| WASHINGTON/HONG KONG, March 13
WASHINGTON/HONG KONG, March 13 The success of a
broad U.S. crackdown on offshore tax dodging will be determined
in part by China's cooperation, but talks with Chinese officials
are making little headway, former U.S. Treasury Department
officials and tax professionals said.
FATCA requires foreign financial institutions to tell the
United States about Americans' offshore financial holdings.
One obstacle in the Chinese talks is likely that China
wants, in return, more tax information than U.S. officials are
willing to share about Chinese citizens who have assets in the
United States, accountants and tax lawyers said.
China - the world's second-largest economy - is seen by some
tax experts as an important participant if the U.S. Foreign
Accounts Tax Compliance Act, or FATCA, is to work effectively,
especially in Asia.
Without China, FATCA won't be airtight, said John
Harrington, a partner with law firm SNR Denton. He previously
served as Treasury's international tax counsel.
China's State Administration of Taxation did not respond to
questions. In November, a senior official at China's central
bank criticized FATCA as overreaching.
FATCA requires non-U.S. banks, investment funds and other
financial institutions to tell the U.S. Internal Revenue Service
about accounts held by Americans with more than $50,000.
Financial firms that do not comply with FATCA, which takes
effect in January 2014, could effectively be frozen out of U.S.
Treasury has negotiated FATCA deals, known as
intergovernmental agreements (IGAs), with five countries: the
UK, Denmark, Mexico, Ireland and, most recently, Switzerland.
Negotiations with dozens more countries are under way.
Talks with China have been hush-hush, but are occurring. "We
have engaged with China on FATCA and will continue to do so," a
Treasury spokeswoman said, declining to comment further.
HONG KONG'S ROLE
China is seen as a critical part of the FATCA puzzle not
only due to the country's own global economic prominence, but
also because of its sway over Hong Kong, a major money center.
The Hong Kong Association of Banks said in a statement:
"FATCA is an issue highly relevant to Hong Kong ... We have been
and will closely follow relevant developments, in discussion
with the Hong Kong Government."
The Financial Services and the Treasury Bureau of Hong Kong
did not respond to questions.
It was unclear whether Hong Kong may be able to negotiate an
IGA on its own with the United States. Hong Kong became part of
China in 1997, but retained its own currency and local
"The Chinese could attempt to use Hong Kong as negotiating
leverage for their own IGA," said Richard Harvey, a tax
professor at Villanova University.
Treasury started implementing FATCA last year, largely via
the vehicle of IGAs, bilateral agreements that spell out how a
country and its financial institutions can comply with FATCA,
and what, if anything, they get in return from the Americans.
Foreign countries have pushed, with limited success, for
reciprocal information sharing, but generally IGAs have not
allowed an equal two-way sharing of taxpayer information.
With IGA negotiations in mind, the Obama administration is
considering asking Congress for the power to require more
disclosure by U.S. banks of information about foreign clients'
accounts to those clients' home governments.
The IRS this year started giving some foreign governments
information about interest payments earned by their citizens in
U.S. bank accounts. This has already raised privacy concerns.
The Chinese are thought to be seeking more information about
their citizens' U.S. accounts than previous IGAs have allowed.
Treasury negotiators "will have to look at whether they can
go further than they have" to meet Chinese demands, said Philip
West, who served as Treasury's international tax counsel and is
now a partner at law firm Steptoe & Johnson LLP.
Like the United States, China taxes citizens on worldwide
income. So China should be interested in getting tax information
about its citizens' U.S. investments, tax experts said.
But inking an IGA will require the Chinese to swallow some
national pride, said Alan Granwell, a former Treasury tax
official now with law firm DLA Piper. FATCA "effects their
sovereignty ... It's much more than just a tax issue there."