China Agrees To Join FATCA At The Last Minute
The start of tax information reporting between the US and foreign governments and financial institutions under Foreign Account Tax Compliance Act (FATCA) from July 1, 2014 triggered a rush of nations joining the network at the eleventh hour.
The major surprise for FATCA watchers was China agreeing ‘in substance’ to abide by the rules at the last minute.
China initially resisted joining FATCA, but the risk of fines and blacklisting Chinese financial firms from working within the world’s default US dollar economy was too much for Beijing to wager against.
The Chinese government is also reportedly interested in targeting corrupt officials hiding money offshore as part of their FATCA agreement with the US.
Latest countries to join FATCA
China was not alone in signing up late. Other countries joining the network were:
- Algeria
- Bahrain
- Cape Verde Islands
- Dominican Republic
- Haiti
- Iraq
- Malaysia
- Moldova
- Montenegro
- Nicaragua
- San Marino
- Serbia
Each country is considered FATCA compliant by the US from July 1, even though the tax treaty may not yet have been signed.
The FATCA list of reporting countries now stands at 125 nations and covers most of the European Union and the leading financial centres across the rest of the world.
The Internal Revenue Service (IRS) also issued the second list of financial institutions reporting under FATCA rules. The first list includes around 77,000 – the new list has increased by about 10,000 banks, finance houses and other financial providers to 87,993 institutions.
FATCA penalties
The IRS intends to publish a new version of the list on the first day of each month.
The full list is available for search or download for free.
FATCA is aimed at identifying US taxpayers with bank accounts or investments outside the United States.
Financial providers must identify their US customers and report any accounts with a balance of more than $50,000 to the IRS. The IRS will then cross-check the details with tax returns.
In return for government tax authorities providing the data, the US has agreed to identify and send reciprocal tax information about reporting country taxpayers with bank accounts and assets in the US.
Financial institutions that refuse to hand over information about their US customers risks withholding fines of 30% on all their transactions passing through the US dollar system. The IRS and US Treasury have also warned that persistent offenders could be excluded from the US dollar system.
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