The US Internal Revenue Service (IRS) is clamping down on their citizens who try to evade paying taxes but their latest move will affect several local businesses.

The Island's banks, investment advisor companies and other financial service operators who deal in US securities, will have to disclose who their clients are, or face a 30 percent tax on investment income. Last week Bermuda became an approved jurisdiction by the IRS. The recognition is in relation to the Island's know-your-customer rules and stands Bermuda in good stead for January 2001 when the new IRS rules take effect.

"The approval provides an additional option for Bermuda's investment funds, banks, and trusts to keep the financial affairs of their non-US clients, confidential from the IRS,'' said Bob Steinhoff managing partner of the accounting firm KPMG.

The documentation for the IRS will be the biggest burden for local companies according to several investment advisors.

The new rules will require all affected local companies to decide whether to become what is called "a qualified intermediary (QI)'' or a "non-qualified intermediary (NQI)''.

Qualified intermediaries would have to enter into a "withholding agreement'' with the IRS. This agreement would exempt the QI company from having to reveal the identity of their non-US clients.

All American nationals who were clients of the QI company would have to be disclosed and, if required, their tax withheld and deposited with the IRS.

Companies who chose not to form an agreement with the IRS would become non-qualified intermediaries. The IRS would require such companies to disclose to them the identities of all their clients holding US securities whether American or not. Companies who chose not to make the necessary disclosures would face an increased tax rate, usually 30 percent, held on their US income.

The accounting firm KPMG applied for Bermuda's current `approved jurisdiction' status with the IRS on behalf of the Government and Bermuda International Business Association (BIBA).

Mr. Steinhoff of KPMG urged local companies that plan to apply to become QI's, to do so promptly.

"Companies should act promptly as they run the risk of not gaining approval by January 2001 -- the date that the rules take effect,'' he said. "KPMG has been closely monitoring this situation and is actively assisting companies in Bermuda and other jurisdictions, with the implementation of the new rules,'' he added. Robert Pires, head of Bermuda Investment Advisory Services Ltd., admitted his company would have to adapt to comply with the new IRS rule. He said that BIAS had retained one of the five major accounting firms to help it with the process.

"We are already implementing procedures as we have to adapt to it,'' he said.

"We certainly will be ready before the deadline.'' Mr. Pires and Jeff Conyers of First Bermuda Securities both stressed that the new rules would have no real effect on their clients. They noted that their companies were not in the business of tax evasion. "We use US firms as clearing agents already,'' Mr.

Pires said.

"It will be business as usual for us,'' said Mr. Conyers, "We are fully disclosed anyway and are regulated for US securities in the US.'' TAXES TAX