The trade body, which represents a worldwide membership of 40,000 wealth and investment managers, said it is understandable for the US to want to tackle tax evasion but “wrong to penalise firms based outside the US and impose significant costs and draconian individual responsibility”.
In an article for its member magazine, Simon Culhane, CEO of the CISI said the legislation has resulted in many financial organisations including private client and wealth managers turning away clients because of their links with the US.
But he warned that strategy alone would not get a financial institution “out of the net”.
He said the legislation is making it necessary for any firm that has an investment in the US to first identify which of its customers, or unit trust holders, are American and to report them to the US tax authority, the Internal Revenue Service (IRS).
Failure to do this will mean the firm is deemed non-compliant and faced with a range of sanctions, including a 30% withholding of any investment in the US.
Complications
The US authorities also require each foreign financial institution (FFI) to appoint a “responsible officer” who is identified during FFI registration and responsible for that firm’s compliance with Fatca regulations.
This individual also has to search for indicators of a US nexus, including anything the FFI has on record to suggest a client is American – for example a US phone number – meaning the financial organisation must monitor actively and continuously that the individual does not become a US citizen.
CISI believes there are signs of improvement, however, as recently the HMRC signed an inter-governmental agreement with the IRS and announced a consultation into Fatca aimed at reducing the compliance burden.
Culhane concluded: “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.”
Just yesterday the US Treasury unveiled a "Fatca Model 2 Template" which is said to be an alternative to the inter-governmental agreements that have come before. This was jus the latest development in what has been a fast-changing landscape, with goalposts for concerned parties constantly changing. Click here for more details.
