Legislation that was passed yesterday by the Senate contains measures to tighten laws on expats that could hurt the ability of US citizens living abroad to get financial facilities, a law firm has warned.

Legislation that was passed this week by the Senate – and sent to President Barack Obama for approval – contains measures to tighten laws on expats that could hurt the ability of US citizens living abroad to get access to even basic financial facilities, a leading law firm has warned.

The legislation, called the HIRE Act, and  which was approved by 68 votes to 29, is framed largely to boost employment in the US by exempting firms from payroll taxes through to the end of this year on workers they hire who have been out of a job for at least 60 days. The "tax holiday" will be paid for by getting revenue via tighter rules on so-called tax havens.

As a consequence, an effect of the legislation will be to restrict access to financial services by US expats and it will also hit non-US firms whose clients have investments in the US, warns Withers, the international law firm.

To highlight the risk, in the UK, for example, there are 184,000 US nationals, many of them in relatively affluent positions in the London financial markets, according to data from the Office for National Statistics. (This number may have declined if, as has been claimed, wealthy individuals are leaving the UK due to rising taxes). 

Part of the HIRE Act’s provisions relate to obtaining information from non-US financial institutions - such as UK ones - on any data about their US clients, points out Jay Krause, a senior partner at Withers.

"The objective is to require non-US institutions to disclose details of their US clients to the IRS,” he told this publication yesterday in a telephone interview.

"The definition of 'financial institution' is incredibly broad currently, including not only banks but also mutual funds, hedge funds and most other forms of collective investment vehicles,” he said.

"It [the Act] will require all non-US financial institutions to either turn over to the IRS the same information about their US clients as would have to be provided by a US institution or provide the US client's identification details, account balances and gross transfers into and out of the account,” he continued.

“This would apply regardless of whether the US client was investing into US or non-US assets. Further, the requirements would apply regardless of what type of structure they were investing through, such that trusts and companies would generally be attributed to their beneficial owners. The details of those attribution rules would be issued at a later date,” he said.

Mr Krause said the HIRE Act’s requirements “will sit on top of, and as an addition to, existing compliance rules under the Qualified Intermediary system”.

"If the institution does not enter into any such agreement with the IRS, then they will be subjected to a 30 per cent withholding tax on their investments into the US."

As reported by WealthBriefing, FWR’s sister publication, last year, a number of firms with US clients living in the UK have closed their service offerings, because they consider the cost of complying with US regulations to be so high that it is not worth getting the business. (To view the story, click here).

A source in the financial services industry has told this publication that he is considering complaining to the Financial Services Authority, the UK financial regulator, about what he argues is discrimination against US citizens who are finding it harder to obtain financial services outside the US. He is even considering treating the issue as a matter of racial discrimination.

This publication contacted the FSA to ask if it had any comment on the issue, given that lack of financial facilities for US nationals might be a breach of the FSA's "Treating Customers Fairly" initiative. The FSA had not replied at the time of going to press. This publication also contacted the US Embassy in London, but the organisation declined to comment.

Mr Krause, meanwhile, said the legislation could have a potentially damaging effect, not just in denying banking and other financial facilities to US expats but it also could dampen investment into the US, he said.

"This [Act] will lead to ever increasing difficulty for Americans living abroad as institutional [compliance] will be too costly," he said.