By now, we’ve all heard the news that Treasury had to extend the FATCA deadline by six months, a development which they attributed to a “groundswell of international interest”. But there’s another piece of news you probably haven’t heard: the day before the delay was announced, the U.S. and China concluded the fifth round of their roughly-annual Strategic and Economic Dialogue, attended by government officials and businesspeople from both sides. As always, they issued a joint statement about the matters discussed, which for the second year in a row included FATCA, described this time in the following terms:
| 中美双方承诺尽最大努力在法定截止期２０１４年１月前就《美国海外账户税收合规法案》（ＦＡＴＣＡ）的实施达成政府间协议。为寻求ＦＡＴＣＡ实施的合作方案，美国财政部、美国国税局、中国财政部、税务总局和中国人民银行承诺在２０１３年夏天尽早开展下一轮讨论。 | Both sides commit to make best efforts to reach an intergovernmental agreement on the implementation of the Foreign Account Tax Compliance Act (FATCA) in advance of the January 2014 deadline in the legislation. To seek a cooperative solution to the implementation of FATCA, officials from the U.S. Department of the Treasury, the IRS, China’s Ministry of Finance, State Administration of Taxation, and the People’s Bank of China will hold the next round of discussions as early as practicable this summer. |
| (Chinese version from the PRC Ministry of Foreign Affairs) | (English version from the U.S. Department of the Treasury) |
If we take this paragraph at face value, it looks like a major win for Treasury: the second-largest economy in the world — the one which everyone has been predicting for more than a year and a half would resist FATCA, and the one whose central bankers previously implied they saw it as a violation of their sovereignty — is now publicly committed to making “best efforts” to sign an IGA. Yet oddly enough, even with such an apparent victory for their narrative of “overwhelming interest” in FATCA, Treasury didn’t breath a word about it in their press release summary of the event or in their announcement of the FATCA delay. So just like Sherlock Holmes, we have a mystery on our hands: why didn’t Jack Lew’s dog bark?
How is the news being spun in China?
In a world where the IGA signings of island nations of a few hundred thousand people like Malta are considered to be major economic events worthy of global news blasts, I only ran across this news about a country of 1.3 billion people accidentally — I was tracking press mentions about one of the people who attended the meeting. Out of all the global Anglophone finance media, only International Finance Corporation Review appears to have even noticed. King & Wood LLP (not to be confused with Wood LLP run by Forbes contributor Robert Wood) also issued a press release claiming that this means an IGA is inevitable.
In contrast to the U.S. Treasury, China’s Ministry of Foreign Affairs thought FATCA was worth at least a one-clause mention in the press release they issued for domestic consumption:
| 与会的中方企业家就赴美投资遇到的市场准入、资质认定、公平对待、加强中美新能源合作以及美即将实施的《海外账户税收合规法案》（FATCA）对中国银行业的影响等问题表达了各自的诉求和关切。 | The Chinese entrepreneurs present at the meeting expressed their requests and concerns on investing in U.S. market, such as market access, qualification accreditation, fair treatment, as well as strengthening China-U.S. new energy cooperation, the impact on Chinese banks of the upcoming U.S. “Foreign Account Tax Compliance Act” (FATCA). |
| (Link to Chinese version) | (Link to English version) |
But other than that, they’ve been playing it very low key. Not a single government official has emerged to comment publicly on FATCA since Liu Xiangmin complained last November that it violates Chinese law and unnecessarily increases costs. The state-run Xinhua News Agency’s sole recent mention of FATCA has been to quote Singapore’s United Morning News, which made Chinese translations of English-language reports noting the connection between FATCA and the recent spike in U.S. citizenship renunciations.
In the absence of any word from the government, the Compliance-Industrial Complex gets center stage, particularly its branches down in Hong Kong which can speak comfortably to both English-language and Chinese-language media. Both the South China Morning Post in Hong Kong and Caijing up in the mainland have recently produced long press hits for Patrick Yip of Deloitte, who feels that signing FATCA would be a “brand-enhancing move” for the mainland & Hong Kong and that it will “only” increase costs by one to two percent. In fact, Yip is pretty much the only person who’s had anything to say about China & FATCA in the past month; even Jennifer Wong over at KPMG has been quiet.
Hong Kong’s finance industry is clearly listening to Yip — Standard Chartered, for example, has revised its account-opening procedures to ask new customers about their U.S. Person status, an act which is sadly legal under Hong Kong’s Swiss cheese anti-discrimination laws (unlike the much stronger Canadian Charter of Rights and Freedoms, which may bar FATCA compliance). However, it’s not certain whether even the Hong Kong government is listening to him, let alone the government in Beijing — in the most recent round of information exchange amendments to Hong Kong’s Inland Revenue Ordinance, the government chose not to include any provisions that would enable the Inland Revenue Department to participate in automatic information exchange of the type that would be demanded under a hypothetical Hong Kong–U.S. inter-governmental agreement, and a major pro-government legislator made a rather negative speech even about the limited amendments which did pass.
The Chinese government is apparently happy to let Deloitte grab all the attention for now — otherwise they would suck all the air out of the room by letting a few “unscripted” sentences slip out in some random press conference — but of course, that says nothing about whether they agree or disagree with the accountants’ positions. Silence is also a negotiating tactic.
Does China really want reciprocity?
The standard Washington line is that Beijing’s desire for increased reciprocity has caused these delays. Of course, if Beijing really wants this, the fact that it’s causing delays is an even worse sign for FATCA. More than a year ago, in the last round of the Strategic & Economic Dialogue, both sides committed to “provide an opportunity to discuss China’s concerns” about FATCA. Why might a year of discussions followed by six months of “best efforts” by negotiators on both sides fail to reach an agreement on something which has allegedly been promised to every “FATCA partner country” in the world? The very language of the most recent Dialogue’s joint statement should lead a reasonable observer to question to the whole shaky edifice of IGAs and purported U.S. commitment to bilateral information exchange. This is quite likely one reason why Treasury is keeping very quiet about the Pyrrhic victory of getting China to pretend to say something positive about FATCA in public.
Personally, I’ve previously expressed my doubts that China wants reciprocity. Sources which praise the Chinese government and sources which criticise it reach the same basic conclusions about Beijing’s lack of interest in financial transparency; they differ only in the motivations they ascribe to this attitude. As an example of the critical type of source, an article in the Wall Street Journal a few weeks ago stated:
Almost no Chinese official tallies his investments and net worth in ways that make the information accessible to the public. Now, there are indications that Mr. Xi’s government is stepping up efforts to keep it that way. In addition to the apparent resealing of once-available data, Chinese authorities also appear to be cracking down on transparency advocates as political dissidents.
This doesn’t quite sound like an environment conducive to Chinese FATCA proponents’ career chances.
Guess who’s coming to dinner?
Whether or not China wants reciprocity, it’s pretty clear that the FATCA negotiations are at an impasse: the U.S. has proposed a bog-standard Model I or II IGA for mainland China (and possibly Hong Kong and Macau as well), China has made some sort of counteroffer with a mix of partial concessions and its own demands, and further discussions have failed to produce an acceptable compromise, probably because the U.S. cannot find any way to grant China’s demands without triggering the “most-favoured nation” clauses in earlier IGAs. We could act like the mainstream media and engage in some unbridled and uninformed speculation on what those demands might actually be, but for now let’s stick to a more basic problem which arises directly from the text of the Dialogue’s joint statement: who are the players in these discussions?
An interesting aspect of the upcoming China–U.S. “best effort” FATCA negotiations is the guest list. In addition to the tax collectors and finance chieftains of the two sides, there’s a fifth wheel: the People’s Bank of China (PBOC), China’s central bank. This contrasts oddly with earlier IGAs: the Bank of England doesn’t seem to have had anything to do with the United Kingdom’s IGA, for example. Even more curiously, there is no sixth wheel: the Federal Reserve is not invited, even though both sides tend to be rather picky about dispatching equally-sized delegations of people at equivalent ranks during these kinds of hostile negotiations.
The two Strategic and Economic Dialogue participants who brought up FATCA were probably CITIC chairman Chang Zhenming and Bank of China chairman Tian Guoli. The U.S. didn’t have any bankers in attendance; the closest analogue they brought was Laurence Fink of Blackrock, while the rest of their delegation comprised manufacturing CEOs. Institutionally, the “Big Four” state-owned banks in China — including BOC — are all descendants of the PBOC; they were spun off in the early 80s when the PBOC gave up its monopoly on deposit-taking in order to focus purely on monetary issues.
The presence of the PBOC at the proposed negotiations is quite likely related to whatever demand has been made by one side that the other is unwilling to meet, but it’s impossible to be sure precisely how. The U.S. Treasury is trying to preserve the unconstitutional fiction that IGAs are merely interpretive agreements between tax authorities and not treaties between countries; whatever compromise the U.S. and China are trying to reach, it may require a commitment from the PBOC in addition to one from the State Administration of Taxation & the Ministry of Finance, neither of which can bind the PBOC. Alternatively, the PBOC’s presence might be related to China’s “best alternative to negotiated agreement”: they will attend the negotiations in order to inform the U.S. of the general outlines of their backup strategy in case no IGA can be reached and Chinese banks become FATCA non-compliant. Presumably this will have something to do with one of the PBOC’s areas of competence (such as capital controls), and may involve some sort of retaliatory treatment of U.S. investments in China.
Conversely, the narrower composition of the U.S. delegation tells us something about what China is likely to be seeking: a concession in the area of taxation or tax information exchange, whether that might comprise heavier burdens on Washington or lighter burdens on Beijing. This may seem obvious and unremarkable, but it suggests that China is not trying to strike some sort of “grand bargain” of committing to full FATCA compliance in exchange for U.S. concessions on some other Chinese geopolitical objective in an area outside Treasury’s competence — such as anything related to U.S. interest rates, trade barriers, or arms sales to Taiwan.
Conclusion
Like the old joke goes, don’t believe anyone claiming to be a China Expert unless he worked in a porcelain factory for the last two decades. I have no inside information on the Chinese government, but then neither do any of the lawyers, compliance officers, and wealth managers whose self-aggrandising attempts to drum up business are quoted by the Anglophone media as gospel truth. The only thing we can say for certain: Treasury is not at all confident that the combined “best efforts” of the governments of the two largest economies on earth will be sufficient to meet the FATCA deadline. And presumably they’re also worried that the U.S. will not get the better side of the trade & tax retaliation that would inevitably follow from an attempt to impose 30% withholding on payments to Chinese financial institutions.
@ crystal london
Interesting you should bring up “panoptico”. I brought this up once at Brock too. I wrote: “Financial panopticon prison is actually a pretty good description of FATCA.”
http://www.corbettreport.com/articles/20080308_panopticon.htm
And I might add that the “financial panopticon prison” called FATCA is built with the resources of other nations and its US person/prisoners are forced to enter by signing a waiver of their privacy rights. The USG meanwhile gathers up its penalty payments, smirks about its newest power grab and, according to Obama, rebuilds its own infrastructure, by which he really means continues to feed the US military industrial complex monster.
Why propose conspiracy theories when simpler explanations suffice? Canadian, UK and most other authorities already know how much is in local financial accounts and would share that information with the US instantly for non-tax reasons on request.
The US resists CBT because it wants to preserve it’s tax base. Other countries have trouble because their super rich claim residence in a tax haven and don’t spend long enough in any taxing location to pay very much in tax. Sir Philip Green who claims residence in Monaco is a good example. Another is Roman Abramovich who uses the UK as an effective tax haven due to dodgy non-domicile rules. Taxes on the super rich can be substantial so the loss of this income is significant. Furthermore, it upsets the rest of us when we see them getting away with it.
The US avoids this problem but it does have to make sure the super rich can’t stash the money out of the reach of the taxman. Hence FATCA. The US doesn’t care about us expats. They are quite happy to shake us down for some loose change. In principle, they could set things up so we didn’t get hit so hard but that would require some major administrative effort for no financial reward, only costs. So they can’t be bothered.
@Johnson,…
I think you meant… The US ‘persists’ with CBT not resists. 🙂
@Johnson
Regardless of the original intention of FATCA (which I am sure was characterized by mindlessness in the extreme):
The financial costs, and effects on: U.S. citizens abroad, human freedom, privacy rights, the cost to other countries, the interference with affairs of other countries, the illegality of of IGAs under U.S. domestic law, the request by Levin to extend the use of FATCA data are now well known.
Since these effects are well known it seems reasonable to assume that the USG intends all of these results. Therefore, FATCA is maliciousness in the extreme.
Your comments suggests that you see FATCA as just shaking expats down for some “loose change”.
No. FATCA is the enforcement mechanism for what they call citizenship-based taxation. Citizenship-based taxation has little to do with taxation. It has everything to do with life control.
Would you characterize the:
– confiscation of life savings
– the inability to seek normal career objectives
– the interference of the USG with sanctity of the family
– the inability to maintain normal social relations
as shaking down expats for “loose change”?
I am tired of the stress just having to think about FATCA and US taxes on money earned, invested and used outside the US with no nexus to the USA except the fact one of the passports held by the person who worked for the money is a toxic blue passport. It’s like having to feed Uncle Sam sitting at the dinner table along with my wife kids and other relatives. Just sitting there with his hand out making me feed him. Someone should write an article about the Toxic Passport – how the US passport is THE worst one of any developed country to hold if living overseas.
Also I noticed that Obama has a twitter account – I don’t use Twitter nor do I know if anyone actually reads Twitter messages to him but is it worth a try?
@Steve,
Anything is worth a try. In fact, the more we yell and scream the better the chance this will end up in our favour(spelled with a u). Certainly, keeping quiet, will get us nowhere.
How much is the U.S. govt. targeting to “collect” implementing FATCA? 792 million/year over next 10 years.
One suggestion is to allow banks to pay a non-compliance tax in lieu. Converting the money and resources each bank has to invest each year, there will be no doubt that all banks would rather pay this tax. It is money out the door the easy way or the hard way anyway. Why not do it the easy way?
It is all about money so the U.S. govt. gets the money it wants (or much much more) and the banks save all trouble……….Believe me, this is a win-win for all, make life easier for U.S. govt. (unless the U.S. govt’s intent is to create more jobs, lol) and all govts. and all banks in the world. 792 million divided by say 2,000 banks in the world = 396,000 per bank – this is chicken feed. It is rather stupid to make a big fuss to collect such small change……..Wouldn’t u agree?
@John
Sounds like protection money to me, just like the Wall Street banksters are paying the Justice Dept to allay charges against them. What a perverse concept, which makes it all the more likely the US will do it. This does NOTHING to curb offshore tax evasion but would net them more if they were to actually implement FATCA.
Beat me to it, Bubblebustin. Although the word I was going to use is “extortion”.
@tdott
I think of FATCA as the extortion that the FFI’s need to protect themselves from. If this comes to fruition, nice racket that the US will find themselves in!
That would make too much sense, John. I agree with USCtizenAbroad in his comment regarding US CONTROL with US Citizenship-Based Taxation. It is not about the $ amount of taxes they will collect. Surely the US can do the math or have done some kind of cost/benefit analysis of FATCA! Too bad they don’t also pick up all the costs for FATCA implementation / IT systems around the world.
http://isaacbrocksociety.ca/2013/08/24/so-how-are-those-china-u-s-fatca-negotiations-going/comment-page-2/#comment-503255.
The use of the phrase “best efforts” reminds me of when I worked as a waitress and whenever customers made a request that was not possible to fill, I would answer “I’ll see what I can do” or “I’ll do my best.” In other words, a face-saving way to say no.
@Chris, any signed IGA will be meaningless on the street in HK, Shanghai, Shenzen, Xiamen, Beijing or anywhere else in China. Why? Just like with visa’s that aren’t supposed to be extended or aren’t allowed but, everyone gets one anyway, the Chinese will get around it! They will be able to pay someone to make their connections to a “U.S. person” disappear. There will be entire industries springing up with a nudge, nudge, wink, wink and a small pay off to the local “handler” of your situation with regard to any IGA requirement. So what you produced false I.D. to the bank? This will be politely ignored in China and no they won’t go looking to verify such things.
Cheating in China is generally accepted on many levels. You can pay someone to fake your school records so you can come to school abroad. Even high level private schools do this. You can get a visa you aren’t entitled to. You can do whatever you like as the thinking there is that in order to succeed in life and get around ridiculous rules you do what you gotta do. They do NOT think of this the same way we do. Good luck with the IGA with China U.S. government. The Chinese are not going to smoothly give over anything to you. Announcement or not..I can’t wait to see this play out. The Chinese will smile, make no comment about it, get around it and continue on with their lives.
So, this is being trumpeted…
China Agrees To Global Crackdown On Tax Evasion
International efforts led by the G20 countries to combat tax avoidance and evasion got a boost yesterday with China signing a key convention to share tax records, the OECD said.
China became the 56th signatory to the agreement by signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. China’s decision means that all G20 countries have now agreed to cooperate on tax evasion, living up to their promise at the Cannes G20 Summit, that they would move towards automatic exchange of information in the battle against tax crimes across international borders.
By making the agreement an international standard, tax authorities are moving from bilateral to multilateral cooperation and from exchange of information on request to automatic exchange of information.
“This convention provides the ideal instrument to swiftly implement automatic exchange, and to do so with a wide range of partners. This also represents another significant step in the strengthening of collaboration between China and the OECD,” said OECD secretary general Angel Gurría.
@just me
I’m having this fantasy that FATCA will be redundant and this OECD agreement will allow the US to withdraw it without losing face.
Because of US Citizenship-Based Taxation, FATCA is NOT fair to law-abiding US Persons Abroad. If FATCA, DATCA, GATCA makes sense and is where the world is going, all countries should have the same rules, reciprocity and consequences as one another. GATCA should trump FATCA.
Oh, Canada! Could you be this sneaky? This is why I should never run a country, I would have hit the nuke button already.
re China etc… See: http://www.oecd.org/tax/exchange-of-tax-information/conventiononmutualadministrativeassistanceintaxmatters.htm
Any views? Is this what is meant by GATCA?
Does this make FATCA look like small beer?
@KingOfTheRoad….response to your comment…. interpret that china OECD agreement is on the first step to “fake ” FATCA/DATCA/GATCA for china …… they may find this a poison pill if local chinese “hack-tivists” get hold of communist party officials’ offshore bank accounts…unless same party officials are data gurus or hactivists themselves..
also Bubblebustin fantasy…. Sep 4, 2013 at 12:52 pm I have this too!!
overall message: in the age of “big data”….. international mobility and freedom will be “dragged down” by your data trail as various “gubbermints” try to claw taxes from you based on various datasets.
requirement: unless you are very rich….find a country that you like on balance for all its issues (tax burden v. services delivered) (broad hint: western Europe, Canada, Oz, NZ where you wont bankrupt yourself for complex medical issues and where at east in West Europe you can get around WIHTOUT A CAR!) , settle there and renounce the US toxic passport.
remember folks. 6.5 million Americans abroad globally-educated, alert, articulate-every “gubbermints” worst nightmare.
pfa. is there anyone out there that wants to start the UK equivalent of Isaac Brock??? lemme know ,anxious to kick something off.
🙂
…and James Jatras comment:
@KingofTheRoad…
Yes, anything the OECD is championing, is by definition GATCA. They jumped onto FATCA as the means to get them to their idealistic world.
As it has been said, FATCA/DATCA/GATCA is all about control…
This was an interesting read, given it is coming from a FCC guy who doesn’t like me on Twitter or on Linkedin. 🙂 and was all enthusiastic about FATCA when it all started. Now a year on, I think he is beginning to understand this is about Control!
FATCA means business: how to recognize a Controlling Person?
Lovely how a synonym can lead to mental disturbance. I’ve been involved in an implementation of the Foreign Account Tax Compliance Act (FATCA) for over a year now. Somewhere down in the relevant regulations there’s the concept of Controlling Person, that may be a U.S. Person for tax purposes. These Controlling Persons need to be disclosed by a so-called Passive Non-Financial Foreign Entity (NFFE). For reasons of compliance I was interested in the definition of a Controlling Person.
Read on, as you might find it interesting Here is the conclusion for a guy in the FCC are similar to many made here at IBS.
As the Tower of Power states in the third step to deal with Controlling People: speak up to controlling people. You cannot shatter the idealized image placed on you until you speak up to face the problem. Though you are a victim of someone’s hurtful behavior, you are responsible for your response.
Pay your duties, repeal, give up your U.S. Citizenship, move to the greener grass on the other side.
Pingback: The Isaac Brock Society