MAJOR tax loopholes for holders of American green cards could be closed under sweeping changes that could affect more than 100,000 Hong Kong residents. The revenue-hungry Clinton administration is proposing the changes, which are expected to generate around US$4.6 billion in worldwide revenues over the next five years. The reforms will mean that former green card holders will be subject to tax from assets anywhere in the world and will cut off the widespread use of trusts to minimise tax liability for payments made to the beneficiaries in the United States. Sandy Weiss, a tax director of KPMG Peat Marwick, said: 'This will wreak havoc on green card holders. Two of the changes would have significant impact on Hong Kong persons holding a US green card and on wealthy Hong Kong families with children or other relatives resident in the US.' Thousands of Hong Kong people hold green cards which entitle them to permanent residency but not full citizenship rights, such as eligibility to vote. But with the residency rights comes tax liability on income and assets from around the world. A popular tax avoidance method for those with a big US tax bill was to renounce their green card - and their tax liabilities - and then to re-apply when they had restructured their tax affairs. Mr Weiss said: 'Currently, if a green card holder surrenders his green card, he is no longer subject to any US tax other than on US real property gains and certain US-sourced income. 'The proposed changes would force a person giving up his green card to report capital gains on a US tax return as if all property anywhere in the world has been disposed of when the green card is surrendered.' This would affect green card holders taxed as US residents for at least 10 of the 15 years prior to surrender. This could be particularly worrying for Hong Kong residents who have made large gains on property transactions over the past decade. For example, a Hong Kong resident granted a green card 11 years ago could have seen the value of their flat rise over that period from HK$500,000 to $7.5 million. Under the proposed rules they would have to pay US tax of 28 per cent on HK$7 million - or $1.96 million - when they surrender their green card. The new rule would be backdated to February 26. US tax officials are also targeting generous tax concessions provided by offshore trusts which enable Hong Kong residents to make tax-free payments to beneficiaries in the US. Mr Weiss said: 'This enabled many Hong Kong residents the best of both worlds. If the Hong Kong person establishes an offshore trust and retains certain powers over the assets in the trusts, the US tax rules require taxation of the Hong Kong person, not the US citizen. 'Since the trust is offshore and has no US income source, the taxable income of the Hong Kong person is nil and the children receive the income from the trust tax-free.' They are called 'grantor trusts' and have been the lucrative sole source of income for many tax practices. The trusts were intended to prevent rich Americans from transferring taxable income to children who could exploit their lower tax scale. Under the proposed changes, the US beneficiaries would become liable for tax on income received from the trust. Mr Weiss said: 'The use by foreign persons is perceived by the Clinton administration as abusive. New rules would only allow this treatment when the grantor - the person transferring assets into the trust - is a US citizen or corporation.' He predicted the changes would be passed by Congress as the practices were generally considered as abuses of the tax system and the individuals affected have no voting rights.