Mainland China has ended months of speculation and had indicated that it is willing to co-operate with the new US Foreign Tax Compliance Act (FATCA). The new law is an attempt by the US government to limit tax evasion and avoidance by requesting financial institutions around the world to provide information on US taxpayers to the US government. According to the Treasury Department, Beijing had reached an ‘in substance’ intergovernmental agreement Model 1 (IGA 1) with the US.
According to the website Asian Investor, it now looks like mainland fund houses, among others “will have to fall in line, despite many thinking they might be free to choose not to”. The move will enable Beijing to obtain information on mainland Chinese taxpayers in the US, which will help in its fight against tax evasion and corruption. "It is important, as China was seen as the last major outlier in reaching an IGA with the US," said Charles Kinsley, a China tax partner at accounting firm KPMG. "Most major economies have negotiated an IGA, either formally or in principle."Eric Boes, an international tax consultant at the trust company Amicorp, said: "I can imagine Beijing will want information on Chinese taxpayers abroad. A possible reason is that the government wants information on corrupt Chinese officials."The US authorities will impose a 30 per cent withholding tax on US-related income going through financial institutions that do not comply with FATCA. (South China Morning Post).
Western financial institutions that have operations in China could risk being blacklisted or penalised by the US if China refused to sign up.
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South China Morning Post