A potential financial transaction tax from Europe and the snappily titled US foreign account tax compliance act have been the source of much activity. Both may sound remote but in fact could have an impact on your clients who are hard pressed enough without having to cough up for yet more (arcane) taxes.
So, what about the proposed FTT? It has been talked about often and now the European Commission is planning to put forward a proposal for such a tax. Sadly it is almost becoming the norm that European proposals run the risk of the unintended consequence that ordinary savers will bear the brunt of their impact.
Sometimes the proposed legislation is well-intentioned but seems to miss the point when it is (not) thought through in more detail. But, at other times, as with the FTT, there is no rational explanation. In this case the (ir)rational explanation is that an FTT would encourage stability at the same time as raising revenue from a “rich” sector. But, even though the European Commission intends to introduce this tax “on the financial sector”, in reality it will ultimately be paid for by ordinary investors at a time when many are struggling to save enough for their futures to ensure a comfortable retirement.
At a time like this, we would have thought that the UK Government would do all it can to argue against such a tax. It has instead argued that any FTT should be on a global level so that the UK and other EU countries are not unfairly disadvantaged in relation to their competitors. The IMA has therefore written to the Chancellor to ask him to argue against a FTT in the interests of ordinary savers.
And if that’s not enough, we have found ourselves in the unenviable position of having to deal with a piece of US legislation which will have a serious impact on funds, fund operators, asset managers, pension funds and distributors. The legislation in question is the foreign account tax compliance act, which was due to come into effect on January 1, 2013.
After extensive lobbying by the IMA and others, an announcement made last week said that implementation will now be phased in to allow time for compliance.
The rationale behind Fatca is to target US citizens who are trying to avoid paying tax on their savings. That’s not a problem in itself. What is a problem is the way the legislation is going to work. Basically, Fatca will assume that every investor anywhere in the world who invests in US assets is a US taxpayer unless they prove otherwise.
What will this mean in practice? Basically, if it can’t be proved that there are no US investors in a fund for example, the fund will be penalised in the form of a 30 per cent tax on any US income and gross proceeds from US assets.
And it is the so-called “foreign financial institution” which has to do the proving. And that includes platforms and many independent financial advisers who are the direct interface with clients. So, once again, the ordinary investor loses out.
Mona Patel is head of communications at the Investment Management Association