Private banking: USA makes new attack on foreign institutions with US offices

The HIRE Act appears to be an appropriations Act : in the US, that's basically a list of funds that the Federal government will make available to government departments, agencies or projects run or sponsored by the government, and the terms they are made available on - for example as to expiry. It also covers where money will come from : for example:

"For expenses authorized by 28 U.S.C. 524(c)(1)(B), (F), and (G), USD20,990,000, to be derived from the Department of Justice Assets Forfeiture Fund."

This is a summary of the relevant provisions:

s813: The limitation period under The Statute of Limitations is increased in cases of "significant omission of income in connection with foreign assets.

s822: A new special rule is added to permit the Secretary to require financial institutions to file certain reports relating to foreign transfers electronically. These relate to withholding tax.

s831: "clarifications" relating to foreign trusts "which are treated" as having a US beneficiary. This includes a presumption that certain foreign trusts have a US beneficiary.

s871 et seq: variations of the "Economic Substance" doctrine.

But it is a s801 et seq that foreign banks with offices in the USA are under direct attack. The sections require them to file reports on foreign holdings of US tax payers or face a 30% tax on sums remitted to e.g. head office. The easiest way to avoid this charge? Enter into an information-release agreement with the US Treasury.

The Bill was signed into law on 18th March - and received very little coverage during its passage or on signing despite making available USD18,000 million (approx) in tax credits for taking on new staff.

The sections are not restricted to banks: hedge funds, share and commodity dealers, investment funds (including "hedge funds") and private equity firms - and even, arguably, law firms and accounting firms through which investment moneys flow in e.g. transactional cases - are all covered by its broad terms. The provisions will come into effect at the beginning of 2013 but it is possible to interpret them as having retroactive effect meaning that affected businesses must start looking into appropriate measures immediately.