New US tax rules will have global impact – Société Générale
New US rules to curb tax evasion will have a “world-wide impact” and raise practical and cost issues for financial institutions, said Bruno Prigent, deputy head of Société Générale Securities Services (SGSS) at a briefing today (16 May) in London.
The rules known as the Foreign Account Tax Compliance Act (FATCA) will require foreign financial institutions to report and disclose their US clients to the Internal Revenue Service (IRS). They will also be required to withhold 30% of interest and dividend payments from “recalcitrant” account holders who fail to provide adequate information.
The rules are part of a tougher US approach to clamp down on tax evasion through non-US companies and funds and by individuals. A wide range of foreign financial institutions will be affected including investment management companies, banks, hedge funds and insurance companies.
The rules were approved in March 2010 by President Barack Obama. The practical details are still being worked out by the IRS and financial institutions are lobbying the US authorities in an effort to reduce the rules’ potentially negative impact. A full version of the regulation is expected to be published by the end of 2011 with a final text at a later date.
Banks are worried that they will face a very short deadline to implement the rules and would like at least two years after their adoption to prepare for their introduction, said Gudrun Goebel, head of business development and product management at SGSS. Banks will need to review their documentation for all investors and will have to set up new compliance systems, she said.
It is still unclear when the rules will have to be implemented, but the extra reporting cost is estimated to be in a range of $20 to $50 per account on average, Goebel said.
Efama, the European investment management association, has been lobbying the US authorities in an effort to ensure a simpler set of rules.
According to the US Congress, the US loses tax income of about $100bn annually due to offshore tax abuse.