HONG KONG (Reuters) - A new U.S. anti-tax-evasion measure imposes unfair costs on foreign banks and clashes with Chinese law, a senior official at China’s central bank said.
Liu Xiangmin, deputy director general of legal affairs at People’s Bank of China, said the U.S. should find a better way to tackle tax evasion than the Foreign Account Tax Compliance Act (FATCA).
“It creates unreasonable costs for foreign financial institutions and directly contravenes many countries’ privacy and data protection laws,” he said during the Thomson Reuters Pan-Asia Regulatory Summit.
FATCA requires non-U.S. financial institutions to report client information to U.S. tax authorities if they have American customers whose accounts are valued at more than $50,000. Starting in 2014, institutions that fail to comply could effectively be locked out of the U.S. financial marketplace.
“China’s banking and tax laws and regulations do not allow Chinese financial institutions to comply with FATCA directly.” Liu said. He emphasized those were his views and not necessarily the opinions of the central bank or the Chinese government.
The law will only slightly increase U.S. tax revenues, Liu said. “One estimate says FATCA covers less than 2 percent of U.S. tax payers and would bring extra revenue of only $8bln over 10 years, he said.”
Liu was giving a speech on the foreign impact of financial regulation. He also noted the challenges posed to foreign banks by some of the regulation contained in the U.S. Dodd-Frank Act, such as the Volcker Rule. The rule bans banks from engaging in proprietary trading and will apply to many foreign banks if they have a branch in the U.S.
“The Volcker Rule seems to be intentionally designed to apply to a broad range of foreign institutions in order to level the playing field for U.S. entities subject to the rule.”
Liu said governments should find a more effective way to regulate international finance.
“While it is understandable to address the cross-border externalities or spill-over effects with national legislation, a more effective and acceptable regime would call for better co-ordination between home and host-country regulators,” he said.
“An extra-territorial effect should be carefully evaluated and limited, so as to minimize the undue burden on foreign financial institutions.”
Reporting by Michael Flaherty; editing by Larry King