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US bullying UK over FATCA, says CISI

The US is behaving like a bully over the Foreign Account Tax Compliance Act (FATCA) and the UK government should have the courage to say so, the Chartered Institute for Securities & Investment (CISI) has said.

20 November 2012

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The US has imposed via FATCA unfair costs on UK investment managers and banks, which work with American clients, says Simon Culhane, CEO of the CISI, the professional body for the securities and investment industry in the UK.

“The Americans have slipped in an extra-territorial requirement that will impose significant costs on all asset and investment managers and banks,” said Culhane.

“This US requirement is resulting in a double whammy. It is completely extra-territorial and seeks global compliance while imposing significant additional costs of compliance on virtually every financial organisation globally.

“It has resulted in many financial organisations, including private client and wealth managers, turning away clients simply because they have a link with the US. That strategy alone will not get a financial institution out of the net,” Culhane said in the latest edition of the CISI member magazine, Securities & Investment Review.

The IRS wants to recover taxes due from any US citizen who has accounts outside the US and has not declared them. However, while this is understandable, “it is wrong to penalise firms based outside of the US and impose significant costs and draconian individual responsibility,” believes Culhane.

This is illustrated by the fact that the legislation is making it necessary for any firm that has any investment in the US to first identify which of its customers, or unit trust holders, are American and then report them to the US tax authority, the IRS.

If the firm does not comply, it will be deemed non-compliant and face a range of sanctions, including a 30 per cent withholding of any investment in the US, such as the sale of securities.

“Furthermore, the US authorities require each foreign financial institution (FFI) to appoint a so-called responsible officer.” said Culhane. “That named individual from a foreign firm has to be identified during the FFI registration process and will receive a US Employee Identification Number (EIN).

“This individual will be responsible for compliance with the FATCA regulations within that financial institution and may be personally liable for any substantial non-compliance.

“In addition, each FFI is required to search for indicators of a US nexus, and this includes whether the FFI has on record any US telephone number, and requires the financial organisation to monitor actively and continuously that the individual does not become a US citizen,” he added.

However, here are signs things might improve as recently HM Revenue & Customs signed an inter-governmental agreement (IGA) and announced a consultation process aiming to reduce the compliance burden, said the article.

“No one is advocating tax evasion, but putting the costs on the UK is unfair and our government should have the courage to say so,” concluded Culhane.

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Tax & Wealth structuring