US law may hit UK funds with 30% tax

The Investment Management Association (IMA) has sounded the alarm over American tax rules that could hit funds with a 30% 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 American 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. (article continues below)

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

Any breaches of the rules would see the US levy 30% withholding taxes on the gross proceeds of any American 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.”