Hong Kong Signs FATCA Pact
The U.S. Treasury Department has confirmed that Hong Kong has signed an agreement to report certain financial account information directly to the IRS. Under the 2010 FATCA law (Foreign Account Tax Compliance Act), foreign banks must review their accounts and report any accounts with ties to the United States. Banks that fail to comply are subject to high withholding taxes and may find it difficult to continue to do business in global markets.
Over 40 countries have signed formal FATCA agreements with dozens more under negotiation. Hong Kong’s agreement, however, is a bit unusual. Most countries have crafted agreements that require the financial institution to report information to that institution’s domestic tax authority, which in turn sends it to the IRS. Many foreign countries are reluctant to have banks providing information directly to the United States.
Hong Kong has elected to join Bermuda, Austria, Japan, Switzerland and Chile as the countries that will require their banks to report directly to the IRS.
The goal of FATCA is to combat tax evasion using foreign accounts. Owning or having signature authority over a foreign account is legal but only if reported annually. There are exceptions for very small accounts. The penalties for non-compliance are very steep. Willful violations can result in criminal prosecution and prison sentences.
Privacy advocates and foreign banks have decried the law as both intrusive and expensive to administer. Since being proposed by President Obama in 2010, several other developed countries have proposed their own FATCA like laws and governments worldwide are now embracing the concept.
Reporting wont take place immediately, although the US Department of Justice and IRS have teamed together and have proven quite adept at obtaining account from offshore banks worldwide. Several banks in Switzerland have been indicted and criminal investigations have reached into Israel and other countries as well.
Hong Kong’s signing is a major milestone for the IRS. There is a significant amount of cross border commerce and banking that goes between the US and Hong Kong. Although not as well known of a tax haven as the Cayman Islands, Switzerland or Monaco, there are billions of dollars belonging to Americans on deposit there.
If you have an unreported foreign account, time is quickly running out to comply. There are amnesty options available but only for those who act quickly. Do nothing and you could face penalties of 50% of the historical high balance of the account.
For more information about FATCA, FBARs and other offshore reporting concerns, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries are kept confidential and protected by the attorney – client privilege. We represent clients in IRS tax matters worldwide.