A loan worth nearly $2 billion from the China Development bank is being delayed as concerns over the effect of tax policies in the United States surface.

The China Development Bank is known for its generous loans to Chinese state-owned companies but, as part of its commercialisation process, has in recent months been involved in some of the largest private and commercial deals in Asia.

With more than $980 billion in assets, the CDB has been dishing out big loans at a time when Western banks, under pressure to strengthen their balance sheets, are cutting back on lending, particularly in loan-term loans.

Related News: China Development Bank Steps Up Lending To Private Firms

According to a source who spoke to the Financial Times on the condition of anonymity, the Chinese lender had been in talks for months with Lennar, one of the largest homebuilders in the United States, to help finance a massive housing project in the San Francisco Bay Area with a total value of as much as $13 billion.

China Development Bank's loan of $2 billion, however, is being delayed by what tax lawyers call a regulatory overreach.

Under the controversial Foreign Accounts Tax Compliance Act (FATCA) that comes into effect in 2014, foreign banks could be forced to pay a 30 percent withholding tax on the interest income on any loans made to US entities or persons.

"They need to clarify the implications of these regulations before they approve the loan," said the source.

Related News: Study Finds That Some Companies Pay CEOs More Than in Taxes

Related News: Microsoft & HP Avoided Billions in Taxes via Offshore Units

As part of a plan to fight rampant tax evasion, FATCA requires any foreign lender to identify and report any American account holders and disclose their balances, receipts, and withdrawals to the US Internal Revenue Service, or be subject to a 30 percent withholding tax on income from US financial assets held by the banks.

After it was enacted, FATCA drew fire from the financial industry and foreign governments. Complaints ranged from the cost of compliance to what the law would do to countries, such as Switzerland, where bank secrecy is a long tradition.

As one US tax lawyer explained:

If you are not compliant with all the rules, you are subject to the tax and nobody wants to comply and in many cases are not allowed to comply by their own national regulators.

Related News: US Forms "SWAT Team" To Hunt Corporate Tax Dodgers

elated News: Americans in Canada Asked Not to Fear the IRS and To Pay Their Taxes