Passage now appears likely of US legislation that would alter the US tax status of funds in Bermuda and other offshore domiciles, according to "Top Six'' accountancy firm, KPMG Peat Marwick.

Enactment may force some funds to reconsider why they maintain an administrative function offshore, although tax experts are not committed to the belief that such funds may move back onshore.

Originating from a US Treasury Department review, the proposals include a tax simplification measure affecting the "stock and securities trading safe harbour'' for non-US persons.

The legislation is aimed at making it more attractive to move the administrative services of fund managers from offshore to the US.

Treasury officials estimate the proposal could raise an additional $10 million for the US government in the period up to the year 2002. They proposed it to become operative back-dated to the taxable year beginning last January.

Non-US parties, at present, can use a US-based investment fund to invest in US stock and securities, without becoming subject to US federal income tax on the trading gains recognised by the fund, provided the fund is not a dealer in stocks or securities and the fund does not maintain its principal business office in the US.

In a communication dated the July 4 US holiday, Bermuda-based KPMG tax partner, James W. Blankenship, cautioned that versions of the budget from the US Senate and the US House of Representatives were yet to be reconciled by a joint committee.

But he said, "In view of the fact that the two versions of this proposal are identical, inclusion in the joint bill is almost certain. The enactment of the legislation will also require President Clinton's signature.

"However, we consider it highly unlikely that the President will raise any objection to this particular proposal.'' He said that many investment funds are administered off shore for a number of reasons, including: US estate, inheritance taxes or both could potentially be imposed on foreign decedents if assets are held within certain jurisdictions.

US state and local income or franchise taxes may apply to operations in the US even where those operations are not subject to US federal income tax.

Investor confidentiality could be put at risk if the fund's books and records are kept onshore without the exchange of information procedures currently in place in some of the offshore domiciles (e.g., the US /Bermuda Tax Treaty.) Various state and federal authorities could potentially seek to regulate funds administered within a particular onshore jurisdiction.

US property taxes, payroll taxes, taxes imposed on the personal income of employees (tax equalisation payments), and the costs of health care ad other benefits may make doing business in the US relatively expensive.

Mr. Blankenship said, "Even if these issues are addressed, the laws and regulations of federal, state and local authorities are subject to change, especially in response to external events such as the movement onshore of a significant number of investment company operations.'' The US tax expert advised clients: "All of these obstacles should be considered before any action is taken in response to new legislation.

"Although we believe that passage of the above legislation is likely, we caution that it has yet to be enacted. The final form and effective date of any resulting legislation is uncertain.'' Bill Clinton -- Legislation requires his signature.