Taiwan banks having second thoughts about FATCA?

The latest FATCA news from Taiwan and mainland China: Taiwan banks are busy worrying about the mainland’s attitude, but Beijing is still not releasing any details besides confirming the fact that FATCA discussions with Washington are underway. On the bright side, the lack of confirmation about the mainland’s final disposition towards FATCA seems to be spooking banks in Taiwan. They certainly seem less confident in their original “bright idea” of solving all their problems by shredding Taiwan’s consumer data privacy laws in order to reduce their costs of complying with FATCA — because they realised they might also face issues in other major markets where they have far less lobbying power to encourage similar “solutions”. Translations below.

FATCA 國銀陸行無所適從
Nation’s banks’ mainland branches at a loss how to respond to FATCA


The Bankers Association [of the Republic of China on Taiwan] submitted a statement to the U.S. government in late April urging that FATCA’s implementation criteria be loosened, but the reactions of governments of various countries to FATCA have been different. Among them, mainland China and Singapore are especially regarded by outsiders as taking a tough stance against it. Not only is this causing big headaches for overseas branches of [Taiwan] banks, but mainland branches of [Taiwan] banks are also at a loss for how to respond.

The full text of the Bankers’ Association’s nine-page English-language statement is available on BSMLegal.com. One notable point therein is #12, “Offshore operations”: a particular problem faced by banks operating in Taiwan, Hong Kong, or mainland China is the parameters of the “local FFI” deemed-compliance exception, which states that an institution with at least 98% “local customers” does not have to perform full-on FATCA reporting, if they fulfill some onerous conditions (including, bizarrely, not advertising U.S. dollar accounts on their websites). The February 8th regulations specifically gave European Union banks very broad latitude for the definition of “local customer”, but the IRS has given no indication that they will allow similarly broad definition of “local” for banks in other places where cross-border movement of ordinary people is an everyday reality. Going on with the article:

FATCA demands that banks target customers — especially those with large amounts of assets — for extremely detailed disclosures of personal information, even requiring updates every three years. Because of this, not only green card-holding dual nationals [sic] may be affected, but the vast majority of bank customers may also be affected.

These large accounts are mostly what banks refer to as the “top of the pyramid”, whose treatment goes well beyond that of ordinary customer service, and who have already undergone careful checks of their personal background. Because of this, the Bankers Association’s letter to the U.S. government this time not only requested that the U.S. government provide guidance on the contents of questionnaires for investigating [U.S. Person status], but also requested them to permit [banks] to continue to report under the existing anti-money laundering rules.

Even though the Bankers Association has released its statement on behalf of the industry, it remains to be seen whether the U.S. will respond to it; furthermore, if other countries take differing measures [in response to FATCA], there are fears it could create chaos in international financial markets. During the transition period, large account holders might “move heaven and earth” and transfer their assets to banks in non-cooperating countries.

One aspect which is deeply linked to Taiwan is the attitude of mainland [Chinese] authorities. If the six Taiwan banks which have branches in the mainland accede to the provisions of FATCA, it may contravene local regulations in the mainland, especially since the mainland at present is taking a tough stance against FATCA. This risk is without a doubt quite large, putting [banks] “between a rock and a hard place”, and causing them a high level of anxiety.

Furthermore, Beijing’s stance towards FATCA remains very hard to read. I’m personally avoiding any wishful thinking on the issue. A few months ago, mainland Chinese media reported that Beijing and Washington were conducting FATCA discussions, but the results of those — if any — haven’t been publicly disclosed. The only recent news from Beijing comes from last week’s Fourth Round of the U.S.–China Strategic and Economic Dialogue, where the topic of FATCA briefly came up. China’s Ministry of Foreign Affairs released a statement on the dialogue on Friday. The full statement is available online in its original language; you can also see the Google Translated version. It included the following brief point about FATCA, couched in the usual diplomatic vagueness:

4. Promoting financial market stability and reform

The two sides will conduct exchanges regarding the “Foreign Account Tax Compliance Act” (FATCA) and its implementation regulations, so as to provide an opportunity to discuss China’s concerns. The two sides pledge to look for cooperative solutions regarding FATCA implementation issues.

Let’s hope the “cooperative solution” involves China drawing a line in the sand and showing Congress that there are limits to the ways in which it can harass other countries’ residents.


2 thoughts on “Taiwan banks having second thoughts about FATCA?

  1. Everyone is engaged in discussions. I think the key dividing line is whether you are willing to sign off on the joint statement as it exists. Only the Netherlands has been willing to do that as of yet. From what I heard from someone in the Canadian budget lockup back in late March Flaherty was still very much standing firm. I do think the US very much needs another group of countries to sign on soon and the US needs Canada in that group.

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