Financial firms tally hit from US tax law

Compliance costs could reach US$100 million for asset managers, and some local funds have already lost clients, industry group says

PUBLISHED : Monday, 08 July, 2013, 1:58am
UPDATED : Monday, 08 July, 2013, 3:05am

A new tax rule that will force overseas financial institutions to disclose the account details of their United States clients to the US government is threatening Asian asset managers, according to ICI Global, a lobby group for the global asset management industry.

“All the international tax issues, such as Fatca (the US Foreign Account Tax Compliance Act), and FTT (the European Union’s financial transactions tax), will have a spillover effect on other parts of the world,” Yang Qiumei, the head of ICI Global Asia Pacific, told the South China Morning Post.

Some local asset managers were already losing clients as a result, she said.

Under Fatca, if a non-US asset manager invests in US assets, such as bonds and stocks, it would be forced to share account information with the US government, or be liable to pay a 30 per cent withholding tax on revenue generated from US investments.

JP Morgan has estimated the average cost for each multinational financial institution to comply with the new rule could amount to US$100 million.

Yang, a veteran regulator, worked at the Hong Kong stock exchange where she served as deputy head of the market development division, and before that at the China Securities Regulatory Commission, where she worked for 10 years.

“You have a critical mass now, like Chinese companies, which have international ambitions,” she said, and it was time such companies made their common interests known to global regulators.

Currently, the only way companies can avoid the obligation to share client information is for their governments to sign intergovernmental agreements (IGAs) with Washington. The US is engaged in, or has completed discussions, with about 75 countries on the new tax, including Japan and Singapore, which are the only two Asian countries that have signed such agreements.

“The number of IGAs is increasing, but we still have to see more being completed,” said Yang. “We have been lobbying hard with the US government.”

Having set up an office in May, Yang said the group’s main goal in Asia was to help facilitate talks between regulators and fund managers, especially with regard to solving cross-boarder jurisdiction issues, in order to better equip local firms to expand overseas.

Asian members of ICI Global include CSOP Asset Management, Fullgoal Asset Management, Haitong Asset Management, E Fund Management, China Asset Management, China Universal Asset Management, HuaAn Asset Management and Nikko Asset Management.

Yang said ICI Global was also concerned about the EU financial transactions tax, which would tax trades in stocks, bonds and derivatives, as it would result in reduced market efficiency and cut funds’ returns.