Hong Kong and Asia fund managers can celebrate as the US Treasury and Internal Revenue Service last week agreed to postpone a new US tax law from January next year to January 2014.
But industry players warn against breaking out the champagne too soon as no agreement has been reached to exempt the thousands of retail and pension funds in Asia. It seems more lobbying will be needed.
For those who are not familiar, here is an introduction.
The United States initially wanted to impose the Foreign Account Tax Compliance Act (Fatca) in January. It aims to prevent wealthy Americans from dodging their tax liabilities by requiring all companies and banks that do business with US clients to disclose information about assets.
The rules were supposed to target US citizens but it would put a burden on all Hong Kong and Asian fund managers because they were faced with onerous reports to the IRS.
Any Hong Kong or other non-US financial institutions that failed to co-operate faced a 30 per cent withholding tax on their US-sourced income.
That was not funny, so the Hong Kong Investment Funds Association (HKIFA) and five fund bodies in the region earlier this year jointly lobbied US tax authorities for an exemption for funds such as Hong Kong's Mandatory Provident Fund.
No exemption has been granted but at least the law has been delayed for a year.
Richard Weisman, US tax partner in Hong Kong at Baker & McKenzie, told White Collar the new timetable was helpful to everyone.
"It gives the financial services industry in Hong Kong and elsewhere a bit more time to properly deal with these new compliance obligations which is critically important in light of the breadth and complexity of the new requirements and the fact that the final regulations have not yet been released," Wiseman said.
He said the compliance conditions should be released in the next two months, giving people more details of what was involved.
Large US fund houses such as BlackRock also were concerned about the law.
Mark Oh, BlackRock's Asia-Pacific director and head of tax, said postponement of the new law was good news but that was not the end of the story.
"Publicly traded funds, in our view, still pose a low risk of US tax evasion, and should be treated as fully exempt, including from withholding. This issue has not yet been addressed by the US Treasury," Oh said.
He believes more lobbying will be needed next year and it will be crucial to the lobbying efforts to get exemptions for many Asian retirement funds.