HONG KONG entrepreneurs and investors could be the targets of a wide range of tax rises on their profits from the United States, a director of KPMG Peat Marwick says. Sandy Weiss, a director of US tax for the accountancy firm, yesterday said he was '75 per cent' confident that swingeing new tax increases would be imposed on foreign investors in a bid to subsidise domestic tax cuts. He said local business could be caught in the political crossfire that had erupted now that the Republicans had taken control of the US Senate and House of Representatives. He said: 'Such measure might include a tax on capital gains from the sale of US stock and other property by foreigners. At present, only gains from real property are taxed. 'Transfer pricing rules might also be tightened to make it more difficult to shift profits offshore. 'It is also conceivable that certain exemptions relating to interest income from portfolio investments might be eliminated, thereby dramatically reducing yields on such investments.' It would be a double tax blow for local companies investing in the US. From January 1 the US Inland Revenue Service will close a tax loophole and make Hong Kong companies liable for 30 per cent withholding tax. Regulations are also being prepared that will effectively rule out Hong Kong companies receiving tax-free interest payments on debts owed from their US subsidiaries. Mr Weiss said the next round of tax rises could be prompted by pressure to subsidise a projected US$200 million cut in US domestic tax rates. He said: 'Republican leaders have already announced plans to pass legislation mandating a cut in income taxes, including a possible 50 per cent reduction in capital gains tax. 'Assuming President [Bill] Clinton agrees to sign such legislation into law, this would be the best news for investors of all nationalities since [former president] Ronald Reagan signed the Tax Reform Act of 1986. 'However, in order to offset the revenue that would be lost as a result of a tax cut, other changes would have to be made to raise revenues. 'There has been some talk of cuts to entitlement programmes such as social security and welfare which are a major drain on the Treasury. However, such cuts would be unpopular with a large number of Americans. 'One politically popular acceptable method of raising revenues would be to increase taxes on foreign investors. Such 'foreigner bashing' is all the rage in Washington and is popular with a majority of the electorate. 'This is due to misinformation spread by politicians which results in the popular myth that foreign investors pay little or no taxes on huge profits they are allegedly making on their US investments.' He said a recent survey by KPMG Peat Marwick found that foreign firms had lower profits than their US competitors because many of the investments into American firms during the 1980s had proved to be poor performers and debt servicing resulted in high interest expenses. 'There is some doubt that politicians will allow such facts to get in the way of a good political ploy,' Mr Weiss said. 'This gives rise to concerns that 'foreigner bashing' combined with a need to raise revenues to pay for tax cuts will result in measures that increase the tax burden for foreign investors already struggling to make a profit on US investments.'