China has come another step closer to joining FATCA – the Foreign Account Tax Compliance Act. Established by Congress several years ago, FATCA requires foreign financial institutions to examine and report accounts that are owned by U.S. taxpayers or have ties to the United States. Although China has not agreed to FATCA just yet, earlier this week it signed the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The countries that sign the treaty usually join FATCA.
China is considered a key player in FATCA. Although many European countries have joined, participation from the Pacific Rim countries has been sparse (Singapore, Japan and Hong Kong are joining however). China is the biggest player in the region. Assuming they sign, the remaining Asian countries will likely follow.
Role of OECD
The OECD – Organisation for Economic Cooperation Development – has been leading the charge for greater tax transparency and information exchange. In 2011, the G20 group of nations, of which China is a member, agreed to endorse the automatic exchange of tax and financial information. Representing 90% of the world’s production and 2/3rd’s of the world’s population, the G20 group of nations is very powerful.
After the 2011 G20 summit in Cannes, many nations agreed to adopt the OECD’s tax exchange convention. On August 27th, China became the newest member to sign. As a G20 member and a world leader, its adoption is significant. Joining the convention is considered by many to be a precursor to joining the IRS’ FATCA regime. China was also the last of the G20 to sign meaning the world’s most powerful countries have now all signed up.
Implications For US Taxpayers
So what does all this mean? U.S. taxpayers with unreported Chinese accounts may soon find themselves in hot water with the IRS. U.S. law requires Americans and green card holders to annually report their offshore financial holdings. This includes bank accounts, CD’s, foreign hedge funds and even some insurance products. These holdings must be disclosed on one’s tax return and on a Report of Foreign Bank and Financial Accounts or FBAR. Failure to file an FBAR can be a felony and subject one to huge civil penalties.
Many foreign born Americans, ex pats, dual nationals and green card holders simply don’t understand their FATCA reporting obligations. Beginning next year, foreign banks will be identifying and reporting account holders to the IRS.
If you have an unreported account in China, time is running out to comply. The IRS is offering an amnesty program called the Offshore Voluntary Disclosure Program but participation isn’t available if the IRS finds you first or gets your name from a FATCA disclosure.
As of this date, the following countries have signed the OECD convention: Albania, Argentina, Australia, Austria, Azerbaijan, Belgium, Belize, Brazil, Canada, China, Colombia, Costa Rica, China, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Ghana, Greece, Guatemala, Iceland, India, Indonesia, Ireland, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Nigeria, Norway, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, United Kingdom, and United States.
FATCA Next Steps
If you have an unreported offshore account and have questions about FATCA or filing missing FBARS, give us a call. We have helped many taxpayers with a wide variety of foreign reporting problems. In many cases it is possible to avoid all or most penalties.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
Need more information about FATCA? Our Due Diligence blog has a search engine located in the upper right hand corner. Our website also has an article titled FBAR 101 – Critical Information for FBAR Filers.
Post by Brian Mahany, Esq.