Why FATCA Could Make It Harder For Rich Chinese to Hide Their Wealth

Rich Chinese, watch out. The growing arm of U.S. tax authorities appears poised to also help China obtain information about Chinese taxpayers in the U.S., a move that could make it harder for Chinese to move large sums of money out of the country. As the WSJ’s Wei Gu reports:

A new U.S. tax rule known as Fatca, the Foreign Account Tax Compliance Act, is going into effect. Beginning this past Monday, more than 77,000 banks and other financial firms around the world started telling U.S. authorities about accounts owned by U.S. citizens and green-card holders.

Days before the rules hit, China rushed to take a first step to join in by signing an initial agreement with the U.S. Treasury.

Fatca has been criticized because it forces foreign banks, brokers and insurers to disclose information about U.S. customers. Foreign firms need to provide information about U.S. customer accounts totaling as little as $50,000.

But if they don’t, the firms and their account holders could be docked 30% of their payments, such as interest and dividends, from U.S. sources. For example, Chinese investors who buy U.S. Treasuries through Bank of China could lose 30% of their interest payments.

China is getting something in return for its agreement. In exchange for giving financial information to the U.S. about its citizens and green-card holders, the U.S. will give China information about Chinese taxpayers in the U.S., according to people involved in the discussions. The negotiators expect to clear the legal hurdles necessary to make that happen, according to lawyers and people involved in the discussions.