US and Chinese authorities were finally able to agree an information sharing agreement that ensures China-based fund managers and other financial entities based in the world’s second largest economy can meet the US Foreign Account Tax Compliance Act which took effect on Tuesday.
Last Thursday the two nations signed a “Model 1” agreement (in substance) that will have China-based GPs report FATCA information to their local tax authority, the State Administration of Taxation, who will in turn share that information with its US counterpart the Internal Revenue Service. However, in China’s case it is still not known whether or not the information exchange will be reciprocal, according to a client alert from law firm Baker & Hostetler.
Since the US first unveiled FATCA in 2010 China had repeatedly refused to discuss the legislation directly and referenced FATCA in only two instances: a joint fact sheet released by US Treasury and PRC Ministry of Foreign Affairs (MOFA) last July that discussed both sides commitment to making “best efforts to reach an intergovernmental agreement on the implementation of the FATCA” and second in a press release from the MOFA that mentioned FATCA discussions in one clause, according to a client alert from tax consultancy Dezan Shira & Associates.
It is unclear why China took relatively longer than most other major world economies to sign a FATCA pact, but some market sources believe part of the holdup stems from Chinese authorities wanting to first assign clear supervision of the private funds industry to one government agency. Recently the Chinese government assigned this responsibility to the Asset Management Association of China (AMAC), a self-regulatory organization authorized by the nation’s securities regulator the China Securities Regulatory Commission (CSRC) to regulate investment funds and managers.
The US was keen to have China meet the deadline, going so far as to permit a six-month extension on FATCA implementation last July in anticipation of an IGA with China and other nations, the Dezan alert said.