FATCA Affects Mutual Fund Investment Opportunities for Americans

The strict reporting requirements related to FATCA have caused many global mutual fund investment companies to deny U.S. investors seeking to open accounts.

ftx-tax-litigationUnited States citizens looking to invest in foreign-based mutual fund companies have found that many are denying new account requests due to complications driven by the Foreign Accounts Tax Compliance Act (FATCA). The law requires foreign financial institutions to report information on U.S. account holders who are subject to the IRS and imposes strict penalties (up to a 30% withholding penalty) for U.S. based funds transfers on those who fail to comply. The financial burden of processing and reporting this information and the necessary training and manpower required to stay up to date with compliance are leaving some companies questioning whether the effort is worth it.

Mutual Funds Deny U.S. Investors

In fact, it has been reported that some Indian companies such as HDFC bank and Quantum MF are now refusing to open new mutual funds accounts for U.S. taxpayers. This means potential investors are being stalled or denied pending clarification regarding FATCA agreements and requirements for mutual funds companies. At this time, India has not yet signed an intergovernmental agreement with the United States, but individual financial institutions were required to file with the IRS by January 1, 2015. However, many of those institutions have declined to register before a formal agreement is signed with India.

An Unexpected Complication

The U.S. government claims these negative consequences were not anticipated as FATCA was initially part of a larger legal effort meant to improve U.S. employment and investment opportunities abroad. However, the time and financial costs of creating a system to process and report the necessary information has proved to be overbearing for many companies. These banks, investment groups, and even employers have weighed the consequences of failing to comply with the costs of meeting the requirements of FATCA and the result is sometimes to just sever ties with U.S. customers.

Over time, this may continue to have a negative effect on U.S. relations with foreign financial institutions. However, the global trend towards transparency in financial reporting is gaining momentum. As standardized reporting processes and guidelines continue to be discussed and implemented in other jurisdictions throughout Europe and Asia, companies will most likely have to bite the bullet at some point and create an efficient information gathering and reporting process.

To learn more about your obligations under FATCA, consult your professional tax attorney or an experienced tax law firm.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.

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