Financial Crime World

HKSAR and US Agree on FATCA Guidelines

In a significant development, Hong Kong Special Administrative Region (HKSAR) and the United States have reached an agreement on guidelines for implementing the Foreign Account Tax Compliance Act (FATCA).

Key Terms of the Agreement

  • The agreement outlines the terms and conditions under which HKSAR financial institutions will comply with FATCA requirements.
  • The agreement does not specifically solicit U.S. accounts held by individuals who are not residents in the jurisdiction where such related entities or branches are located or accounts held by non-participating financial institutions that are not established in the jurisdiction where such related entities or branches are located.

Definitions and Coordination

  • The agreement provides for coordination of definitions with U.S. Treasury Regulations, allowing HKSAR to use relevant U.S. Treasury Regulations in lieu of corresponding definitions in the agreement.
  • This coordination ensures that both parties use consistent terminology and interpretation of FATCA requirements.

Verification and Enforcement

  • The agreement provides procedures for identifying minor and administrative errors or significant non-compliance with FATCA requirements.
  • The United States Competent Authority will notify the HKSAR Competent Authority when it identifies a reporting financial institution’s non-compliance with FATCA requirements.
  • If the non-compliance is not resolved within 12 months, the United States will treat the reporting financial institution as a non-participating financial institution.

Consultation and Third-Party Providers

  • The agreement allows for consultation between the competent authorities of HKSAR and the United States on notified cases of significant non-compliance.
  • Reporting HKSAR financial institutions are permitted to use third-party service providers to fulfill FATCA requirements, but these responsibilities remain with the reporting financial institutions.

Impact and Expectations

  • The agreement has been hailed as a major step forward in facilitating cooperation between HKSAR and the United States on FATCA implementation.
  • It is expected to promote consistency in the application of FATCA to partner jurisdictions, ensuring that all parties are subject to the same obligations and requirements.

Favorable Terms for HKSAR Financial Institutions

  • Under the agreement, HKSAR financial institutions will be granted more favorable terms under Article 3 or Annex I of this Agreement relating to the application of FATCA.
  • This is contingent upon these financial institutions committing to undertake the same obligations as other partner jurisdictions.