FATCA is still a fact of life
Since the failure last year of a repeal bill introduced by Senator Rand Paul (R-Ky.), there has been little discussion of the Foreign Account Tax Compliance Act (FATCA).
Opponents should not hold their breath. In a little-reported address to the U.S. Chamber of Commerce on February 28, Treasury Secretary Steven Mnuchin said FATCA was not a priority. “I’ve heard some issues about this but it’s not high on my radar,” he told a questioner about the chances of repeal.
FATCA, passed as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, requires that foreign financial institutions – and certain other non-U.S. entities – report on the foreign assets held by their U.S. account holders or be subject to withholding payments.
Republicans made repeal of FATCA a part of their 2016 platform, but it was not addressed in the recent tax reform legislation – the Tax Cuts and Jobs Act of 2017 (TCJA).
The Foreign Information Reporting Requirements that U.S. expatriates are required to submit – Foreign Bank Account Report, Form 8938, Form 5471 (Report of Certain Foreign Corporations), Form 3520 (Report of Foreign Trusts) and the Net Investment Income Tax – are unchanged.
Not all tax analysts are downbeat. According to AmCham members Buzzacott, there is a likelihood that U.S. taxpayers living in Hong Kong and other surrounding jurisdictions with relatively low income tax rates, will pay less tax on their worldwide income under the TCJA.
“However, there will be cases where other measures included in the bill, such as the changes to itemized deductions and personal exemptions, outweigh the reduction in tax rates,” says Allan Wilkinson, a director at Buzzacott in Hong Kong.
The long-term effects of the tax reform are unclear, with analysts still combing the fine print. The overall U.S. economy is likely to see little effect from the tax cuts in 2018, according to recent Moody’s Investors Service research. “We take a guarded view of the impact of the fiscal stimulus from tax cuts,” the ratings agency noted in a February 27 update to its Global Macro Outlook 2018-2019.
Welcome upgrade for HK law
AmCham Taxation Committee Vice-Chair Peter Guang Chen was among 10 individuals addressing the Legislative Council Bills Committee on February 13 as it sought input to the Inland Revenue (Amendment) (No.6) Bill 2017.
The proposed legislation is designed to meet the recommendations of the base erosion and profit shifting (BEPS) agenda laid out by the Organisation for Economic Co-operation and Development (OECD) -- which seeks to plug loopholes in the global regulatory framework that enable profits to be artificially shifted to low- or no-tax jurisdictions. The government aims to have the bill pass into law by May.
Chen, a partner in the Zhong Lun Law Firm, said he strongly supported the legislation because it brings Hong Kong into line with global standards. “We think it’s a tremendous step forward,” he told the committee.
Hong Kong could face censure, or even blacklisting, from the OECD and European Union if it doesn’t upgrade its BEPS-related laws. “The challenge is to balance this with the government’s aim of maintaining a simple and predictable low-tax regime,” said Cecilia Lee, transfer-pricing services partner at PwC Hong Kong.
Early Spring clean
The U.S. Treasury on February 13 announced it had proposed repealing 298 unnecessary tax regulations.
The regulations fall into three categories: those interpreting provisions of the tax code that have been repealed; those interpreting provisions that have been significantly revised; and those that are no longer applicable.
“We continue our work to ensure that our tax regulatory system promotes economic growth,” Treasury Secretary Mnuchin said in a statement. “These 298 regulations serve no useful purpose to taxpayers.”
The Federal Register document detailing proposed regulations for repeal is here.