China to chase tax evaders with own version of US foreign account law
Officials will follow US example with law targeting residents abroad
China is expected to introduce its own version of the new US tax law that requires financial institutions around the world to provide Washington with information on US taxpayers, analysts say.
Such a law would make it more difficult for corrupt Chinese officials and their relatives to park their wealth in Hong Kong.
Secretary for Financial Services and the Treasury Professor Chan Ka-keung has signed an agreement with the US to allow Hong Kong to pass tax information of Americans working in Hong Kong to their US counterparts under the Foreign Account Tax Compliance Act (Fatca).
China, as a G20 member state, would probably follow suit, said Richard Weisman, of the Hong Kong office of law firm Baker & McKenzie. He said China would probably use a version of Fatca to collect tax information about Chinese citizens around the world including Hong Kong.
"Fatca is only the beginning of what will become a major new compliance obligation for financial institutions. The next major development with respect to Fatca will be the G20's proposal to multilateralise Fatca. China, as a member of the G20, has endorsed this proposal. China can obtain tax information by joining the G20's approach to Fatca. That is a likely scenario," Weisman said.
On March 18, Chinese deputy tax commissioner Zhang Zhiyong said China must strengthen its international tax collection, take part in international exchange of information on tax avoidance, and curb cross-border tax evasion.
At the G20 summit in St Petersburg last September, it was agreed member states would start exchanging tax information automatically by the end of 2015.
If China implements its own version of Fatca and it applies to Hong Kong, it may affect Chinese nationals' desire to deposit funds with banks in the city. But Hong Kong would be no worse than any other non-mainland jurisdiction because all would be equally affected, said Patrick Yip of Deloitte Touche Tohmatsu.
Yip said that many financial institutions in Hong Kong were finding compliance with Fatca costly and difficult. "Fatca is sending a clear signal to Americans about the seriousness with which the US government is pursuing tax evaders," he added.
Many banks in Hong Kong would not be ready when Fatca takes effect on July 1, said Gene Buttrill of US law firm Jones Day. "Perhaps they are hoping to bargain down their level of compliance. This is going to create a lot of work for US lawyers."
Fatca will have an impact on the private banking sector globally, with US and European banks likely to be shunned by wealthy Asians doing their banking in Hong Kong, said Buttrill. "It makes life much harder for my friends in private banking."
Fatca would "have a great deal" of impact on Hong Kong people in general, added Buttrill. "In addition to wealthy individuals and green card holders, it affects the financial industry as a whole."