FATCA, or the Foreign Account Tax Compliance Act, will need overseas banks to report U. S. clients to the Irs, but its loose definition of who is a OUGH. S. citizen will create a huge administrative burden and may push non-residents to slash their U. S. exposure, a few bankers say.
"Wegelin believe this is a regulatory beast. It is an important regulatory burden not only on Swiss banks but worldwide, " said Ivan Adamovich, head of the Geneva department of Switzerland's oldest bank, Wegelin.
"We decided to tell our clients not to purchase U. S. securities any more. If clients want contact with U. S. securities we would buy an ETF which doesn't have a U. S. regulatory base, " Adamovich said.
Because of become law in 2014, FATCA will ask overseas banking institutions to report U. S. clients with more than $50, 000 in assets towards the U. S. Internal Revenue Services, or withhold 30 percent from the interest, dividend and investment payments due those clients and send the cash to the IRS.
Bankers say the scheme will end up being extremely costly to implement, and some say that since the legislation stands, any bank with a client judged to become a U. S. citizen will be also obliged to supply documentation on other clients.
"FATCA will cost 10 times to the banks than it'll generate for the IRS. It is going to end up being extremely complicated, " said Yves Mirabaud, managing partner from Mirabaud & Cie and Swiss Bankers Association board fellow member.
"We (will) try to convince the IRS to make something the industry bit lighter, a bit more reasonable. We are towards automatic exchange of information. "
But despite concerns regarding FATCA, it may be unfeasible to advise clients who desire a globally diversified portfolio to sell all their OUGH. S. company stocks and bonds, said Vontobel head associated with private banking Peter Fanconi.
"We as an industry need to seriously start to speak about the consequences of FATCA. (But) we can't advise clients to pull out of one of the greatest global markets, " Fanconi said.
Alexandre Zeller, head from the private banking business for Europe, the Middle East as well as Africa at HSBC said avoiding U. S. assets won't be an option for global institutions.
"We are a worldwide bank... There is no way we are going to say we don't work with the US so clearly it's about finding the easiest method to implement this new regulation, " he said.
A OUGH. S. inheritance law dating back at least 50 years which may now be more vigorously applied as america seeks to rake in tax revenues is also making bankers think hard about client holdings of U. S. securities.
"Holding US securities on a direct basis can produce inheritance tax independent of the holders of those investments, " said Pierre de Weck, global head of personal wealth management at Deutsche Bank.
"Therefore we definitely recommend non-U. S. clients not to hold U. S. securities on the direct basis. There's no reason for a Swiss resident with nothing related to the U. S. to incur 40 percent U. UTES. inheritance tax. "
The broader definition of who is susceptible to U. S. taxation under FATCA could also bring more private banking clients underneath the U. S. tax net, regardless of their domicile.
"The client must be aware... being a Swiss citizen and having U. UTES. exposure, there could be an inheritance issue. We haven't actively advised, we have informed our clients there is possibly a finish risk there, " said Fanconi.
Source : India Times