Taxation and International Private Client Group Partner Kevin Packman was quoted in a Daily Business Review article titled, "Will Law Have Chilling Effect on Foreign Investments?"
The article discusses the Foreign Account Tax Compliance Act of 2009, a new law designed to stop tax evasion and recover revenues being hidden overseas. The Act is causing both confusion and concern among foreign bankers, hedge fund managers, private equity groups, tax attorneys and wealth advisers around the world who fear that it could cause foreign financial institutions to avoid investments in U.S. securities, even before it goes into effect in 2013.
The Act requires a U.S. person or entity making a payment to a foreign financial institution to withhold and remit 30 percent of the payment to the Internal Revenue Service. Additionally, it compels foreign entities to withhold 30 percent of the proceeds of the sale of U.S. securities. The foreign financial institutions that engage in these transactions can avoid this withholding only by agreeing to work with the Internal Revenue Service to identify its U.S. account holders. These institutions will be exposed to IRS tax penalties and may decide the increased compliance costs are not worth the trouble.
"The reality is a lot of this needs to be fleshed out and clarified," said Mr. Packman. "Banks for years have been dealing with 'know your customer' rules…Private equity funds have never had to deal with that. So that's going to be a big deal."
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