ISDA Sends Additional Comments to Treasury and IRS Regarding FATCA's Impact on SPVs and Posted Collateral

ISDA has supplemented its August 28, 2013 letter to Treasury and the IRS relating to so-called "Limited Life Debt Investment Entities" and its June 11, 2013 letter to Treasury addressing the treatment of posted collateral under an Intergovernmental Agreement ("IGA"). In this new letter, the ISDA reiterates its request that most securitization vehicles be exempt from any Expanded Affiliated Group because financial institutions may not be able to identify those securitization vehicles in which they may own more than 50% of a class of interests. Under the Final Regulations, if a securitization vehicle was included in a financial institution's EAG and such securitization vehicle did not properly register under FATCA, then the financial institution and its entire EAG would be considered non-compliant under FATCA. ISDA also requests that securitization vehicles and other SPVs be exempt from registration under FATCA so long as all interests in such SPVs are cleared through or custodied with a FATCA-Compliant entity and that SPVs with Certificated Interests be considered Certified Deemed Compliant if at least 80% of an entity's income is foreign source, or a U.S. paying agent is used for such Certificated Interests.

ISDA expresses serious concern about potential FATCA withholding impact on posted collateral. Although the Final Regulations generally grandfather collateral posted to secure grandfathered swaps and other derivatives, such relief generally does not apply where the posted collateral secures both grandfathered and non-grandfathered obligations. Moreover, uncertainty exists as to the grandfathered status of collateral that is hypothecated by the financial institution after the end of the grandfathering period. To provide certainty, ISDA makes several recommendations, including that payments with respect to collateral be exempt from withholding until 2017, and that, thereafter, all payments by an FFI with respect to such collateral be treated as made as principal and not as agent.

See: ISDA Letter to IRS. Related news: Trade Associations Request Additional Extension of FATCA Phased Timeline (with Lofchie Music Selection) (November 19, 2013); U.S. and France Sign IGA to Combat Offshore Tax Evasion (November 14, 2013); Treasury Revises Model IGAs under FATCA Again (November 11, 2013); IRS Publishes Draft FFI Agreement and Previews Additional Guidance under FATCA (October 30, 2013).

For questions, or more information please contact Daniel Mulcahy or Mark Howe.