The first sign that China may be considering joining up to the Foreign Account Compliance Tax Act (FATCA) has come at last.
A brief note in the news section on the Organisation for Economic Co-Operation and Development (OECD) web site announces that China is about to sign the Convention on Mutual Administrative Assistance in Tax Matters.
The OECD says the ceremonial signing will take place at 10 am on Tuesday August 27, 2013.
This could be a momentous day for FATCA, because so far, China has shown a complete disregard in public to the US tax law for expats.
However, the OECD is the platform responsible for orchestrating tax treaties between nations and almost all the 50 countries that have signed the convention are also already part of FATCA or are in negotiations to set up intergovernmental agreements for tax information exchange under FATCA.
FATCA critics say the law will fail because countries in the Far East will not join with America in exchanging financial information.
Few can see the benefit of China supporting FATCA as the nation does not levy taxes on expats, so FATCA is a one-way street with information flowing out of Chinese financial institutions but nothing coming back.
However, the major Asia Pacific financial centres of Singapore and Hong Kong, as well as Japan, Australia and New Zealand are already in FATCA.
The only reason China would want to sign the convention is to exchange tax information with foreign nations.
Tackling tax avoidance
And the likely end result is OECD nations will have a FATCA style network between each other within two or three years, so if China signs up to the convention, the logical step is to sign up to FATCA as well.
“The convention will let China take part in the global campaign to tackle tax evasion and avoidance by co-operating with other states in assessing and collecting taxes,” said an OECD spokesman.
FATCA requires all foreign financial institutions with American clients living at home or overseas to tell the Internal Revenue Service about transactions on any accounts with a balance of $50,000 at the tax year end or that have exceeded a balance of $75,000 during the tax year.
Penalties for failing to do so include withholding taxes on the foreign financial institution’s trades in the US and other sanctions, including even barring them access to the US banking system.