JAPAN Law and Practice Contributed by: Mikito Ishida (Mori Hamada & Matsumoto) and David Azcu (Simpson Thacher & Bartlett LLP), Mori Hamada & Matsumoto
4.10 Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) Compliance Regime FATCA Japanese alternative investment funds are “finan - cial institutions” under FATCA. Japan and the United States have entered into a Model 2 intergovernmen - tal agreement with respect to FATCA, under which Japanese alternative investment funds are required to comply with certain due diligence, reporting and withholding obligations. Information with respect to US investors and non-compliant investors must be reported to the US Internal Revenue Service on an annual basis. If a Japanese alternative fund does not comply with its reporting obligations, payments of interest and dividends from certain US sources may be subject to withholding tax at a rate of 30%. CRS Japan is a member of the OECD. In order to imple - ment the CRS for the automatic exchange of infor - mation, which was approved and published by the OECD in 2014, Japan amended the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties, etc (Special Taxation Measures Act) during the 2015 tax reform, which came into effect on 1 January 2017. Under the amended Special Taxation Measures Act, when engaging in new transactions, reporting financial institutions are required to have the counterparty submit a declaration form for identity verification to determine their country of residence. If the counterparty includes residents of countries that are parties to tax treaties, this information must be provided to the relevant tax officer in Japan. “Reporting financial institutions” generally include general partners of investment funds; therefore, gen - eral partners are required to fulfil the obligations under the amended Special Taxation Measures Act.
4.11 Anti-Money Laundering (AML) and Know Your Customer (KYC) Regime Under the Act on Prevention of Transfer of Criminal Proceeds, both Article 63 Exempted Operators and FIBOs are required to obtain specified documenta - tion for AML/KYC purposes prior to, or at the time of, executing a fund subscription agreement with each Japanese investor. In particular, operators must collect sufficient infor - mation to verify the identity of the investor, including: • identification of the individual signing the subscrip - tion agreement on behalf of the investor; and • identification of the investor’s “effectively control - ling person”. If a transaction is deemed high risk under the Act (eg, it involves certain foreign politically exposed persons), operators must apply enhanced due diligence. Any transaction that gives rise to a suspicion of money laundering must be reported to the competent gov - ernment authority. In addition, the Act requires operators to maintain records of both investor identification procedures and transactions conducted with investors. 4.12 Data Security and Privacy for Investors The Personal Information Protection Act, which gov - erns personal data protection in Japan, has under - gone multiple amendments in recent years. These revisions have tightened regulatory standards to align more closely with the recommendations of the Finan - cial Action Task Force (FATF). Fund managers, like banks and other financial institu - tions, are subject to the Guidelines for the Protection of Personal Information in the Financial Sector, and must therefore comply with equally stringent require - ments for safeguarding investor data. 4.13 Anticipated Changes for Investors No substantial changes to the regulations discussed throughout 4. Investors are expected in the short term.
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