The US government has agreed to treat Hong Kong’s intergovernmental agreement (IGA) as completed for purposes of the Foreign Accounts Tax Compliance Act (FATCA).
Hong Kong, whose IGAs is said to be agreed “in substance”, negotiated a “Model II” type agreement – meaning firms based in Hong Kong will report tax information on any US account holders directly to the US Internal Revenue Service (IRS).
FATCA requires non-US financial firms to report the holdings of US clients or suffer withholding tax on payments travelling out of the US.
Hong Kong joined 27 other countries which reached IGAs “in substance” earlier this month. However, only Austria signed a Model II agreement with most countries opting for a Model I IGA. The Model I allows firms to report tax information on any US account holders to its local authorities, who will then share that information with the US. In return, the IRS will collect and share data on foreign account holders in the US.
One US-based tax partner said countries may elect the Model II IGA because their governments wouldn't want to adopt the internal laws, regulations and enforcement provisions that FATCA's other agreement, Model I, requires.
But despite the additional FATCA agreements, some major private equity activity centers have yet to sign FATCA papers with the US. G20 countries without a FATCA intergovernmental agreement are: Argentina, China, South Korea, Indonesia, Russia, Turkey and Saudi Arabia.
GPs and other foreign financial firms covered by the law have until May 5 to register with US tax authority the Internal Revenue Service ahead of the law’s July 1 go-live date.