Taiwan will lose big on FATCA if no consensus reached
If Taiwan does not reach a consensus with the US on a pact that would help Taiwanese financial institutions meet requirements for reporting tax before July, the implementation of the Foreign Account Tax Compliance Act by the US on July 1 this year could mean a 30% tax deduction on Taiwanese investments in the US, writes our sister paper Commercial Times.
FATCA was established to combat offshore tax evasion and has three main provisions. The first requires foreign financial institutions such as banks to enter into an agreement with the IRS in order to identify their American account holders and to disclose the account holders’ names, addresses and the accounts’ balances, receipts and withdrawals.
Second, it requires that American citizens owning these foreign accounts or other specified financial assets must report them on a new Form 8938 filed with the individual’s US tax returns if the accounts are worth more than US$50,000. Third, it closes a tax loophole that foreign investors have used to avoid paying taxes on US dividends by converting them into “dividend equivalents” through the use of swap contracts.
Once the terms are settled with the US, both countries should have it signed by the end of the year and it is hoped that it can pass a review in the Legislative Yuan by March next year, otherwise, all financial institutions in Taiwan and the foreign investments of their clients could see a 30% deduction on transactions, according to the paper.
Taiwan is the only country in the world which is not signing a pact with the US through a financial or tax department, a spokesperson for the Financial Supervisory Committee said.
Taiwan has already held five rounds of negotiations with the US with no consensus yet reached. If the legislature fails to pass it by March 2015, all Taiwanese financial institutions will be deducted 30% in tax on their investments in the US, said the spokesperson, which represents an annual NT$50 billion-$70 billion (US$1.7 billion-$2.3 billion) loss.