Edgar Baltins
Partner, Real Estate
T: +61 2 9335 8254
E: embaltins@kpmg.com.au
Tony Mulveney
Partner, Real Estate
T: +61 2 9335 7121
E: tmulveney@kpmg.com.au
Damian Ryan
Partner, Real Estate
T: + 61 2 9455 9284
E: dryan@kpmg.com.au
John Bardsley
Partner, Real Estate
T: + 61 2 9335 7161
E: jbardsley@kpmg.com.au

Gary Howard
Partner, Infrastructure
T: +61 2 9335 7623
E: grhoward@kpmg.com.au
Scott Farrell
Partner, Real Estate and Infrastructure
T: + 61 2 9335 7366
E: spfarrell@kpmg.com.au
Matt Birrell
Partner, Real Estate and Infrastructure
T: + 61 3 9288 5367
E: mbirrell@kpmg.com.au
Jim Mooney
Executive Director, Real Estate and Infrastructure
T: + 61 3 9288 5891
E: jmooney@kpmg.com.au
Alternatively, visit our website at
kpmg.com.au

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2011 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a
Swiss entity. All rights reserved. The KPMG name, log and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme
approved under Professional Standards Legislation.