The Association of the Luxembourg Funds Industry (Alfi) says the Foreign Account Tax Compliance Act (Fatca), recently passed by the United States 'could fundamentally change the way funds are distributed'.
Due to be implemented in 2013, the legislation is designed to crack down on tax evasion and will require all foreign financial institutions to report investors who are taxable in the US to the US tax authorities. If foreign institutions do not comply they could suffer a 30% withholding tax on interest, dividends or gross proceeds.
Alfi warns that compliance with Fatca could require wholesale reorganising of fund distribution systems, which could cost up to US$40 per investor. A large proportion of this cost would have to be met by European investors, rather than the US citizens who stand to benefit from reclaimed tax.
Alfi deputy director general Charles Muller said the challenge is to find ways to lighten the administrative burden so as to prepare for the legislation.
“Evading Fatca is not an option for the European fund industry,” he said. “Firstly because the law has been passed, and secondly because the net has been cast so wide that it is hard to escape. Unless you never want to invest in the US again.”
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