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  • Sep 20, 2014
  • Updated: 6:01am
BusinessChina Business
REGULATION

Beijing urged to comply with Foreign Account Tax Compliance Act

While financial companies in city gear up for compliance with Fatca, those with mainland affiliates are unlikely to meet requirements

PUBLISHED : Tuesday, 27 May, 2014, 9:12am
UPDATED : Wednesday, 28 May, 2014, 12:04am

Hong Kong financial institutions with mainland affiliates are hoping Beijing signs an agreement with Washington soon on a new US tax disclosure law, because of concerns mainland financial institutions will otherwise find it difficult, if not impossible, to comply with the new law.

At least one major international bank with Hong Kong connections has admitted, off the record, that some of its mainland affiliates may not be ready to comply with the Foreign Account Tax Compliance Act (Fatca) by a July 1 deadline.

"We have observed that in China, financial institutions are waiting for more information on an IGA (intergovernmental agreement) before registering [to comply with Fatca]," said Florence Carr, Asia-Pacific Fatca lead at accounting firm EY.

HSBC spokesman Gareth Hewett said it had decided that the whole group should be "Fatca-compliant".

"Achieving compliance with Fatca by July 1 is a requirement," he said. "Achieving this is in line with our ambition to be the world's leading international bank."

Standard Chartered and UBS of Switzerland did not reply to inquiries about their preparations.

Karl Egbert, a partner at US law firm Dechert, said there were concerns that mainland affiliates of Hong Kong financial institutions might not be able to register as foreign financial institutions (FFIs) by July 1.

"Hong Kong banks can be perfectly compliant with Fatca, but still have an issue because their mainland affiliates are not compliant," Egbert said.

Under Fatca, financial companies around the world will be required to report to the US Internal Revenue Service (IRS) on the accounts of clients who are US citizens or US permanent residents in order to prevent tax avoidance. Those who fail to do so face a 30 per cent withholding tax on their US income.

After previously stating there would be no delays in implementing Fatca, the IRS announced earlier this month that there would be a temporary delay in enforcing parts of Fatca, with the second half of this year and all of next year to be considered a transition period.

"Many Chinese institutions do not feel comfortable registering with IRS without further guidance from the central government," Egbert said. He said that if Beijing signed an IGA, it would make things easier for Hong Kong and regional banks.

"Many Asian financial institutions have affiliates in mainland China, and all financial institution affiliates need to have Fatca status," Egbert said. "These Asian financial institutions have a common problem of not knowing whether their mainland Chinese affiliates can comply with Fatca."

Carr said IGAs aimed to resolve conflicts which might exist between local regulations and Fatca regulations.

"This is why having an IGA in China will help greatly Hong Kong banks with operations in China to be compliant with Fatca," she said. "The earlier China gets an IGA, the better."

Egbert said he had heard that Beijing was expected to sign an IGA by the middle of the year, but progress was hard to predict.

He said that if Beijing did not sign an IGA, Hong Kong financial institutions could avoid being penalised under Fatca by providing some basic information about their affiliates on the mainland, which would then be granted "limited FFI" status.

"This limited FFI relief won't work for everyone, but it's an attempt to fix the problem of Fatca compliance in mainland China," he said. "The best fix will be an IGA."

The US government had been hoping that 50 jurisdictions would sign IGAs by July 1, but Egbert said only 32 had so far signed up formally. Hong Kong is expected to do so by the end of this year.

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Formerly ******
It's a tough law to enforce and of questionable value to the US. Yes, the US needs to track terrorists and their funding, but is OFAC the answer? Read "McMafia" for more information about this and other laws.
它是一個堅韌的法律執行和對美國價值的可疑。是的美國需要追蹤恐怖分子和他們的資金,但答案是外國資產管制處嗎?請"揭秘"閱讀,這和其他法律有關的詳細資訊。
Artline500
No, this is because the long standing Double Taxation convention only required disclosure of basic account info. In Thailand, for example, cap gains have never been taxed domestically so the accounting systems are not set up to track and verify that. They will want to report, or at least have readily available to their customers, what they will be reporting to the IRS, and they will need to be 100% accurate; not just because of the US penalty, but to avoid a bad hair day for their customers. Instead of just confirming the FBAR, Americans will be getting Global 1099's. That's a really big change. For some folks, a bigger change than for others.
donniemcm
Wondering how it will work out as they don't have centralized property listings, have no control/compliance check on their earnings ...
Otherwise how do you think they have that much money to pour worlwidely?
 
 
 
 
 

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