• Wed
  • Jul 23, 2014
  • Updated: 12:39pm
BusinessChina Business
REGULATION

China to chase tax evaders with own version of US foreign account law

Officials will follow US example with law targeting residents abroad

PUBLISHED : Friday, 28 March, 2014, 12:10am
UPDATED : Friday, 28 March, 2014, 4:39am

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."

Share

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

4

This article is now closed to comments

crbfile
yea, all are interesting comments. I'd just add, why don't they crack down on people with two or more ID's. I reckon there must be more than 5 million people with double, triple, etc. identities. It's the old saying, you need to learn to ride a bike before you try to fly a plane.
newgalileo
All very well but indeed, but collecting taxes in China is so obviously simple. Just go around, check all those rich showing off their expensive cars and houses and ask where the money comes from and if they had paid taxes on their income. But where is the courage? Of course we foreigners are always the ones to get targeted first. I invite the tax men to visit Gongti Xi Lu at night (in Beijing) to check out all the Ferrari. Maserati etc.
lucifer
This raises two questions. 1.) Will it apply to officials and their relatives who have hidden their wealth overseas, not necessarily to hide it from the taxman, but just to hide its existence, since most of it was acquired through corrupt means? 2.) Why don't they concentrate on collecting taxes in China first, which according to studies, is comparatively quite low and billions go uncollected.
tkruemmer
The amounts stolen from the Chinese people and transfered to Hong Kong, Singapore and other countries dwarfs the amount of potentially uncollected taxes in China. One can argue Chinese tax rates are high, because collection is lenient or collection is lenient because taxes are high. Either way, the Italian syndrom.
 
 
 
 
 

Login

SCMP.com Account

or