China is the latest country to make clear that the government is unlikely to sign up to the US Foreign Account Tax Compliance Act (FATCA) which is aimed at tracking down US taxpayer’s offshore assets.
So far, no countries from the Asia Pacific region, which is heavily influenced by policy in Beijing, have so far made an agreement with America, although Japan is reportedly close to putting pen to paper.
China now joins Germany in delaying negotiations to create an intergovernmental agreement (IGA) which would enable FATCA enforcement in the country.
With a January 2014 deadline looming, US negotiators are becoming increasingly keen to sign more IGAs with countries.
Having the IGAs in place will allow financial institutions of the signatory countries to enforce FATCA without contravening their own laws on privacy and data protection.
No FATCA benefit for China
FATCA has been created to track down the offshore financial assets of US taxpayers and make the institution concerned reveal details so that tax can be collected.
The failure by the institution to register with US tax authorities will see a 30% withholding charge being levied on all financial transactions between it and the USA.
Now China is telling the US that there will be so few US citizens holding Chinese bank accounts that the cost of implementing FATCA outweighs the benefit to the nation’s financial institutions.
The Chinese have also pointed out that even the opportunity of signing an IGA which would allow them to get details of Chinese taxpayers in the US would also serve minimal benefit to the government.
Around 50 countries are said to be discussing their IGAs which are essentially new bilateral tax agreements between them and the USA.
One of the biggest concerns for financial institutions around the world is the sheer cost of implementing and complying with FATCA which has led to many of them closing the accounts of its US citizen clients and refusing new ones.
Anthony Tong, a US tax consulting expert spoke at an event held in Hong Kong to discuss FATCA, and told delegates that a Chinese-US agreement would only benefit America.
He added: “In China there are lots of bankruptcy protection rules which would make it difficult for the country’s financial institutions to comply with FATCA rules.
“Even if their account holders were to waive their privacy protections, there are still laws which would make it illegal to report that information to the US government which means that the US has more incentive to sign the IGA than the Chinese government do.”
The implementation of FATCA is a growing controversy since the IGAs also compel US financial institutions to exchange their client information with the foreign governments, which has led to some major banks lobbying the US government to prevent this happening.