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  1. Wealth
June 7, 2010

Withers: HIRE Act to limit Americans’ choices

By Spear's

A straw poll conducted by international law firm Withers has indicated that a growing number of Americans are likely to be denied investment and banking services in the coming years as a result of the new requirements imposed on non-US financial institutions by the HIRE (Hiring Incentives to Restore Employment) Act.

A straw poll conducted by international law firm Withers has indicated that a growing number of Americans are likely to be denied investment and banking services in the coming years as a result of the new requirements imposed on non-US financial institutions by the HIRE (Hiring Incentives to Restore Employment) Act. Those surveyed were all bankers, accountants, IFAs, trust companies and other advisors, who work extensively with US individuals and companies.

The survey of 48 respondents was conducted at a seminar hosted by Withers in London in June 2010 as part of their ‘In search of HIRE ground’ initiative, analyzing the impact of the HIRE Act signed by President Obama on 18 March 2010, which imposes a swinging 30% withholding tax on financial institutions that do not comply with its extensive new reporting requirements. ‘In search of HIRE ground’ is a global campaign, with seminars also held in the Withers’ Hong Kong, Swiss and US offices.

51% of respondents said they have seen instances where Americans were denied investment and banking services in the last two years but 95% stressed that they expected to see a growing number of such instances as a result of the HIRE Act. 72% also expected to see investment into the US decrease in the coming years due to the HIRE Act, although 87% still believed financial institutions would want to comply with the Act to maintain competitive advantages in US investments.

Described at the seminar as ‘an absolute game-changer’, the HIRE Act will have a dramatic effect on all institutions with US clients or interests. Building on the earlier ‘Stop Tax Haven Abuse Act’, it contains a range of revenue-raising provisions that equip the IRS with ‘new tools to find and prosecute US individuals that hide assets overseas.’

Its primary targets are ‘foreign financial institutions’ (FFI), funds and collective investment structures but numerous entities such as trusts and family offices, who would not fall under the definition of financial institutions themselves, but invest through them will also be affected.  Compliance and reporting costs for the institutions involved are set to increase dramatically, which has prompted suggestions that many would opt to refuse services to US persons, rather than handle the added compliance burden.

Under the new rules, unless an FFI enters into an agreement with the IRS to report information about its US account holders each year, a 30% withholding tax will be applied to all US investments. FFIs will have to review their client base annually to identify any US persons amongst clients and report the names and addresses of each US account holder, as well as the account number, the account balance and any gross payments or withdrawals through the account to the IRS. The FFI will also be required to comply with any due diligence or verification procedures imposed by the US Treasury and comply with any requests for additional information from the US Treasury.

Jay Krause, partner in the wealth planning team at Withers, comments:

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“The HIRE Act may be the most remarkable piece of tax legislation ever enacted; its impact is severe, wide-ranging and by no means limited to the US. It will affect all Americans abroad and a multitude of non-US institutions, big and small. Unlike some previous legislation, the HIRE Act’s bite is, if anything, worse than its bark – it demonstrates that while tax information exchange agreements are still being considered by a number of jurisdictions, the United States is prepared to pursue tax transparency unilaterally.

“Management teams at non-US financial institutions and funds, together with trustees and family offices will need to understand the composition of their customer and beneficiary bases and learn to effectively comply with the new regime if they are to service their clients efficiently and avoid IRS investigations or even prosecution.”

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