The Association of Investment Companies says the US government has not yet answered basic questions about how firms will implement the foreign account tax compliance act.
The Fatca legislation is designed to tackle tax avoidance by US taxpayers. It requires foreign financial institutions to disclose details of US shareholders or face a penalty of up to 30 per cent withholding tax on gross proceeds of US assets.
Speaking at the annual AIC conference, AIC public affairs director Guy Rainbird said complying with the act will be “a nightmare”.
When asked how firms are supposed to identify their US shareholders, Rainbird replied: “This is one of the fundamental problems the Americans have not really thought about.”
He explained there are scenarios where a person’s US tax liability may be unclear, for example, an American who marries a UK citizen and takes a UK citizenship or someone who holds a US visa.