British banks and stockbrokers may refuse to take on American clients if new international tax proposals outlined by President Obama are passed.
The decision, which would make it hard for Americans in London to open bank accounts and trade shares, is being discussed by executives at Britain’s banks and brokers who say it could become too expensive to service American clients. The proposals, which were unveiled as part of the president’s first budget, are designed to clamp-down on American tax evaders abroad. However bank bosses say they are being asked to take on the task of collecting American taxes at a cost and legal liability that are inexpedient.
Andy Thompson of Association of Private Client Investment Managers and Stockbrokers (APCIMS) said: “The cost and administration of the US tax regime is causing UK investment firms to consider disinvesting in US shares on behalf of their clients. This is not right and emphasises that the administration of a tax regime on a global scale without any flexibility damages the very economy it is trying to protect.”
One executive at a top UK bank who didn’t want to be named for fear of angering the IRS said: “It’s just about manageable under the current system – and that’s because we’re big. The danger to us is suddenly being hauled over the coals by the IRS for a client that hasn’t paid proper taxes. The audit costs will soar. We’ll have to pay it but I know plenty of smaller players won’t.”
The British Bankers Association (BBA) and APCIMS had a meeting with European counterparts 10 days ago to discuss the crisis. A delegation is set to meet the US Treasury’s Internal Revenue Service on 16th June to demand they drop the reforms.
Ahead of the meeting APCIMS, whose members manage £400bn of Britain’s wealth and employ 25,000 people, has sent a letter to the IRS complaining that the “unfair” proposals represent “no benefit but… significant cost” to its members.
President Obama’s proposals are built on the so-called Qualified Intermediary system which was intended to ensure Americans paid the correct tax wherever they were domiciled. Foreign financial institutions that handle American money have to fill in a US tax form on behalf of the client that has to be audited too. In return, the banks receive a QI seal of approval as a qualified intermediary.