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SCMP Reporter

HONG Kong people who migrate to the United States could be caught out by taxation changes before the House of Representatives.

 Accounting firm Price Waterhouse said the first of the two proposed changes, contained in the Tax Compliance Act of 1995, only affected immigrants who later decided to relinquish their US citizenship.

 In the past, individuals were able to give up citizenship with minimal tax consequences. But, under the new amendment, people leaving the US tax system will face a toll on their assets worldwide.

 Jane Barbeau, senior taxation manager at Price Waterhouse, said the charge would be calculated on the current market value of the individual's assets.

 If, after routine deductions, the final figure exceeded US$600,000 (HK$4.6 million) they would be required to pay income tax.

 Ms Barbeau said this change could cause enormous complications and would force people to pay tax on assets in which they may have invested long before migrating to the US.

 'As it stands this proposal is blatantly unfair as it gives no credit for the assets which individuals who became citizens have brought into the US,' said Ms Barbeau.

 She said the new rule followed several highly publicised cases where wealthy US individuals had given up citizenship to avoid tax.

 'We are concerned that these amendments will affect people who do not constitute a loud protest group,' she said.

 'Essentially it is a way for the US Government to raise revenue without harming voting support.'  The second part of the bill will limit scope for people from Hong Kong and other countries to set up grantor trusts for their children or relations who emigrate to the US.

 Currently, these trusts can issue payments or 'gifts' tax free to family members living in the US.

 They can also be used by Hong Kong people to protect assets during the 1997 transfer or to reduce probate duty.

 Under the new proposals, US beneficiaries of these trusts would be subject to income tax on all trust income.

 And on top of this, the trust can still generate a US tax liability even if it holds shares in non-US companies or does not make payments to family members.

 The House of Representatives claims the bill will close tax loopholes, stopping foreigners from exploiting provisions allowing tax-free gifts.

 However, Ms Barbeau argued it would penalise people who wished to take advantage of trust planning, a system commonly used by the parents of Hong Kong students studying in the US.

 'People can still pay tax-free gifts to children or relatives without the use of a trust,' she said.

 'If the US Government really wants to attract Hong Kong people, it has a strange way of going about it.'  'We will certainly be tracking these proposals as they pass through Congress.' 



Tax shadow over American dreams