Ever since Risk.net published its initial raft of wild speculation back in 2011, financial commentators around the world have been trying to predict how China will respond to FATCA. Never are these predictions based on any inside information from within the Chinese government; instead they’re careful Kremlinology at best, ridiculous guesses and self-aggrandising propaganda at worst. Today Reuters publishes an article falling firmly into the latter category, in which people closely involved with the development of FATCA get a public platform to proclaim that FATCA would be a great idea for China and that China is very keen on the idea of reciprocity — in the hopes that their comments will put pressure on all the smaller countries to fall into line on FATCA too:
One obstacle in the Chinese talks is likely that China wants, in return, more tax information than U.S. officials are willing to share about Chinese citizens who have assets in the United States, accountants and tax lawyers said … Treasury negotiators “will have to look at whether they can go further than they have” to meet Chinese demands, said Philip West, who served as Treasury’s international tax counsel and is now a partner at law firm Steptoe & Johnson LLP. Like the United States, China taxes citizens on worldwide income. So China should be interested in getting tax information about its citizens’ U.S. investments, tax experts said.
Our good old friend J. Richard Harvey is quoted elsewhere in the article as well; he is identified merely as a tax professor, not as the architect of FATCA whose is staking quite a bit of his professional reputation on its success. This is not the first time that Reuters has omitted this crucial little bit of information about a potential conflict of interest when quoting Harvey as an “expert source” about FATCA.
Aside from the blatantly incorrect statement about how China’s tax system works — like every other country in the world besides the US and Eritrea, China taxes based on residence and not on citizenship — it’s worth asking: where exactly did the idea originate that the Chinese government wants information about wealthy Chinese people’s asset holdings outside of China, and that the best place from which to get that information is the U.S. government? The answer: a marginal exile television station run by a racist cult, reporting on rumours spread by Chinese internet users.
The origins of the story
Since my blog host is shutting down, I’ll be moving some of my old U.S. tax-related content to a new home here at the Isaac Brock Society. This seemed like the perfect piece with which to start, since it relates directly to current news. Early last year, over on my old blog I translated an article from the New York City-based New Tang Dynasty Television (NTDTV). I described it as “the single most most unbalanced piece of reporting on U.S. taxation of non-resident citizens I’ve seen so far in the Chinese-language media” for its complete failure to mention anything about the negative effects of FATCA and FBAR on immigrants and emigrants — at a time when OVDI horror stories had already circulated throughout Chinese-speaking communities in the United States. But even NTDTV didn’t try to claim that data collected from FATCA and FBAR would be a practical tool for taking down corrupt wealthy elites in China, merely that some internet users wish it were.
For those of you who aren’t familiar with NTDTV, it’s part of the extensive overseas media empire of Falun Gong, along with newspapers you’ve probably mercifully never heard of like the Epoch Times and Clear Wisdom. Imagine a Chinese version of Sun-Myung Moon & the Reunification Church’s Washington Times. Their beliefs are a mish-mash of Chinese folk religion, Buddhism, and bizarre pronouncements from their “Master” about how mixed-race children are intellectually defective and can’t go to heaven without his personal intervention. Certainly they’re welcome to believe in whatever they want, but that doesn’t mean that anyone with a brain should take their pronouncements on tax policy seriously.
Can the United States IRS’ artillery take out corrupt Chinese officials?
|新唐人2012年1月18日訊||New Tang Dynasty, 18 January 2012|
|中國貪官之多，中國百姓早已見怪不怪，而且，許多百姓似乎已經認同不是貪官太壞，而是自己沒能耐這種顛倒黑白的是非標準。但這幾天的一則新聞，似乎突然喚醒了不少百姓對貪官的原始憎恨感。這則新聞說：「所有移民美國的人包括綠卡持有者不管是否居住在美國，隱瞞海外的銀行存款或房產等資產，將被重罰坐牢。美國國稅局歡迎中國人舉報，為舉報人保密，並給予舉報人涉稅金額百分之十五至三十的獎勵。美國國稅局北京辦事處電話：010-85313983，傳真：010-85314287。」||China has so many corrupt officials that the Chinese public barely notices them anymore. Many even think that it isn’t that the corrupt officials are so bad, but rather think they themselves cannot bear this standard where black is white and right is wrong. However, a recent news item seems to have suddenly awakened many ordinary people’s existing sense of hatred towards corrupt officials. This news item says: “All migrants to the U.S., including green card holders, whether or not they live in the U.S., may face fines or jail sentences if they conceal overseas assets such as bank deposits or real estate. The United States IRS welcomes Chinese people to make reports, and not only will maintain informants’ privacy, but will also provide informants with rewards ranging from 15 to 30% of the amount involved. United States IRS office in Beijing, telephone: 010-85313983, fax: 010-85314287”.|
|這條半真半假的新聞在網絡上瘋傳，幾乎沒有人去考證或質疑它的全部真實性。讀者對貪官的原始憤怒與憎恨代替了新聞的真實性與新聞讀者的理性與判斷，唯一能夠感受到的最強烈信息是百姓對中國遍地貪官的無奈與憎恨。||This half-true, half-false news item has been spreading online, and practically no one has researched or expressed suspicion of its truthfulness. Readers’ existing anger and hatred towards corrupt officials replaces newspaper readers’ rational judgment of the truth of the news, The only strongly-felt piece of information in this is the frustration and hatred towards corrupt officials held by ordinary people all over China.|
|美國國稅局自二○○八年在中國設立辦公室，地點在美國駐中國大使館內，這則新聞提供的美國國稅局電話與傳真也是真實的；其次，美國國稅局確實有稅務舉報人獎勵政策。《美國稅務法典》第7623項專門規定稅務舉報人獎勵制度，獎勵數可達實際徵稅的百分之十五至三十，這種獎勵政策已實行了一百四十年，但舉報個人偷稅的額度門檻至少二十萬（包括稅，罰款，利息等）；而且舉報不是打電話那般簡單，而是要填寫舉報表格，填寫舉報人真實姓名，雖然舉報人的名字不會被公開；最後，美國國稅局確實要求所有移民美國的人包括綠卡持有者，不管是否居住在美國都必須如實申報海外銀行存款也是真實。但這則新聞遠遠沒有把美國國稅局最重要的《海外賬戶納稅法案》，也是新聞讀者最感興趣的東西說清楚，說精確。||Since 2008, the United States IRS has maintained an office in China, within the U.S. embassy. The phone and fax numbers of the United States IRS provided in the news item are genuine; furthermore, the United States IRS indeed has a policy of offering rewards to informants. Internal Revenue Code Section 7623 specifically defines the system of rewards for informants, with rewards ranging from 15 to 30% of the tax involved. This rewards policy has already been in effect for 140 years, but the threshold for reporting individual tax evasion is $200,000 (including tax, fines, and interest); furthermore, reporting is not as simple as simply making a telephone call, but requires filling in a form and providing your real name, although the informant’s name will not be publicised; finally, the United States IRS confirms that it requires all persons who have migrated to the U.S., including green card holders, to report their overseas bank deposits regardless of whether they reside in the U.S. But this news item does not clearly or accurately describe the United States IRS’ highly important “Foreign Account Compliance Tax Act”, in which newspaper readers feel the greatest interest.|
|美國的《海外賬戶納稅法案》||The U.S.’ “Foreign Account Tax [Compliance] Act”|
|為了對付國人避稅，讓美國政府在金融危機中多收些銀子，美國在二○一○年制定了《海外賬戶納稅法案》（FATCA），這個法案是《恢復就業僱傭獎勵法》（HIRE）的一部分，法案要求，美國納稅人在二○一一年納稅年度須申報自二○一○年三月十八日起，總額超過五萬美元的海外金融資產，如不申報，罰款將高達五萬美元（沒有說要坐牢），而對少申報者，則要處少報數額百分之四十的罰款。《海外賬戶納稅法案》的另外一個殺手鐧是從二○一三年，外國金融機構必須直接向美國國稅局報告美國納稅人帳號的相關信息，如美國納稅人是這些外國金融機構的主要擁有人，這些金融機構還須提供美國納稅人的信息。根據規定，外國金融機構必須履行下列義務：對帳號所有人進行確認以及完成一些正當審查程序；每年向國稅局報告美國納稅人的帳號情況；對這些帳號的任何美國收入都預扣百分之三十等。||In order to deal with evasion of tax by their nationals and allow the U.S. government to get more cash during the financial crisis, the U.S. government in 2010 passed the “Foreign Account Tax [Compliance] Act” (FATCA), a portion of the “Hiring Incentives to Restore Employment Act” (HIRE). The act requires U.S. taxpayers to report, for tax year 2011, any overseas financial assets with a total value of more than $50,000 after 18 March 2010. If they fail to report, the fines could reach as high as $50,000 (but did not say anything about going to prison), and for those who underreport, a fine of 40% on the underreported amount. Another “secret weapon” in the Foreign Account Tax [Compliance] Act is that beginning in 2013, foreign financial institutions must report information about all U.S. taxpayers’ accounts to the United States IRS. If a U.S. taxpayer is the primary holder of an account with these foreign financial institutions, these foreign financial institutions will have to provide information about that U.S. taxpayer. According to the law, foreign financial institutions will have to carry out the following duties: confirm the account owner and complete a formal review process; annual report the account information of U.S. taxpayers to the IRS; and withhold 30% of any U.S. income received by these accounts.|
|儘管銀行家們拼命反對這個法案，但美國國稅局並不在乎。去年十一月，美國國稅局進一步發佈8938表及其填寫指南，開始執行《海外賬戶納稅法案》。根據指南，美國未婚納稅人二○一一年最後一天海外金融資產超過五萬美元，或納稅年的任何時期超過七點五萬美元，必須申報；生活在美國的夫婦如果共同報稅，其海外資產在二○一一年十二月三十一日超過十萬美元或在二○一一年超過十五萬美元，必須申報；而住在外國的美國納稅人夫婦，申報的門檻分別是四十萬和六十萬美元。上述《海外賬戶納稅法案》和8938表及其填寫指南看來就是中國網民雀躍的美利堅炮擊中國貪官炮彈。一位網友因此高喊「讓美利堅的炮火來的更猛烈些吧」。還有人把美國國稅局列為與二奶、小偷齊名的「中國反腐三大利器」。||Although bankers are fighting tooth and nail against the law. the United States IRS doesn’t care. In November last year, the United States IRS took a step forward with its release of Form 8938 and its associated instructions, beginning enforcement of the Foreign Account Tax [Compliance] Act. According to the instructions, unmarried U.S. taxpayers who had foreign financial assets exceeding $50,000 on the last day of 2011, or exceeding $75,000 at any time during the tax year, must file; married-filing-jointly taxpayers who had more than $100,000 on 31 December 2011 or $150,000 at any point during 2011 must file; and for American marrieds-filing-jointly who overseas, the equivalent thresholds are $400,000 and $600,000. The above-mentioned Foreign Account Tax [Compliance] Act and Form 8938 and its instructions appears to be the so-called American bombardment of corrupt Chinese officials that has Chinese internet users jumping for joy. One internet user because of this loudly called for the Americans to increase the intensity of their attacks. Some people even listed the United States IRS alongside mistresses and thieves as “China’s three great weapons against corruption”.|
|從經驗看，美利堅國稅局的炮彈很難打中中國貪官。早在一九七○年，美國就通過了《銀行保密法》，它規定受美國管轄的個人須報告外國銀行帳號信息（FBAR），其中包括美國納稅人在納稅年度任何一個時間段上數額超一萬美元的海外銀行帳號、經紀賬戶、互助金、信託或其它類型的外國帳號等。眾所周知的一個事實是，中國貪官、裸官就是在這部法律生效的時候陸續將天文數字般的錢轉移到美國。如美國國稅局這發炮彈能打中國貪官，今天的美國就不會是中國貪官天堂。||Looking at [past] experience, the American IRS’ artillery will have a difficult time hitting China’s corrupt officials. As early as 1970, the U.S. passed the “Bank Secrecy Act”, which mandated that individuals under U.S. jurisdiction must report information about foreign bank accounts (FBAR), including U.S. taxpayers with overseas bank accounts, brokerage accounts, mutual funds, and credit or other kinds of foreign accounts whose balance exceeded US$10,000 at any point during the tax year. Everyone knows that when this law [presumably they mean FATCA, not FBAR] comes into effect, China’s corrupt officials and “naked officials” [a slang term for those whose family members reside abroad] will one after the other take astronomical sums of money and transfer them to the U.S. If the IRS’ artillery could hit China’s corrupt officials, today’s United States wouldn’t be a a playground for China’s corrupt officials.|
|貪官張恩照被打倒只是意外||Only an accident that corrupt official Zhang Enzhao was hit|
|從FATCA本身看，它要求申報的內容並不包括貪官鍾情投資的房產，作為美國納稅人的中國貪官及家屬還可把錢存在不是美國納稅人的中國七大姑、八大爺帳號上，以中國的腐敗程度，做這點手腳簡直輕而易舉；此外，美國國稅局對打擊中國貪官絲毫沒有興趣；美國政府，美國國稅局對美國成了中國貪官天堂心知肚明，但只要貪官如實申報存在美國銀行與中國銀行的錢數，那麼，貪官在海外有多少錢跟中國反貪就一毛錢關係都沒有了。而且，除非你是總統和國家公務員，美國納稅人的報稅記錄，只有本人、會計師和稅務局知道，外人不得與聞。||Looking at FATCA itself, the content of its reporting requirements does not include real estate, in which corrupt officials love to invest. Corrupt Chinese officials who are U.S. taxpayers, along with their families, can still place their funds in the accounts of “seventh aunts and eighth uncles” who are not U.S. taxpayers. Given the level of corruption in China, this is easy to accomplish. Aside from that, the United States IRS has no interest in attacking China’s corrupt officials. The United States government and United States IRS know very well that the U.S. has turned into a paradise for corrupt Chinese officials, but as long as these corrupt officials truthfully report the amount of money they have in their U.S. bank accounts and Chinese bank accounts, then how much money corrupt officials have overseas has not one cent of connection to Chinese anti-corruption drives. Furthermore, unless you’re the president or a national civil servant, a taxpayer’s tax return records are only known to himself, his accountant, and the IRS. Outsiders are not privy to this information.|
|其實，美利堅殺傷中國貪官的最厲害炮彈是美國《反海外腐敗法》，許多美國在華跨國公司對中國高官搞商業賄賂，一旦被美國查處，這些腐敗高官腐敗也隨之曝光。例如，由於朗訊違反《反海外腐敗法》，朗訊被迫解除其中國區總裁職務，並向北京市反貪局匯報該公司在中國的行賄行為。原中國建行董事長張恩照就是這樣被擊中的。AIS公司因邀請張到加州豪華高爾夫球場享受和接受百萬美元諮詢費而被《反海外腐敗法》盯上。||In fact, the most lethal weapon the Americans have to attack China’s corrupt officials is the United States “Foreign Corrupt [Practices] Act“. Many U.S. multinationals in China have engaged in commercial bribery of high-level Chinese officials, but once they are investigated by the U.S., the corrupt high-level officials’ corruption [sic] will also be exposed. For example, because of Lucent’s violation of the Foreign Corrupt [Practices] Act, Lucent was forced to remove its president of China operations, and to give an account of its bribery activities in China to the Beijing Corruption Prevention Bureau. Zhang Enzhao, originally president of China Construction Bank, was caught this way. AIS’ invitations to Zhang to enjoy a luxurious golf course in California and to receive millions of dollars in consulting fees also came under the gaze of the Foreign Corrupt [Practices] Act.|
|美利堅能為中國反貪所做的事情也就只限於舉報，最後的刑事偵查和司法審判還在中國當局。雖然《反海外腐敗法》披露的中國貪官事件數不勝數，但像張恩照這樣被打倒的貪官只是意外。說白了，打貪官還是不打貪官，炮彈發射基地不在華盛頓，而是中南海。||The Americans’ ability to combat corruption in China is limited to making reports. The final criminal investigation and judicial trial must still [be undertaken] by the Chinese authorities. Although the Foreign Corrupt Practices Act has uncovered numerous cases of corrupt Chinese officials, the fact that corrupt officials like Zhang Enzhao got taken down was only an accident. Put simply, whether or not corrupt officials can be taken down, the base from which the artillery must be launched [at them] is not Washington, but rather Zhongnanhai.|
Lies go halfway around the world before the truth gets its boots
When I translated the above article, I assumed that the reach of this coverage would be limited to this rather amusing television station’s audience, and said:
Many U.S. expats in Hong Kong have a vague sense of Chinese-language “opposition media” as being on “our side” simply because they are anti-Beijing (and in some cases, pro-Tibet). When mainland Chinese officials froth at the mouth about the “opposition media” being paid shills of the U.S. government, the rest of the world pays little attention. But when those same “opposition media” put out reports like this, you start to wonder. I haven’t seen anything outside of an IRS press release that’s this uncritical of the United States’ global taxation practises. (On the bright side, if anti-Beijing media are this heavily in favor of FATCA, maybe Beijing itself will decide compliance is a bad idea.)
To make things even worse, many of the readers of articles like these are Chinese immigrants living in the U.S. who often have overseas bank accounts or assets. But this particular media outlet is affiliated with a religious group which is banned in China. Its readers are much more likely than other Chinese immigrants to distrust all the other non-religious Chinese-language media sources available to them. Thus they will not see those sources’ far more complete and balanced accounts of the effects of FATCA and FBAR on China and Chinese immigrants. And in many cases they do not read English well enough to understand reports about these complicated subjects in that language either. They’re thus in danger of facing huge fines for inadvertant FBAR and FATCA non-compliance.
Of course, I didn’t count on sensationalistic and dishonest English-language newspapers trying to sell a fake story to their mostly-monolingual Anglophone readers, but in fact this story reached well beyond the Sinophone world and started going viral a year later when the South China Morning Post repeated it without any acknowledgment of its dubious origins. And less than a month later, it’s “common sense” as far away as
Mordor Washington DC: “FATCA can be a tool for fighting corruption and tax evasion in China”.
So, now that Reuters apparently has declared that random garbage written by Chinese webforum posters can be a legitimate basis for serious journalism and commentary, what other set of Chinese internet rumours will be the grounds for their next story? Perhaps they’ll tell us all about how secret agents of Manchukuo (a Japanese puppet state in Northeast China which ceased to exist in 1945) are active today in Papua New Guinea working with Taiwanese ex-president Chen Shui-bian to start riots against Chinese immigrants?
In reality, we have no idea of the Chinese government’s attitude towards FATCA aside from a single highly negative comment by a central bank legal advisor. Other than that we have no idea what is going on internally; they have certainly never made any public statements about reciprocity, merely about the desire for a forum in which they can “express China’s concerns” to the U.S. government. Even when major players in the Chinese finance industry meet with their government, outsiders are not privy to their discussions — we merely get photo-ops of the people present at their conferences, at best. In other words, the Chinese government are keeping their cards very close to their vest. So rumours that they are highly interested in reciprocity can only be assessed by whether or not they make sense.
What good is U.S. asset data to the Chinese government?
The first obvious problem with this idea is that China has already demonstrated pointed disinterest in getting information about the overseas assets of its officials or other powerful people. When Bloomberg published this kind of information, they got blocked in China. There are 83 more billionaires who sit in the National People’s Congress, and no doubt others in the higher reaches of the government — belonging to the various poorly-mapped-out factions of Chinese politics. Which of these factions do you think wants to take a risk that information exchange will allow their opponents to get the drop on them with data about how they’ve been evading taxes?
Another problem to which Homeland commentators are congenitally blind is that the U.S. is far from the only destination in which Chinese people can invest. Singapore and Canada are popular destinations for individual Chinese overseas investment, and Switzerland is also rising — and that’s not mentioning the sizable proportion of so-called “flight capital” that gets round-tripped straight bank into China to take advantage of preferential treatment for foreign investors. Hurun’s 2012 Chinese Millionaire Wealth Report found that only a third of wealthy Chinese would admit to having overseas investments, and even among them their asset allocation was heavily biased towards China, with an average of 81% of assets remaining in the country.
Hurun’s survey also found that the proportion of wealthy Chinese sending their children to the U.S. dropped slightly while Canada, France, Switzerland, and Japan all became more popular destinations. (Wealthy Chinese often purchase real estate in the countries where their children study, both for the children’s own use and to have a place of their own to stay when they come visit.) And of course, you can also guess at the relative popularity of migration destinations by seeing what their price tag is for permanent residency: Australia charges AU$5 million, an order of magnitude higher than what’s needed for the U.S.’ EB-5 green card. In otherwords, the additional tax revenue that China might be able to collect with the aid of data from the U.S. will probably be limited — possibly not even enough to cover the cost of collecting the reciprocal data that the U.S. will demand under FATCA.
A double-edged sword
But the major issue is: even if Chinese government wanted FATCA reciprocity from the U.S., they are certainly aware that the reciprocal data has not yet been collected. For reciprocity to be of any use to the Chinese government, they would probably have to demand that information about purported U.S. residents with Chinese passports be included — unlike Americans with non-U.S. permanent residency who almost all genuinely live outside the U.S., there are still some wealthy Chinese who are foolish enough to hold a U.S. green card but not actually live in the United States. Of course, the U.S. will see significant resistance to any kind of reciprocity, but in particular to this kind of reciprocity — both from the financial industry as well as, ironically, from exiled Chinese democracy activists who would be none too keen to see their banking details handed over to Beijing.
On one hand, the U.S. may simply fail to deliver on reciprocity, or the information collected may be too limited to be of any real use — by value, individual Chinese investments overseas are probably mostly in real estate, not financial assets such as securities or bank deposits (Hurun’s survey gives some support to this notion, finding that real estate was the most common asset class among wealthy Chinese with overseas holdings). But on the other hand, there is the off-chance that the U.S. succeeds in collecting this massive pile of information and putting it into a usable form. Then they will have a database that did not exist before: data about Chinese officials’ holdings in the United States.
The old saying “be careful what you wish for, lest it come true” is probably not a Chinese proverb as is popularly claimed — but it still applies to this situation. Would the Chinese government really want the U.S. to have such a database? Would they trust the U.S. government to report all this information honestly to China and not put it to any other nefarious uses, or will they suspect that the intelligence agencies are looking at this information and possibly even filtering some of it so that China doesn’t see it? Do you really think the Chinese government is chomping at the bit to give this kind of leverage to its major geopolitical competitor? From their perspective it may be better let sleeping dogs lie and leave all this data in disaggregated form in dozens of banks around the United States, and stick to purely internal means of fighting tax evasion and corruption.
Of course this is all blatant college dorm-room BS — but then, so is the stuff that Reuters printed.