HK to gain from revised US tax law, expert says
Hong Kong stands to gain from recent amendments of a new US tax law that cracks down on non-US financial institutions that help Americans hide their wealth, a tax expert says.
The United States Foreign Account Tax Compliance Act takes effect next year and seeks to prevent US citizens or permanent residents from shirking their tax obligations by using offshore accounts.
The law was aimed at forcing these institutions to become quasi-auditors for the US Internal Revenue Service (IRS). But it fell foul of client confidentiality regulations in some territories - including Hong Kong.
Following complaints from a number of countries, the US Congress amended the law. Instead, the US will ask other governments to seek such information from banks in their countries.
'If this had not happened, the IRS would have had to speak to Hong Kong authorities to see how they'd get round the legalities of it all here,' said Kurt Rademacher, international tax practice director at Butler Snow.
'In Hong Kong, like Switzerland, it's illegal to disclose financial information. Banks here would be more willing to disclose information to the Hong Kong government than the US government.
'This is the model that the IRS wants to now use in Europe and will in all likelihood do here.'
A fortnight ago the US released a new draft of the act after bowing to pressure from firms and large financial institutions.
It led to the US Department of the Treasury issuing a joint statement with Britain, Germany, France, Spain and Italy that announced the easing of the compliance burden for non-US financial institutions.
Through a series of bilateral arrangements, such institutions will be permitted to issue compliance details about their clients to the government in the country they are domiciled, rather than to the IRS.
In turn, the US would also exchange the financial information of foreign nationals with accounts in the US to their governments.
The US is reportedly negotiating similar arrangements with China and Japan. Given the number of prominent financial institutions based in Hong Kong, it is likely that the US will pursue a similar agreement with Hong Kong.
HSBC, the Hong Kong Association of Banks and the Royal Bank of Scotland declined to comment.
Rademacher said the revised US approach was the best way to address foreign privacy laws.