CISI Sees Red over ‘FATCA Bullying’

The US is behaving like a bully in imposing unfair costs on UK investment managers and banks, which work with American clients, via its Foreign Account Tax Compliance Act (FATCA), claims Simon Culhane, chief executive officer (CEO) of the Chartered Institute for Securities & Investment (CISI).

Writing in its member magazine,
Securities & Investment Review
, Culhane discusses FATCA legislation, the aim of which is to force non-US financial institutions to identify their US clients and report them to the Internal Revenue Service (IRS).

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

“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.”

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

This, says Culhane, 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 IRS. Otherwise, the firm is deemed non-compliant and face a range of sanctions, including a 30% 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,” says 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.”

The article concludes by conceding that there are signs things might improve a little as recently HM Revenue & Customs (HMRC) signed an inter-governmental agreement (IGA) and announced a consultation process aiming to reduce the compliance burden. “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,” says Culhane.


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