“Little incentive for China to implement Fatca”
Comment and analysis from James George Jatras of RepealFATCA.com
Washington, February 8, 2013
If anyone had any thought that China would go along with FATCA, forget it.
As noted in Risk.net, China has little incentive to comply with FATCA (the Foreign Account Tax Compliance Act) or to sign an intergovernmental agreement (IGA) with the U.S. In fact, Beijing has every incentive – and ability – to tell Washington to get lost.
Even if other governments are deluding themselves (or trying to delude their citizens), Chinese authorities have figured out that FATCA and IGAs are a bad deal for the so-called “Partner” non-U.S. country:
“In Hong Kong there is a lot of misinformation about IGAs among financial institutions. Because so many countries are looking at this issue, some institutions believe that if Hong Kong signed an IGA, it would save them from having to comply with Fatca. This is not the case. While it may make Fatca easier to comply with under an IGA, it is still essentially the same framework,” she [PwC US tax partner Angelica Kwan] said.
Kwan said it would be prudent for jurisdictions to weigh up the pros and cons of an IGA.
“One of the results of an IGA is that a financial institution can no longer choose not to comply with Fatca. The jurisdiction signing an IGA will require under local laws that all financial institutions comply. We do not anticipate that any IGAs could significantly reduce the burden of Fatca compliance for Chinese and Hong Kong financial institutions,” she said. [emphasis added]
This point is not well understood by FFIs: Not only does an IGA not save them much money, if any, it deprives them of the business decision of not complying with FATCA, presumably by pulling their assets out of the U.S. to avoid the 30% withholding. Granted, some FFIs can’t disengage from the U.S., but others can. In the case of the latter, however, if their government signs an IGA they would be forced to comply under their own domestic law, contrary to their own business interests.
Add to that the fact that virtually any concession FFIs and the non-U.S. “Partner” may think they can secure in an IGA can be changedvirtually at will by the U.S. side.
Also, note:
For Fatca to be effective against tax evasion, it needs to be implemented worldwide, said Tim Clough, risk and assurance partner at PwC, at the same briefing.
“Fatca needs to be established globally and with all financial institutions, otherwise there will be arbitrage. Therefore it is in the US’s interest so sign up as many countries as possible to IGAs as it will mandate institutions in that country to comply,” Clough said.
Aside from the fact that FATCA has nothing really to do with policing actual tax evasion, the main point is clear: IGAs are not optional for the US but essential to FATCA’s survival. As RepealFATCA.com been saying: No IGAs, No FATCA!
Some governments (pressed by their terrified FFIs), as Andrew Quinlan has observed, still seem not to have figured this out (from Risk.net):
No country in Asia has yet signed up to an IGA. Japan is in the process of finalising its agreement while Australia, New Zealand, Malaysia, Singapore, India and Korea are believed to be actively engaged with the US Treasury over this issue.
Or maybe they’re just slow-rolling the process to stall the Americans, while they wait to see what happens? In any case, by even considering IGAs with the U.S., governments of these and other jurisdictions are acting to save this bad law. Instead, they would do well to heed the Chinese example and just say NO to FATCA.
And FFIs, instead of urging IGAs on their governments would be better served by helping our repeal effort here in the U.S. – and getting rid of FATCA entirely.
James George Jatras
+1.202.375.1007
Headline to Risk.net, lead paragraphs, and source link follow:
Little incentive for China to implement Fatca
Author: Justin Lee
Source: Asia Risk | 08 Feb 2013
Categories: Regulation
The US is pushing to sign up as many countries as possible to an IGA, but for China signing an IGA appears less appealing
There is little incentive for Chinese authorities to sign an intergovernmental agreement (IGA) to enable China’s financial institutions to comply with Fatca, as any benefits to it from an exchange of information with US tax authorities are likely to be minimal, say consultants.
IGAs are government-to-government agreements entered into between the US and the partner country to establish a framework for foreign financial institutions to report certain account information to their local tax authorities. Once the necessary information is obtained, the partner country will transmit such information to the US Internal Revenue Service (IRS) under either existing bilateral tax treaties or tax information exchange agreements.
[ . . . ]
Full text at: http://www.risk.net/asia-risk/news/2241791/little-incentive-for-china-to-implement-fatca
or this link
http://thetaxtimes.blogspot.co.nz/2013/02/asia-is-huge-hurdle-for-fatca-agreements.html?goback=.gde_3731046_member_212450564
“Friday, February 8, 2013
Asia is a Huge Hurdle for Fatca Agreements! ”
……….”Speaking at a PwC Fatca roundtable in Hong Kong on February 6, Anthony Tong, US tax consulting leader for Greater China, said it is the US that would gain the most benefits from such an agreement – as it would be onerous for China to comply with no obvious benefit.”……
….”There is little incentive for Chinese authorities to sign an intergovernmental agreement (IGA) to enable China’s financial institutions to comply with Fatca, as any benefits to it from an exchange of information with US tax authorities are likely to be minimal, say consultants.”….
…..”Under Chinese law there are a lot of bankruptcy protection rules, so that under the current Fatca rules it would be very difficult for Chinese financial institutions to try to comply. Even if the account holders were to waive those privacy protections, there are still laws that would make it illegal to report that information to the US government. ” …….
There’s one faction in the government that thinks China could use a reciprocal IGA to get information about Chinese citizens’ assets in the US, and use that to crack down on corruption (or, if you want to take a more cynical view of it, to crack down on their political enemies). I wonder how long it’s going to take them to realise that the US has absolutely no capacity to deliver on reciprocity …
State & Party media overseen by different government departments are taking very different editorial lines on FATCA. E.g. last year Xinhua plucked an obscure pro-FATCA editorial out of a regional newspaper and put it on the national wire. In contrast Beijing Youth Daily just ran a very anti-FATCA article that I’m still working on translating.
@badger
That attorney just copies things without attribution all the time in his blog. That was the Risk.net article! LOL
@Eric…
It will be interesting to see that Beijing Youth Daily article.
It also seems to me, from my reading of the Risk.net article, that this Chinese official realizes there is no real reciprocity.
If Sweden passes the IGA I will plan my move to China prior to the first reporting in 2015.
risk net requires a signup. Does one sign up for the 30 day trial and cancel?
That reminds me of an item on my pre-FATCA to-do list. Years ago (nearly ten now) when I was dating mainland Chinese wife, I opened an account on the mainland for when I visited up there. By the time she came to live w/ me in Hong Kong we just cleaned out the account and forgot about it. This was years before I had any idea about FBAR’s or started filing them. Now while asking my wife how you go about closing the account, she basically said, no account number… no ATM… no close. We ended up digging it up so no worries for me, but I’m quite I’m sure there are a good number of US folk just like me who lived/worked in HK/China and opened an account w/ a passport, never reported it, and have no ability to close it now w/o the required information (or even if they do, will need to show up in person). If China signs FATCA and the sub-50K threshold is ignored, you have to wonder if that’s not going to cause them some problems.
Mark Twain…
You should be able to access the Risk.net article via this google news search link… I put it right at the bottom of this Post. Here is the shortened link. http://bit.ly/14Yl0tw
Someone else is beginning to understand that Model 1 Signatories will probably get little useful information from the US
http://www.fatcalinks.com/home/viewpoints/IGA/Model1-IGA-Analysis
No new content, but interesting in terms of the source, and the very last line. See quote.
http://www.taipeitimes.com/News/biz/archives/2013/02/16/2003554943
………”The US Treasury is working with more than 50 countries on deals, but negotiations have not progressed with key trading partners Canada and China.”
Just adding to the archive here.
This has turned up on the net, but I don’t have enough knowledge of the context to comment on it:
http://tiananmenstremendousachievements.wordpress.com/tag/fatca/
‘Netizens applaud US taxation plans amid concerns about corruption in China’
Posted: February 17, 2013 | Author: chankaiyee2
@badger: Yeah I translated that exact same story 12 months ago:
https://notlearningcantonese.posterous.com/fatca-as-artillery-for-shooting-corrupt-chine
In other words the South China Morning Post is recycling year-old stories from the Epoch Times. I knew there’s a reason I’m not one of their subscribers.
@IBS readers, read Eric’s post on the recycled article I linked to above, it provides very detailed and nuanced context that is missing from the article from the South China Morning Post.
@Eric, thank you for the clarification and your link, I had read your earlier post when it first went up, but didn’t realize this Feb 17 ‘update’ was being recycled by the SC Morning Post a year later!
On the China subject… Wait until these guys turn their hacking attention on FATCA data…
This is chilling…
Chinese Army Unit Is Seen as Tied to Hacking Against U.S.