A proposed United States act that would require banks in Hong Kong and around the world to identify their American customers could be passed into law as soon as Congress reconvenes this week following a holiday break. Already approved by Congress, one of the provisions of the Tax Extenders Act of 2009 is that non-American banks and trusts will be charged a 30 per cent withholding tax on income earned from US financial assets if they fail to disclose the nationality of their account holders. Two leading US senators have pledged to resume discussion on the act 'as quickly as possible in the new year'. The act now awaits a vote in the Senate. 'It won't be delayed by the elephant in the room, which is the withholding tax on foreign financial institutions,' said Timothy Burns, an associate at law firm Withers in Hong Kong. 'And in this part of the world, that is going to be the most relevant provision.' The US has cracked down on overseas tax evasion in the past year in a bid to chase down hidden revenue sources and fill its empty coffers following the financial crisis. It added 800 new Internal Revenue Service (IRS) enforcement agents to its overseas dragnet after Swiss bank UBS struck a US$780 million settlement in February last year on charges of assisting American clients dodge their taxes. By bringing foreign banks into the disclosure loop, the US government would achieve even greater scope for surveillance and enforcement. It would also burden the banks, however, with the obligation to keep a record of their account holders' nationalities and then file this regularly with the US authorities. These requirements will take effect in 2013 if the Tax Extenders Act of 2009 were passed into law by a vote of approval in the Senate. 'And if the banks want to comply with that, then they will need to begin as soon as possible,' said Evan Blanco, the chairman of the taxation committee at the American Chamber of Commerce in Hong Kong. 'Banks with the natural human inclination to wait to the last second could get caught short.' Some banks, however, may instead just draw a line in the sand, considering all the additional paperwork and due diligence that the reporting requirements would entail, and walk away from serving US customers. 'Many non-US banks, particularly the smaller ones that do business in non-US markets like Asia, will likely just turn US customers away rather than deal with these onerous requirements,' Burns said. US oversight of foreign banks would push its expatriates even further under the thumb of the American government. In addition to paying local taxes, the 60,000-plus Americans living in Hong Kong are required to declare their foreign-earned income to the IRS. And they must also report the combined value of their foreign financial accounts, or those for which they had signatory power, if this exceeded US$10,000 in aggregate during the year. 'It comes from this attitude that if you are a US citizen or green card holder and have an offshore bank account, then you must be a tax evader,' Burns said. 'Nothing could be further from the truth.' The provision on foreign reporting requirements in the Tax Extenders Act would raise US$7.6 billion in revenue over 10 years. It would defray part of the law's US$31.1 billion worth of tax breaks, which cover everything from school supplies to the production of renewable energy. Senators Max Baucus and Chuck Grassley wrote a letter late last month to Senate Democratic leader Harry Reid, expressing their desire to resume discussion on the proposed law some time early this year. The Senate is scheduled to meet tomorrow.