In efforts improve tax transparency and combat cross-border tax evasion Hong Kong joins in global transparency
Jeffrey S. Freeman, J.D., LL.M
Like a snowball rolling down the mountain, the push for global transparency is continuing to gain momentum. Countries are recognizing the advantages and need for global tax transparency in order to combat cross-border tax evasion.
Now legally in force, FATCA (Foreign Account Tax Compliance Act) was created by the United States to discourage and fight the war on tax evasion. It is estimated that the U.S. economy suffers a $500 billion loss annually due to tax evasion on foreign source income and assets hidden outside the country. FATCA requires foreign financial institutions (banks, insurers, and investment funds) to send the IRS information about offshore accounts of Americans. The United States has entered into Inter-Governmental Agreements (IGAs) with 43 countries and has reached agreements in substance with an additional 58 countries. Earlier this year the count was below thirty countries, FATCA is gaining momentum.
With the increased global concern raised by FATCA over the use of foreign accounts to evade government taxation a group of the twenty biggest economic powers requested that the Organisation for Economic Cooperation and Development (OECD) devise an agreement for countries to automatically share information on offshore bank and brokerage accounts with foreign tax authorities. This would eliminate hiding places for tax evaders globally.
In July the OECD, via the Global Forum on Transparency and Exchange of Information for Tax Purposes, released a Common Reporting Standard for Automatic Exchange of Financial Account Information in Tax Matters. The reporting standard asks governments to secure detailed account information from their financial institutions. This information would then be exchanged with the appropriate jurisdiction of the residence of the account holders on an annual basis.
As a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes Hong Kong answered the call to execute the new global standard that was sent out to all 120 member jurisdictions. With a long standing reputation as a leader in international finance and business Hong Kong is joining the global tax transparency movement.
This is not a new concept for Hong Kong, which has already worked on avoiding double taxation by putting agreements in place with other jurisdictions (DTAs). Hong Kong currently also has tax information exchange agreements (TIEAs) with other jurisdictions. With 30 DTAs concluded and more in the pipeline with key trading partners, tax transparency was already on the hot list in Hong Kong.
In order to meet the global standard certain legislative policies and procedural changes must be implemented. The government will go through due process to engage stakeholders, followed by addressing any relevant legal or policy issues. Finally, the approval of the legislation from the Legislative Council is required to implement the global standard.
The Global Forum is currently forecasting that the first automatic exchange of information will commence by the end of 2018.
About Freeman Tax Law
Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws.
Compliance with FATCA needs a distinctive approach. A simple change of processes or leveraging new IT infrastructure may not suffice. FTL has partnered with Newgen Software (Newgen) to offer a unique end to end solution for our clients to offer a comprehensive compliance strategy. Newgen buildings on two decades of domain expertise in Banking and Compliance along with its market leading BPM, Case Management, ECM and CCM applications. Utilizing Newgen’s FATCA Compliance Software along with the creation of proper procedures and training offered by FTL of the financial organization staff, allows for the creation of systematized approach to negotiating the finer aspects of FATCA.
With FATCA, the stakes of non-compliance are simply too high. Contact us today for a consultation to discuss how to further integrate your technology with the legal requirements of FATCA.
Freeman Tax Law