China is rumoured to be ready to sign a controversial FATCA tax treaty with the US in a move that will jolt Asia Pacific governments to take action against tax avoidance.
The Beijing government started out as critics of the Foreign Account Tax Compliance Act (FATCA), but have gradually warmed to the idea.
Banking and finance workers in the Asia Pacific are confident that whispers from the government are good indications China will get on board with FATCA by July 2014.
This is a major coup for the US Treasury, which has signed or says they are negotiating FATCA treaties with more than 50 countries.
Although many European nations are already on board, China, Japan, Hong Kong and Singapore have the financial clout in the Asia Pacific.
Plugging a hole
Japan was among the first nations to sign and seal a deal. Singapore and Hong Kong have announced negotiations are under way.
Many other Asia Pacific countries are sitting on the fence, seemingly waiting to see how China took to FATCA, leaving a massive hole in the tax avoidance network that the US Treasury may have found difficult to plug.
If China does sign up, FATCA will truly become a global tax reporting network.
A handful of highly vocal critics suggest FATCA may still fail to start next year, but with governments and financial institutions around the world spending so much money on treaties and systems to administrate FATCA, the international will to execute the plan is undoubtedly in place.
The main confirmation about China’s place at the FATCA table comes from a speech Jim Calvin, of financial consultancy Deloitte.
Beijing’s plans revealed
He told delegates at a conference that he had worked with the Beijing and Hong Kong governments in streamlining intergovernmental agreements.
“China could go it alone and stay outside the international banking system,” he said. “Not working with FATCA means problems working with international banks. It’s probably a lot easier for China and Hong Kong to stay inside the tent with everyone else.
“My feeling from the work I have done is that China will sign up to FATCA.”
FATCA is a two-way street aimed at identifying the US clients of offshore banks, who report financial information about them to the Internal Revenue Service (IRS). The IRS then makes sure any taxes due on earnings on capital gains are collected.
In return, the IRS identifies foreign clients of US financial institutions and sends similar financial information on to other nations about their taxpayers with accounts and holdings in the States.