Saturday, September 07, 2013

Hong Kong Monetary Authority Advises on FATCA Compliance

With the issue of tax evasion assuming increasing prominence within the international community and various countries having introduced or contemplating changes to their tax regimes, the Hong Kong Monetary Authority advised financial institutions to ensure compliance with FATCA and other applicable overseas  regulatory requirements by critically assessing the implications of such changes for their customers and operations, taking into account their scale and nature of business and geographical areas of operation. As a case in point, the HKMA specifically mentioned FATCA, which requires foreign financial institutions to report to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To properly comply with these reporting requirements, noted the Authority, foreign financial institutions will have to enter into a special agreement with the IRS. Non-participating foreign financial institutions may be subject to withholding taxes on relevant payments received by the firms.

In a letter to CEOs of financial institutions authorized to operate in Hong Kong, the HKMA advised that, if the financial firms conclude that any overseas tax regime changes may have implications for their customers and operations, they should put in place process and controls to ensure compliance and develop good practices through industry collaboration if appropriate. In the case of  FATCA, the financial firms should ensure compliance by implementing necessary process and controls, which among other things may include legal, compliance and operational implications, including customer communication, of the foreign financial institution agreements with the IRS, and resources implications, for FATCA implementation.

The agreements require foreign financial institutions to perform additional due diligence and provide information about customers who are U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest. During this process, advised the HKMA, financial firms may obtain further information from their customers to identify those accounts maintained by U.S. persons. Whenever there is a need, advised the Authority, foreign financial firms should inform customers and obtain their specific consent before reporting the requested information to the IRS. At all times, they should ensure that they comply with all provisions of the Hong Kong Personal Data (Privacy) Ordinance and adequate preparation should be made to respond to customer enquiries, taking into account the Ordinance.