Hong Kong in path of U.S. tax crackdown

A United States law designed to fight tax evasion will have an impact on financial institutions around the world, including Hong Kong, analysts say.

The Foreign Account Tax Compliance Act (Fatca) comes at a time when the US and the European Union are raising the pressure on tax havens like the British Virgin Islands and Switzerland to become more transparent.

"In future, it will be much more difficult for Americans who wish to evade taxes to open financial accounts in Hong Kong," said Patrick Yip, deputy national mergers and acquisitions leader at financial firm Deloitte Touche Tohmatsu.

Candy Chan, Deloitte international tax director, agreed: "The US government will find it much easier to trace Americans who have been hiding their assets," Chan said.

Fatca is described on the website of the US Internal Revenue Service (IRS) as "an important development in US efforts to improve tax compliance involving foreign financial assets and offshore accounts". It will require foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by US taxpayers, or foreign companies in which US taxpayers hold substantial ownership.

The definition of a foreign financial institution was quite broad and was framed to include banks, insurance companies, mutual funds, venture capital firms, fund managers, trust companies, and stock brokerages, Chan said. Fatca became law in 2010 and its final regulations were released in January this year. The law would take effect on January 1 next year, Chan said.

HSBC fully supported the US efforts to promote the proper payment of taxes and was committed to full compliance with Fatca when in comes into force, an HSBC spokesman said.