Exactly how this will affect the price of US shares, for example – and thus potentially, as a result, the price of assets in other parts of the world – is far from clear at the moment, according to Georges Bock, a Luxembourg-based KPMG partner and head of tax at KPMG.
However, Bock told reporters at a funds event in London yesterday sponsored by the Association of the Luxembourg Fund Industry, early indications are that “there could be an impact” once investors take into account the costs of complying with the Foreign Account Tax Compliance Act (FATCA).
Bock said a rough estimate of the cost to investors of "€35 to €50 per investor” was conceivable – a cost, he noted, that FATCA effectively imposes on non-Americans as the price of being able to invest in US assets.
When asked whether FATCA could cause foreign investors to dump their American investments as the compliance deadline approaches, “the majority [of investors], for the moment, say ‘it depends on what they [the Americans] are going to do…how hard they will hit the nail,” Bock said, citing recent KPMG research on fund promoters, which will be formally released next month.
A minority of people, though, “say they will consider exiting the market”, he added, while another minority – roughly one third – “say they could not imagine” getting out of their US investments, Bock added.
He noted that the potential damage FATCA could do to American securities, companies, private equity firms and other businesses is one of the arguments organisations like ALFI are using in their efforts to negotiate, on their members’ behalf, with the US authorities who currently are drawing up the act’s final provisions.
As reported, FATCA was signed into law in March of last year by President Obama, when it was a little-publicised component buried inside a larger piece of legislation known as the HIRE Act (Hiring Incentives to Restore Employment).
Already many Americans expatriates and others with non-US bank accounts and other financial products say they are being told that they must close their accounts, as the institutions seek to avoid having to comply with FATCA.
Last month the IRS released guidance on the legislation which was intended to provide businesses with more clarity on what the agency will be looking for from companies and how it intends to enforce the new rules.
Bock and other experts note that many of the details of how FATCA is to be administered and enforced have yet to be finalised.
But in his presentation yesterday, Bock stressed that this lack of final clarity should not be seen by businesses as an excuse to continue to postpone planning for implementation.
“Let me spell out one thing very clearly: The law has been [passed and signed into law by the president]," Bock said.
“It starts, according to that law, on the first of January 2013. It’s too late to start [preparing for it now]; you already should have started. But I agree; it’s also too early to go for full implementation.”
Carrying out an analysis of how FATCA is likely to impact them is one of the measures Bock said companies should be taking now if they have either American clients, American assets or both.
They should also begin to ask questions like “what potential strategies are there that I might use to mitigate my situation, and maybe also strategically decisions [I might take, such as] stopping certain businesses [or stop working] with certain persons”, he added.
Under FATCA, international financial services institutions with accounts of more than $50,000 that are held by US citizens must register and report to the IRS. Those institutions that do not comply will be subject to a 30% withholding tax on all payments made to them in the US.
