Negative feeling towards the financial sector is rife at the
moment as a wave of occupation protests has spread across the
US and over to the UK. At time like this, being accused of
harbouring US tax evaders is the last thing asset managers
But that is exactly what the Foreign Account Tax Compliance
Act (Fatca) - a subsection of the Hiring Incentives to Restore
Employment Act of 2010 – implies.
This piece of US tax
regulation is intended to enforce the disclosure of US
taxpayers and therefore capture all potential tax revenue that
is payable on the worldwide income of US citizens, and it
requires all firms earning income on US assets to report on
this fact, or else face a 30% withholding tax.
For asset managers across the globe, they have to know
exactly when, where and how they are earning revenue on US
The cost of compliance is a concern for asset managers
globally. The general sentiment is Fatca is onerous and impacts
many funds that have never before been associated with US tax
According to Jean-Michel Loehr, chief of industry and
government relations at RBC Dexia, the burden of Fatca goes
beyond what the US is aiming to achieve.
"Fatca’s scope is extremely large, which is why
the costs will be disproportionate to the expected outcome," he
During the 2008 campaign, US President Barack Obama
predicted the introduction of Fatca would generate $100bn in
additional revenue annually. But when the Joint Committee on
Taxation investigated these claims, it slashed this projection
to a mere extra $870m a year.
In these times of austerity every billion counts, even for a
country which is projected to run a $1.6trn deficit in 2011,
according to the White House’s Office of
Management and Budget. But the billion dollars figure just
counts increased tax receipts and not the compliant costs for
And according to Kerry White, managing director, global
product management at BNY Mellon Asset Servicing, these costs
"One would hope that when new rules like FACTA are being
designed, there is a concern for the cost of compliance" says
White, but instead she feels the rule makers are influenced by
populism rather than economic reality.
"For better or worse, these are the kinds of the things that
sometimes become popular legislation in the US when people
think 'the rich are getting richer’ or that
'overseas US investments are escaping the tax
code’", she says.
Moreover she fears Fatca could catch on in other parts of
"When you see such a large number floating out there as
potential tax leakage, it makes me think that
there’s nothing to stop the EU or any other
jurisdiction from bringing in their own type of similar
legislation. In this day where many sovereign entities are
struggling with their budgets and balance sheets, cracking down
on current tax evaders may seem a lot more palatable than
raising taxes on other classes," she says.