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US law may hit UK funds with 30% tax

The Investment Management Association has sounded the alarm over US tax rules that could hit funds with a 30 per cent withholding tax on certain assets if they fail to comply with burdensome disclosure rules.

The IMA says it is lobbying against the US Internal Revenue Service rules, which are already enshrined in law and will apply from 2013.

The laws are known as the Foreign Account Tax Compliance Act and are contained within president Barack Obama’s Hiring Incentives to Restore Employment Act, which was signed into law in March. They are designed to clamp down on US citizens evading taxes when they invest abroad.

They will force authorised funds, custodians and even IFA firms that have a nominee agreement on behalf of clients to sign an agreement that they will provide the IRS with information on all US taxpayers they service.

But the burden of collecting this information is immense and IMA head of taxation Stephen Lynam says that, under the current rules, the information would have to be collected even if you believe you do not have any US investors.

Any breaches of the rules would see the US levy 30 per cent withholding taxes on the gross proceeds of any US assets held.

Lynam says: “My best guess is that fund managers would require everybody in the distribution chain to establish with them that they have an agreement under Fatca. This outcome is bizarre. We are waiting for the detailed legislation and hoping that the scenario that I am talking about does not happen. We are hoping that the IRS will modify the rules to allow something that is not so impossible to comply with.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. If you kept taxes relatively low people will be less inclined to hide their money in lower taxed jurisdictions.

    So don’t have have high taxes and you solve the problem.

    Sadly I suspect we are going to see much more of these sort of things as countries who have run their economies on the never never now struggle to find the money to pay the ever increasing costs of their bloated administrations.

  2. I think HMRC should be looking to enhance legisaltion to attract a similar result for all UK based investors, especially at a corporate level. The idea that only the mass employed should pay greatest taxes is rediculous and as collection of corporate taxes continues to deminshes this is the best place to plug a hole and recoup.

  3. “We are hoping that the IRS will modify the rules to allow something that is not so impossible to comply with.”

    I predict little softening. The IRS is notoriously deaf to requests to act reasonably. There are too many high-profile individuals in the organization whose career prospects rely on the appearance of toughness.

    Expect a compliance nightmare in the future, combined with the US government being “surprised at the reduction of foreign investment into the US” as non-US investors find and migrate into alternative non-US investment vehicles.

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