The UK Investment Management Association is in discussions with the US government over its incoming FATCA legislation - new regulations which could adversely affect all foreign firms that invest in US equities and all firms that count US taxpayers among their investors.

The new rules, which are scheduled to come into effect on 1 January 2013, will mean foreign firms will have to prove to the US authorities that they are not liable to pay any US taxes, or they will automatically face a penalty of 30 per cent on their returns.

The rules are part President Obama’s HIRE Act, which aims to curb tax avoidance, but would “impact upon every fund investing in US equities as well as all funds that have US investors”, an IMA spokesperson told WealthBriefing, who added that the regulations would be “unworkable”.

Stephen Lynam, head of tax at the IMA, told this publication that identifying all investors and ensuring that none are liable to pay tax in the US would be a major headache for the entire wealth management industry, leading the IMA to lobby the US Government.

“The message from the Internal Revenue Service is that they want this to work and are trying to help within the constraints of FATCA,” says Lynam, “but there’s a high degree of consensus among US politicians about this legislation, making it difficult for the IRS to go back to their political masters looking for changes. I’m not very confident they will be able to do anything to make it easier for European firms to comply with the new rules.